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HRMWage & Salary Administration

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Wage & Salary Administration-Introduction

• As money is the prime need for human beings to meet their basic needs, everyone tries to earn as much money as possible

• A clerk earning less than a driver may have a vague grievance, but when he earns less than another clerk of comparable qualifications and experience he will show his unhappiness more bitterly. This shows that people have the tendency to compare themselves with others who are in a similar profession and/or with similar qualifications

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Wage & Salary Administration-Introduction

• The main objective of wage and salary administration is to have a scientific, rational, and balanced wage & salary structure

• In salary administration, the employer should not feel that the employees are paid more than they deserve and the employees should not feel that they are underpaid. Unless there is a scientific approach /method we cannot solve this conflict

• Here wage and salary administration includes allowances, leave facilities, housing, travel, etc and non-cost rewards such as recognition, privileges and symbols of status

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Wage & Salary Administration-Introduction

• In India the question of wages assumes paramount importance because of acute poverty, large scale unemployment and a high population. No fixed norms and means are followed in fixing wages and salaries, so a lot of ad-hocism and expediencies are found in fixing wages. The compensation has to be viewed from economic, psychological, legal and growth points of view

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Meaning of Wage and Salary Administration

Wage and Salary Administration is the group of activities involved in the development,

implementation and maintenance of a pay system

It can also be called the ongoing process of managing a wage and salary structure

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Difference between Wage, Salary and Compensation

• Wage: Paid to blue-collar workers-paid daily, weekly or monthly-paid for the jobs which can , to some extent, be measured in terms of money’s worth

• Salary: Paid to white collar workers-paid monthly-paid to employees whose contribution cannot be easily measured

• Compensation: a comparative term- includes wage and all other allowances and benefits like allowances, leave facilities, housing, travel and non-cost such as recognition, privileges and symbols of status

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Factors influencing Wages and Salary

• Wage policy of the company- The company may have a policy to fix the wages externally competitive and internally compatible, i.e. they pay according to the competition and maintain equity among various employees in the company. Sometimes the company may have a wage policy that it should be above the industry average or below it or comparable to it

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Factors influencing Wages and Salary

• Prevailing wages in the region• Financial position of the company• Trade Unions’ pressure on the

Management• Government policy on wages and salaries• Relative worth of job done• Demand and supply of labour• Economic conditions of the nation

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Time-Rate and Piece-Rate Wages

• Employees prefer time-rate while employers prefer piece-rate

• Both have their own merits. In time-rate, quality can be maintained, but the expected level of production may not be delivered by the employees. In piece-rate, the quality may be compromised but the workers may get extra income that will motivate them

• If an employee’s production exceeds the standard production, he should be given incentives for the extra production

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Time-Rate and Piece-Rate Wages

• When production is not amenable to measure the time taken to complete the job can be considered to fix the wage on time-rate basis. E.g. A person who takes only 60% of the standard time to complete a job can be paid incentive for the 40% time saved, since he spends that 40% time for doing another job

• Whether piece-rate or time-rate, the management should provide all facilities and keep the working conditions conducive for better production, otherwise the system will be a failure

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Time-Rate and Piece-Rate Wages• Taylor’s Differential Piece-wage system

If the actual output exceeds or equals the standard output then the employee will be paid higher rate (as incentive). If the actual output is less than the standard output, then the employee will be paid lower rate (as disincentive)

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Taylor’s Differential Piece-wage system

e.g. Std output for an employee- 10 units

Higher wage rate - Rs 3per unit

Lower wage rate - Rs 2.5per unit

When an employee’s actual output is 10 units, his wage will be 10*Rs3=Rs 30. When it is only 8 units, the wage will be 8*Rs2.5=Rs 20.

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Halsey Premium Plan

• A bonus is paid for the time saved apart from a minimum base rate for each unit produced

Standard time- 20 hrsHourly rate per unit- Re 1(base rate)Incentive per hour- Re 0.5In case the worker has taken only 14 hours, then his wage

will be 14*1+6*0.5=17 RsTotally Rs 17 will be paid. Hence 6 hours savings gets

incentive of 50% of base rateIn case he takes more than the standard hours, then there

is no bonus, only the base rate will be paid.

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Minimum Wages, Living Wages and Fair Wages

• Minimum wages- It must provide not only for the bare sustenance of life but for the preservation of the efficiency of the workers by providing some measures of education, medical care, etc.Criteria: It must be calculated for a family of 4 units (numbers)It must be able to provide 2700 calories per adult per dayIt should be sufficient for 18 yards of cloth per unit per annumThere should be a provision for reasonable house rent, light, fuel and miscellaneous items

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Minimum Wages, Living Wages and Fair Wages

• Living wages- It is not only for the bare essentials for the worker and his family, but also for comfort, protection against ill-health, decency, social needs and insurance for old age

• Fair wages- It is in-between minimum wages and living wages, but below the living wage

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Legal framework on wages

• The Government has enacted various laws to regulate and govern the wages.They are:

1. The payment of Wages Act 19362. The payment of Bonus Act 19653. The Equal Remuneration Act4. The Minimum Wages Act5. The Companies Act 1956

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Dearness Allowance

• The main objective of DA as a component of wage is to neutralize the increase in price. In certain cases the DA is more than the basic pay or double the basic pay. The DA is computed according to changes in consumer price index and sometimes the DA is linked to pay slabs also, i.e., as the basic pay goes up, the rate of DA will come down

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Arguments against DA1. It has nothing to do with the amount of work

performed, i.e., DA is increased without proportionate increase in production

2. Price rise leads to increase in DA, and DA increase in turn, leads to price increase. Ultimately it leads to spiralling inflation

3. Most of the industrially developed countries don’t have the DA system. They have the Gross Wage System. Price rise is taken care of by increasing the gross wage. So psychologically the employees feel that the wage has been increased, so the production also should be increased. But in Indian conditions, the employees feel that the DA increase is only to neutralize the price rise. So, they don’t increase the productivity and demand for more and more wages. People are trying to get more wage through DA increase rather than Basic wages increase in order to avoid increase in production

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Development of a Pay SystemReview Job description

Conduct Job evaluation

Gather Wage Survey information

Pay Structure

Administer individualPay adjustments

Monitor and UpdateThe Pay System

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Development of a Pay System• Before developing a pay system the organization must

develop policies as general guidelines to govern the pay system. Uniform policies are needed for co-ordination, consistency and fairness in compensating employees

• Job Analysis is used in developing a pay system through the activities of job evaluation and wage/salary surveys

• Job Evaluation is to ensure internal equity whereas wage survey is to ensure that the pay is externally competitive

• Using the Job Evaluation details, the pay structure (Grades) and minimum and maximum wage ranges are determined. Then individual jobs must be placed in the appropriate pay grades and employees’ pay adjusted based on length of service and performance. Finally the pay system must be monitored and updated as needed

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ConclusionAny Pay System should create a feeling of equity in the minds of the employees. Otherwise it will demoralize and demotivate the employees. But in Indian conditions it is very difficult to practice. For e.g. we can see wage disparity among employees of Indian banks. In certain cases, the disparity can be justified and in certain cases it cannot be justified. Another feature of Indian Pay System is that the Govt subsidies to PSU’s and SSI’s, Compulsory bonus, etc. make the salary and wage system unscientific. The present trends in the wage pattern are that the gap between the officers’ pay and workers’ pay is narrowing down, and the difference between organized sector and unorganized sector, women and men, casual and regular workers’ pay is on the rise. The public policy is to reduce the disparity, but it cannot be done overnight. The modern trend in wage in organized sectors is linking it with productivity. Nowadays the productivity-linked bonus and incentives are quite common in the companies including public sector undertakings