Wage • Oxford dictionary defines “ wage” as

payment to a person for service rendered. The amount is paid periodically , especially by the day or week or month, the time during which the worker or servant is at the employers disposal.

• “Wages and Salaries” are two words now used interchangeably to mean the same things, the difference being only in the context.

• Normally “salary” is used for compensating “white collar” employees while the term “ wage” is used to denote the payment made to “blue collar” workers.

Components of Salary/Wage• A salary/wage is a cash payment made to an

employee for the defined/implied work to be carried out by him as per the terms of his employment. These wages include the following :

The basic pay Dearness allowance and other allowances Value ( rent) of house accommodation or free

supply of coal or light , water and medical benefits .

Travel concession benefits (LTC). Payment of cash or commission on sale Concessions etc.

• Wage structure : In the Indian context, a wage/ salary

structure may be divided into 3 components:

Basic wageDearness allowanceAllowances and Fringe benefits

Basic wage : A basic wage is the respective grade/ scale of the wage structure.

Wage and Salary Administration

•The main objective of wage and salary administration is to establish and maintain an equitable wage and salary system.•This is so because ???????? only a properly developed compensation system enables an employer to attract , retain and motivate people of required caliber in organisation. The organisational objectives are :

Organisational objectives:• The compensation system should be duly aligned

with organisation need and should also be flexible enough to modification in response to change. The objectives should include:

i) Enable an organisation to have the quantity and quality of staff it requites.

ii) Retain the employees in the organisation.\iii) Motivate employees for good performance for

further improvement in performance.iv) Maintain equity and fairness in the compensation

for similar jobs.

• Make the system cost- effective.• Achieve flexibility in the system to

accommodate organisational changes as and when these take place.

Individual objectives:

From the individual employee’s point of view, the compensation should have the following objectives:

• Ensure a fair compensation• Provides compensation according to the

employee’s worth.• Avoids the chances of favoritism from creeping

in when wages rates are assigned.• Enhances employee morale and motivation.

Principles of Wage and Salary Administration • The main principles that govern wage

and salary fixation are three :i) External equityii) Internal equityiii) Individual woth

• External Equity:• This principle acknowledges that factors/

variables external to organisation influence levels of compensation in organisation.

• The principle of external equity ensures that jobs are fairly compensated in comparison to similar jobs in the labour market.

• Internal Equity• The values of various jobs in the organisation

are comparative.• Pay levels of teachers ( lecturer, reader and

Professor) are different as per the perceived or real difference between the value of jobs they perform.

• Ideal compensation system should establish and maintain appropriate differentials based on relative values of jobs.

• The compensation system should ensure that more difficult jobs are paid more.

• Individual worth• According to this principle, an individual

should be paid as per his/ her performance.

• This principle ensures that each individual’s pay is fair in comparison to others doing the same/ similar jobs.

Components of Wage and Salary Administration.

• Based on Belcher’s classification of the compensation management, we have for the purposes of our analysis considered two broad components of wage and salary administration:

Determination of wages and salaryWages/ Salary Structures.

Determination of Wages and Salary

• The wage and salary of employee in the organized sector in India is determined by a variety of factors. These all factors are classified into four categories:

i) Wage enactments( both Central and State Governments)

ii) Prevalent wage ratesiii) Influence of trade unionsiv) Corporate philosophy on wages.

• Lantham has listed the following factors that have a bearing on the formulation of wage / salary levels:

i) Cost of livingii) Productivityiii) Prevailing wage ratesiv) Ability to pay v) Attraction and retention of employees

1 Cost of living : • Workers need to be paid compensation

adequate to maintain an acceptable level of living.

• Increase in cost of living calls for fixation of compensation accordingly.

• In order to offset the increased cost of living , compensation, is, then fixed by increasing dearness allowance based on the cost of living index.

2. Productivity :• Productivity can be expressed as production in relation

to time unit.• As per the principle of payment of performance, if the

productivity of the worker is high, wage rates will be high.• Here it is important to mention that productivity increases

are not due to worker efforts alone. • It may be due to better organisation and management ,

technological development etc.• Though theoretically sound criterion , it is operationally

complicated one.

3. Prevailing wage rate :• In order to attract and retain workers in the

organisation, wage/ salary rates are fixed as per the prevailing rates in the region.

• This is called the “going wage rate” which is the most widely used criterion of wage /salary fixation.

• The prevailing rate is , thus fixed based on the inter-firm wage comparisons.

4. Ability to pay : • Organisations do also fix wages what they

can afford to pay. • Wages beyond one’s affording capacity

cannot enable the organisation to sustain in a competitive environment especially in the long run.

• It is mainly the ability to pay criteria, organisations which earn high profits pay higher wages as compared to those whose profits are low.

• Wage differentials between organisations are due to same reasons, i.e. ability to pay.

4. Attraction and Retention of employees.• wage/salary rates will be fixed at a higher

level if fixed at a higher level if the organisation needs quality people to be employed and retained.

• If the availability of jobs are scare, the wages and salary levels will be low.

Methods of Wage Payment

• Payment by Time• Payment by Results• Balance method

• Payment by time :• It is the age-old and most prevalent

method of wage payment.• In this method the employee is paid on the

basis of time worked such as per day, per week and per month rather than output.

• Advantages??• Earnings are predictable …. Steady…

breeds security.• Disadvantages?• Does not provide any motivation….

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• Payment by Results: • Under this method , the wage/ pay of an

employee is paid on the basis of the number of items an employees produces in the organisation , rather than considering the job done by the employee at a given time.

• This may be through the following two systems:

i) Straight Piece –workii) Differential Piece –work system

• Straight piece work:• Under this method , wage payment is

made to employees at a uniform rate per unit of production.

• In other words, in this system ,employee is paid a flat price ( money ) for each unit or piece completed ,or paid for time allowed to complete the particular task.

• Differential Piece-Work System : • In this method , wage is paid in relation to

output .• The rate of wages per unit of decreases

with increases in production.• But, wage rate per hour still increases, of

course, not in proportion to the increased output.

• Balance method : This method is a combination of time wage and piece wage methods.

• In this method, a workers paid a fixed wage based on the time rate with the provision of piece wage method,