Unit 1 Wage and Salary

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UNIT- 1

Wage & Salary AdministrationWage & Salary Administration




Introduction

Introduction

Wages:Payment made to labour is wages.

Salary:

Payment made to professionals, administrative, clerical,managerial position.

Wage and Salary Administration:

It refers to establishment and implementation of sound policies of employee compensation. or It is the

process of managing a companies compensation programme.

It is concerned with financial aspects of need, motivation &

reward.




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Wage and Salary Administration:Wage and Salary Administration:

O bjective: To establish and maintain an equitableO bjective: To establish and maintain an equitable

wage and salary structure.wage and salary structure.

To design the lowest cost pay structure that willTo design the lowest cost pay structure that will

attract, motivate and retain competentattract, motivate and retain competent

employees«employees«

And will also be perceived fair by employees._ And will also be perceived fair by employees._




Goals of Wage & Salary Administration

Goals of Wage & Salary Administration

To acquire qualified and competent people.To acquire qualified and competent people.

To retain present employees.To retain present employees.

To secure Internal and External Equity.To secure Internal and External Equity.

To ensure and reward desired behaviour.To ensure and reward desired behaviour. To control labour and administration cost.To control labour and administration cost.

To comply with Legal regulations.To comply with Legal regulations.

To facilitate payroll administration.To facilitate payroll administration.

To simplify collective bargaining process.To simplify collective bargaining process.

These goals are achieved by Job Evaluation..These goals are achieved by Job Evaluation..




Job Evaluation

Job Evaluation

Job Evaluation:

It is the grading and weighing of jobs to determine

the value of one job with other jobs.

It is the ranking of job, not people.

Job evaluation can be defined as ³a systematic

procedure designed to aid in establishing pay

differentials among jobs«´




Objectives of Job Evaluation

Objectives of Job Evaluation

To compare duties and demands of a job withother jobs.

To determine the hierarchy and place of various

jobs in an organization.

To determine the grades of each job. To ensure fair and equitable wages.




Techniques of Job Evaluation:Techniques of Job Evaluation:Techniques of Job Evaluation:Techniques of Job Evaluation:

1.1. Qualitative techniques/ method Qualitative techniques/ method

2.2. Quantitative techniques/ method Quantitative techniques/ method




Techniques of Job Evaluation:Techniques of Job Evaluation:Techniques of Job Evaluation:Techniques of Job Evaluation:

Qualitative methodsQualitative methods Quantitative methodsQuantitative methods

Ranking:Ranking: ClassificationClassification Points RankingPoints Ranking

1. Simple Ranking1. Simple Ranking

2. Ranking key jobs2. Ranking key jobs Factor comparisonFactor comparison

3. Paired comparison3. Paired comparison

4. Single factor ranking4. Single factor ranking




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Simple ranking Method:

It is the simplest comparison of one job with

others based on duties, responsibilities, and

demands made by jobs. In this method jobs arearranged from highest to lowest in order of their

value.

R anking the key jobs:

The evaluator identifies the key jobs or

representative jobs and ranks them first other jobs

are then identified and ranked.




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Paired Comparison Method:One job is evaluated against all other jobs in pair

and paired ranking is obtained.

Single Factor R ating Method:

One single important task or factor is identifiedand compared with other jobs.

Classification/ Grading Method:

- Determine the shape and size of organization.

- Prepare job description and grade description- Establish job description and divide jobs in to grades

- Discuss and negotiate with trade union and finalize

- Select key jobs and grade them




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-Grade the entire jobs

-Classify the jobs

- Assign money value to grades.




Quantitative technique/ methodQuantitative technique/ method: Types: Types

[A] Points R anking method:[A] Points R anking method: Steps: Steps:

Select sample jobs & prepare job description.Select sample jobs & prepare job description.

Select the factors (skill, responsibility, experienceSelect the factors (skill, responsibility, experienceetc.)etc.)

Determine the weight of each factor & assignDetermine the weight of each factor & assign

percentage value to each (total 100). percentage value to each (total 100).

Divide each factor into levels.Divide each factor into levels.

Determine relative value of each level.Determine relative value of each level.

Convert point scores into money value..Convert point scores into money value..




Conti..Conti..

[B] Factor Comparison method[B] Factor Comparison method-- S tepsS teps::

Determine critical factors (responsibility, skills,Determine critical factors (responsibility, skills,

mental & physical effort, working conditionsmental & physical effort, working conditions

etc.).etc.).

Determine key jobs. Eg: Mechanic & Secretary.Determine key jobs. Eg: Mechanic & Secretary.

Allocate current wage for key jobs depending onAllocate current wage for key jobs depending on

importance of factors.importance of factors. ( S ee table: 1)( S ee table: 1)

Place key jobs on factor comparison chart (Table: 2)Place key jobs on factor comparison chart (Table: 2)

and evaluate other jobs.and evaluate other jobs.




TABLE: 1TABLE: 1 mechanic secretary

Responsibility Rs. 8 Rs. 24

Skills Rs. 8 Rs. 20

Mental effort Rs. 5 Rs. 18

Physical effort Rs. 27 Rs. 7

working condition Rs. 19 Rs. 6

Total Rs. 67 Rs. 75

rate Resp. Skills mentaleffort

Physicaleffort

Workingcondition

25 Sect Mech

20 Sect Mech

15 Sect

10

5 Mech Mech Mech Sect Sect

0

Table 2:




Wage and Salary SurveyWage and Salary Survey

Job evaluation ensures Internal Equity.Job evaluation ensures Internal Equity.Q. How to ensure External Equity?Q. How to ensure External Equity?

Ans. Wage and Salary Surveys.Ans. Wage and Salary Surveys.

It gathers the information on pay practices inIt gathers the information on pay practices incomparable industries in same labour market.comparable industries in same labour market.

Sources of data:Sources of data: Employers association, professionalEmployers association, professional

association, employment office, governmentassociation, employment office, governmentagencies, Internet etc..agencies, Internet etc..




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InformationInformation receivedreceived inin WageWage surveysurvey::

EntryEntry--levellevel wagewage raterate

MaximumMaximum--wagewage raterate

AverageAverage wagewage raterate ShiftShift differentialsdifferentials

OvertimeOvertime practices practices

LengthLength of of work work dayday (Hours)(Hours)

LengthLength of of work work week week (Hours)(Hours) etcetc....




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The following survey methods are used to collect

relevant wage related information:

-Formal and Informal Surveys-Key Job matching

-Key class matching

-Occupational Method

-Job Evaluation Method




Methods of Wage FixationMethods of Wage Fixation

1) Time R ate System:

- It is the oldest and most common system of payment.

- It includes payment of a predetermined rate of

normal time of work, the limit may be hour,day,week or month

- Basic wage worries with time not output.

- It is suitable for jobs where output cannot be measured.

- It is adopted for clerical, supervisory and administrative

employees




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Advantages:

It is simple to calculate

It provides a regular and stable income

Employees are not in a hurry to finish the work There is no rough handling of machinery.

It needs less administrative attention.

Disadvantages:

Better performers have no motivation to work hard. There is a possibility of avoidance of work.

Relative efficiency of employees can not be

determined (during promotion)




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2) Piece R ate System:

- Payment is made on the basis of no. of pieces

produced or sold and rate per piece

- It pays according to the ratio of output- It does not ignore the time aspects.

- it is suitable for standardized jobs where output can

be measured, divided and counted.

Advantages: It pays according to efficiency

Employees are motivated to perform better.

Output and wages or salaries are increased.

There is no chance of avoidance of work .




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Disadvantages:

Employees neglect the quality of output.

Excessive speeding causes rough handling of

machinery.

It needs carefull administrative attention.




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3) Balance R ate System:

- It combines time and piece rate. Worker is guaranteed an

hourly or a day rate with an alternative piece rate.

- If piece rate earnings exceeds time rate, he gets credit.

- If piece rate is less than time rate, the balance is carried

forward as debt.




Factors affecting wage payment.Factors affecting wage payment.

1)1) Organisation¶s ability to payOrganisation¶s ability to pay: MNCs pay big: MNCs pay bigsalary and wages.salary and wages.

2)2) Supply & demand of LabourSupply & demand of Labour: At all levels.: At all levels.

3)

3)

Economic stage of countryEconomic stage of country:B

oom/ Recession.:B

oom/ Recession.4)4) Prevailing Wage ratePrevailing Wage rate

5)5) ProductivityProductivity: Output per man: Output per man--hour.hour. *

6)6) Trade Union¶s bargaining power:Trade Union¶s bargaining power:

7)7) Job requirementsJob requirements: More task, more pay.: More task, more pay.

8)8) State R egulationState R egulation

9) Job needs




Apart from jobApart from job--evaluation based pay«evaluation based pay«

1.1. SkillSkill--based pay:based pay:

In this method, the company pays for the Range of jobsIn this method, the company pays for the Range of jobs

the employee can do, rather than for the job title he holds.the employee can do, rather than for the job title he holds.

The employees are rewarded for each new job or skill.The employees are rewarded for each new job or skill.

Increased skills & job expertise gives management greater Increased skills & job expertise gives management greater flexibility..flexibility..




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SkillSkill--based pay (SBP) differs from job evaluation based pay (SBP) differs from job evaluation--based pa based pa

(JBP).(JBP).

In SBP skill is paid, in JBP skill is secondary.In SBP skill is paid, in JBP skill is secondary.

In SBP there is no effect of job change, while in JBP payIn SBP there is no effect of job change, while in JBP paychanges with jobs.changes with jobs.

In SBP it pays for skills, not for seniority.In SBP it pays for skills, not for seniority.

Advancement opportunities are higher in SBPAdvancement opportunities are higher in SBP

because it focuses more on skills. because it focuses more on skills.Most global organizations use skillMost global organizations use skill--based pay. based pay.




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Merit Pay:

Merit pay is a reward based on how well an

employee has done the assigned job.

The payment is dependent on individual employees performance

Rewarding the best performance with the largest pay

is claimed to be a powerful motivator.




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Disadvantages:

There should be a chance of Biasness.

It is difficult to define and measure

performance objectively.

Lack of Co-operation and honesty between

mgmt & employees.

Documents

Unit 1 Wage and Salary