Wage & Salary Administration class 2

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  • 1. MODULE-2

2. Compensation management Compensation is what employees receive in exchange for their contribution to the organisation.Total compensation = Direct + Indirect CompensationBase Pay Incentives Benefits 3. NATURE & SCOPE It is the policy of the Institute to pay fair, equitable andcompetitive wages and salaries in order to attract,retain and motivate competent employees. An effort is made to recognize the relative values of thevarious jobs, to adapt realistic wage and salary rangesand to make comparative studies of area rates andchanging job conditions to assure that the wagestructure is current. 4. Con The primary objective of wage and salary administration program is that each employee should be equitably compensated for the services rendered by him to the enterprise on the basis of,the nature of job. 5. The present worth of the job. The effectiveness with which the individual performsthe job. 6. COMPENSATION Cash payments It also includes promotion or words of praise Difficult to explain every aspect of compensation 7. Sound compensation packageincludes Social balance Supply & demand Fair comparison Equal pay for equal work Work measurement Adequacy of wages 8. Objectives of wage policy Control of cost Establishment of fair & equitable structure ofremuneration. Using wages & salaries as an incentive to greateremployee productivity To maintain a good public image To attracted talented personnel 9. Wage legislationPAYMENT OF WAGES ACT,1936OBJECTIVES:To ensure that wages are paid properly.To avoid all malpractices. Non-payment Short payment Irregular payment Short measurement of piece work Payment in kind 10. con..To cover all employees earning 1,600 P.MTo provide a wage period of one monthLess than 1000 employees before 7th& more than 1000 employees after 10thTo stipulate the dues of the discharged employee & forbids salary deductions unless so authorised by the employee. 11. Con.. The employer can levy a fine only after the due noticeis given to the employee. To protect the workers from being exploited & toensure timely and exact cash payment 12. Minimum wages act,1948 Seeks to avoid exploitation of workers by underpayingthem for their efforts Minimum wages sets the floor for pay levelsto skilled occupationals It is a central legislation It provides the computation of the cost of livingallowances. 13. Con.. The cash value concession for essential commoditiessupplied. It also lays down penalties for violation of the Act Proposed amendment to the minimum wages Act,1948 In order to inflation-linked hikes Two years once The element of the VDA is proposed to be introducedbased upon the CPI 14. COMPENSATION ISSUES WAGE & SALARY LEVELS WAGE & SALARY STRUCTURES INDIVIDUAL WAGE DETERMINATION METHOD OF WAGE PAYMENT COMPANY PHILOSOPHY 15. WAGE & SALARY LEVELS Mainly depends upon 4 factors:-1.Wage enactment of the central & state Govt. sometimesmodified by tribunals & courts,compliance with whichis a statutory requirement.2.Wage rate in the community and in similar industries. 16. Con..3.The influence of the workers union on the wage rates.4.Corporate philosophy on wagesStage 1 Self contained model where external influence ismarginalStage 2 Depicting the interplay of external & internalinfluence 17. Factors of Internal wage level Cost of living allowances (COLA ) Productivity ( increased output of an employee withlower cost )-shift in productivity leads to affect onwages. Prevailing wage rates Ability to pay Attraction & retention of the employees 18. WAGE & SALARY STRUCTURES The jobs are placed in a grade or a rate these jobs arearranged in an hierarchical order with those earninghigher wages on top. The process by which this hierarchy is reached isknown as JE. JE is a systematic method of appraising the value ofeach job in relation to other jobs in the organisation 19. Con.. The stepsinvolved in Determining wage rates are: 1.Performing job analysis 2.Wage surveys. 3.Analysis of relevant organizational problems forming wagestructure 20. Con.. 4.Framing rules of wage administration. 5 .Explaining these to employees, assigning grades to each job and paying the guaranteed wages. 21. Wage Surveys:Once the relative worth of jobs has beendetermined by job evaluation, the actualamounts to be paid must be determined. This is done by making wage or salarysurveys in the area concerned. 22. Con.. While determining pay ranges the following Consideration should be Attended to It is important to keep in mind that there is an adequate differential, between superiors and subordinates whether they are paid under the same pay plan or under different ones. When the pay-range of one group is changed, equal attention must be given to the pay-range of the other. 23. Con.. Because of the continuous rise in wage and salary levels, arise resulting from a variety of environmental pressures,considerable attention must be given to handling upwardchanges in wage-structure. The existing pay structure should be regularly reviewedand revised. This will make job evaluation programmemore acceptable to employees. Regional differences in wages should invariably bemaintained. 24. Con.. Unions do make a difference in wages. Union workers earn between 8.9% and 12.4% morethan non-union workers. The size of the gap varies from year to year. During periods of higher unemployment and sloweconomies, the impact of unions is larger. 25. Con.. During strong economies the union-nonunion gap issmaller. Unions in the public sector make a difference in wagesof 7% to 12% more than their nonunion counterparts. 26. Wage differentials Different kinds of jobs is determined differently eitherin the same or in a different industry. The factors contribute to these differencesare :-Highly skilledSkilledSemi-skilledunskilled 27. Con Experience Qualification Level of employment ( grade ) Two important factors considered while deciding thewages are: The demand & supply of a particular category of skills The performance of the industry or unit(productivity& profitability ) 28. Con.. Arbitration or judicial rulings can sometimes alsoeffect wage differentials. Ex.western region of india has higher wage rates. Inter-industrial differentials. Gender differentials 29. Methods of wage payment PAYMENT BY TIME : Time keeping. Time recording SKILL EVALUATION PAY PLANS : No. of jobs handled by an individual PAYMENT BY RESULTS:Directly relating to employee productivity 30. Piece rate/wage rate method Rate of wage of a worker per unit is called wage rate.This does not include any allowance or bonuses orovertime payment. MINIMUM WAGES : this is the wage fixed by theGovt. which it considers adequate, taking into A/C thecost of living ,all firms and organisations are boundedto follow this direction so that no employee is paid awage less than the minimum wage fixed by theGovt.irrespective of grade,class or nature of work 31. Debt method Combination of piece & time rates The worker is guaranteed an hourly or day rate with analternative piece rate. If piece rate > time rate, worker gets credit for thebalance If Piece rate< Time rate, time rate payment isconsidered & excess payment is carried forwarded asDEBT to be paid by the employee in future 32. Fair wage This is fixed by employer. This level of wage vary from industry to industry. The main criteria is the capacity of payment As per definition fair wage committee fair wage is a wage above the minimum wage but below the living wage 33. Living wage It should enable the earner to provide for himself & his family not only the essentials of food,clothing & shelter,but a measure of comfort including education for his children, protection against ill health, requirement of essential social needs and a measure of insurance against more misfortune including oldage. 34. Nominal wage It is the wage received which is expressed in terms ofmoney received. REAL WAGE : This is the wage or earning which is expressed in terms of goods and services which can be purchased from the money received as wages.nominal wagesRW= ---------------------CPI 35. THEORIES OF WAGES Theory of wages is a branch of study which analysesthe supply & demand conditions of labour.Two dimensions of wage theory:INTERNAL: Capacity to pay Work content & context Wage sufficient to meet basic needs of food, shelter,security, social commitment & like 36. Con..EXTERNAL: Supply & demand in labour market Level of payment prevailing in similar jobs in otherestablishments 37. SUBSISTENCE THEORY Proposed by David Ricardo (1772-1823)the labourers are paid to enable them to subsist &perpetuate the race without increase or diminution The theory Pre-supposesLow wages decrease of labour force due to death,malnutrition,family problems etc.High wages increase their number due to better health,long life, procreations. This theory is despised by many and known as iron lawof wages payment is limited to subsistence level. 38. WAGE FUND THEORYPropounded by Adam Smith (1723-90)Wage level is a function of surplus fund available withthe employer.Higher the fund more is the level of pay.Lower the fund lower is the level of payWhich may touch even the subsistence levelFocus of the theory: the employer and his capacity topay. 39. SURPLUS VALUE THEORYDeveloped by Karl mark (1849-83)Here the labour is a commodity for tradeAnd the wage subsistence price for commodityEmployer account cost of labour put up for producing an item as part of price fixed for it.Basis labour adds value to the product.Only a part what is collected from the customer is paid to the labour. 40. RESIDUAL CLAIMANT THEORYProposed by Francis. A. Walker (1840-97)According to this theory, 4 factors add value to the product, viz., Landthe revenue earned by selling Capital product is distributed among Entrepreneurship these 3 Labour remaining is paid to labour as against his value addition to the product.Hence, labour is considered theresidual claimanant 41. MARGINAL PRODUCTIVITY THEORYDeveloped by Philips henry Wicksteed (UK) and John BatesClark (USA)Wages are determined by the Supply and Demand of labourin the labour market.Basis of wage payment by employer: Assessment of their economical worth Value addition by the marginal labour is more than the cost-continue discontinue hiring & resort to technology or product mixOverall result better returns to the employer & lesser wagesto employees 42. BARGAINING THOERYProposed by John Davidson. Wage levels are determined by the bargaining power ofemployees & their unions V/s employers & theirassociations. Relative strengths of these forces determine all aspectsof wages, viz.,Wage levelWage structureIndividual fixationWage differentials & perks 43. BEHAVIOURAL THEORYProposed by social scientists like Simon, Dubin, Jacques &others.Basis for the theory behavioural aspectsa. Wage level: based on the influence/ power exercised byforces on the mgt. Viz, size, prestige, power of union,contribution by employees.b. Wage structure: influenced by factors such as norms,tradition, customs, good will, social pressure & specialistskillc. Motivation: need satisfier, recognition through meritrating & increment through wages increase motivation. 44. HIERARCHY OF NEEDS Profounded by maslow,s1.Physiological needs2.Safety needs3.Social4.Esteem5.Self actualisation 45. Con.. Maslow separated 5 needs into 2 levels Higher order 1 &2 Lower order 3,4 &5 The higher order needs are satisfied internally Lower order needs are satisfied externally( wages,union contacts,working condition,tenure etc.) 46. Con.. All most all permanently employed workers have theirlower order needs substantially met. But as the time changed ,a renewed emphasis wasrevealed. As people become unemployed & their unemploymentbenefits ceased,their attention turned towrds survival-lower order needs. 47. HERZBERGs MOTIVATION THEORY (two factor theory ) Opposite of satisfaction is not dissatisfaction. Removing dissatisfying characteristics from a job doesnot necessarily make the job satisfying or vice versa. Salary is considered as a hygiene factors. When they are satisfactorily maintained, people willnot be dissatisfied. 48. MOTIVATING FACTOR (intrinsic factor ) The presence of which motivate a person but absence Do not demotivate. Ex.Nature of job, challenges, responsibility,authority recognition, achievement and job satisfaction 49. Hygene factor (Extrinsic factors ) Presence of which will not motivate a person butabsence definitely demotivate him. Ex. Salary ,status ,company policy &administration,supervision,relationship with thesupervisor etc.Adequate InadequateMotivationMotivationNo motivationHygene factor No dissatisfactionDissatisfaction 50. Equity theory (Adams) Eq & fairness practiced by management. Greater the fairness practiced,higher motivation andviceversa. Employee makes comparison of input in the job withthat of outcome and compare the same with that ofanother colleague of eqivalent cadre.Outcome--------------- ratio is used input 51. Tension state Ratio is equal fairness is perceived Ratio is unequal eq.tension (negative tension)Ex.O/IA Lessthan O/IB =under rewarded (eq.tension) O/IA = O/IB = equity O/IA morethan O/IB =over rewarded (eq.tension) 52. Referents There are 4 comparisons an employee can make these are called referents.1.self-inside;an employees experience in a different position inside the present organisation.2.self-outside;an employees experience in a different position outside the present organisation.3.other-inside;other employees in the present organisation.4.Other -outside;other employees experience outside the present organisation. 53. postulates Individuals are not only concerned with their own rewards but equally concerned with others get in comparison. 54. EXPECTANCY THEORY (VICTORVROOMS) THIS THEORY MAINLY DEPENDS ON 3 FACTORS.1.Perception that his efforts will lead to goodperformance. ( expectancy )2.Perception that good performance will lead to goodrewards.( instrumentality )3.Perception that the rewards are worth getting. (valence ) motivation =E X I X V 55. PORTER & LAWLERS MODEL OFMOTIVATION Porte & Lawlers modified & built upon Vroomsexpectancy & Adams equity theories of motivation. They consider the relationship between effort --performance-rewardThe model state the following principles:1. Employees must value the rewards (intrinsic or extrinsic ) offered by the organisation.2. Employees must believe that good performance will belinked to the achievement of the desired rewards.thusemployees should perceive that higher performance willresult in greater rewards. 56. Con..3. Managers must clearly communicate their expectations &objectives,thereby ensuring employees understand whichbehaviours are required.4.To increase expectation that desired performance will berewarded,managers must make sure rewards are clearly &visibly linked to performance.5.Employees must be able to engage in good performance.they must have the ability to carry out the tasks & mustbelieve the...


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