WAGE AND SALARY ADMINISTRATION

Components of Pay Structure in India

1. Wages

Payment of Wages Act, 1936 Section 2 (vi) – “any reward of settlement and production bonus, if paid, constitutes wages.”

Minimum Wages Act, 1948, “retrenchment compensation, payment in lieu of notice and gratuity payable on discharge constitute wages.”

Wages- The amount paid by the employer for the services of hourly, daily, weekly, fortnightly to employees

WAGES Cont’d

Remuneration of following kind do not constitute wages under any of the acts:

(i) Bonus or other payments under a profit-sharing scheme which do not form a part of contract of employment of a workman.

(ii) Value of any house accommodation, supply of light, water, medical attendance, travelling allowance, or payment in lieu thereof or any other concession.

WAGES Cont’d

III. Any sum paid to defray special expenses entailed by the nature of the employment of a workman

IV. Any contribution to pension, provident fund, or a scheme of social security and social insurance benefits

V. Any other amenity or service excluded from the computation of wages by general or special order of an appropriate governmental authority

Components of Pay Structure in India Cont’d

2. Basic Wage

Recommended by the Fair Wages Committee (1948) and the 15th Indian labour Conference (1957)

Awards by wage tribunals, wage boards, pay commission report and job evaluations serve as guiding principles in determining „basic wage.‟

Components of Pay Structure in India Cont’d

Basic wage is decided on the basis of following criteria:

(i) Skill needs of the job;

(ii) Experience needed;

(iii) Difficulty of work: mental as well as physical;

(iv) Training needed;

(v) Responsibilities involved;

(vi) Hazardous nature of job.

Components of Pay Structure in India Cont’d

3. Dearness Allowance (DA)

Allowances paid to employees in order to enable them to face the increasing dearness of essential commodities.

Serves as cushion, a sort of insurance against increase in price levels of commodities

In India DA is linked to three factors:

(i) All India consumer price index (AICPI)

(ii) Time factor

(iii) Point factor

WAGE AND SALARY ADMINISTRATION

The term ‘compensation administration’ or ‘wage and salary administration’ denotes the process of managing a company’s compensation program.

The goals of compensation administration are to design a cost-effective pay structure that will attract, motivate and retain competent employees.

WAGE AND SALARY ADMINISTRATION Cont’d

Objectives A sound plan of compensation administration seeks to achieve the following objectives:

To establish a fair and equitable remuneration offering similar pay for similar work

To attract qualified and competent personnel

WAGE AND SALARY ADMINISTRATION Cont’d

Objectives

To retain the present employees by keeping wage levels in tune with competing units

To control labour and administrative costs in line with the ability of the organization to pay

To improve motivation and morale of employees and to improve union-management relations

To project a good image of the company and to comply with legal needs relating to wages and salaries

WAGE AND SALARY ADMINISTRATION Cont’d

Principles

1. Should be sufficiently flexible

2. Job evaluation must be done scientifically

3. It must be always consistent with overall organizational plans and programs

WAGE AND SALARY ADMINISTRATION Cont’d

Principles

4. It should be in conformity with the social and economic objectives of the country like attainment of equality in income distribution and controlling inflationary trend

5. It should be responsive to the changing local and national conditions

6. These plans should simplify and expedite other administrative process

WAGE AND SALARY ADMINISTRATION Cont’d

Elements Wage and salary systems should have a relationship with the performance, satisfaction and attainment of goals of individual. Wage and salary system has following elements (Henderson):

1. Identifying the available salary opportunities, their costs, estimating the worth of its members, of their opportunities and communicating them to employees.

2. Relating salary to needs and goals

3. Developing quality, quantity and time standards related to work and goals

4. Determining the effort necessary to achieve standards

5. Measuring the actual performance

WAGE AND SALARY ADMINISTRATION Cont’d

Elements:

6. Comparing the performance with the salary received

7. Measuring the job satisfaction of the employees

8. Evaluating the unsatisfied wants and unrealized goals aspirations of the employees

9. Finding out the dissatisfaction arising from unfulfilled needs and unattained goals

10. Adjusting the salary levels to help employees reach unleashed goals and fulfill the unfulfilled needs and aspirations

WAGE DIFFERENTIALS Differentials in wages are inevitable in any

industry. Wage differentials perform important economic functions like labour productivity, attracting the people to different jobs.

Since workers are mobile with a view to maximizing their earnings, wage differentials reflect the variations in productivity, efficiency of management, maximum utilisation of human force

WAGE DIFFERENTIALS Cont’d

Importance:

Attracting efficient workers

Maximisation of employee commitment

Development of skills and knowledge

Utilisation of human resources

Maximisation of productivity through wage differentials by directly allocating manpower among different units, occupations and regions in order to maximise overall production

WAGE DIFFERENTIALS Cont’d

Importance:

Provide an incentive for better allocation of human force – labour mobility among different regions

Plays a pivotal role in a planned economy in the regulation of of wages and development of national wage policy by allocating the skilled human force on priority basis

Reasons for Wage Differentials Wage

Differentials Reasons

Interpersonal differentials

Differentials in sex, skills, age, knowledge, experience

Inter -occupational differentials

Varying requirements of skill, knowledge, demand – supply situation

Inter – area differentials

Cost of living, ability of employers to pay, demand and supply situation, extent of unionisation

Inter – firm differentials

Ability of employer to pay, employee‟s bargaining power, degree of unionisation, skill needs, etc