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WAGES AND SALARY ADMINISTRATION

Wages is the reward for the 2nd factor of productionnamely labour. One of the most important factors in

human resource management is compensation

management. For a days wage what is paid as wage or

salary proves the soundness of compensation. Wages /

salary constitutes a major share of ones income. Wages

is certainly a motivating factor in the society. Wages

provides more than a means of satisfying the physical

needs, It provides recognition, a sense of

accomplishment and determines social status. It istherefore imperative to formulate and administrator a

sound remuneration policy to attract and retain right

personnel in right position in any organization.

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Development and administration of sound wage and

salary policies are not only important but also complex

managerial function. The complexities stem from the fact

that on the one hand a majority of union managementproblems and disputes relate to the question of wage

payment and on the other, remuneration is often one of

the largest components of cost of production. Thus it

influences the survival and growth of an organization tothe greatest extent.

The influence of remuneration over distribution of

income, consumption, savings employment and prices is

also significant. This aspect assumes all the greater

importance in an undeveloped economy like India where itbecomes necessary to take measures for a progressive

reduction of the concentration of income or to combat

inflationary trends. Thus the wage policy of an

organization should not become an evil to the economy.

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Earnings :

Earnings are the total amount of remuneration

received by an employee during a given period. Theseinclude salary (pay), dearness allowance, house rent

allowance, C.C.A. allowance, and other allowances, O.T.

payment etc.

Normal wage:It is the wage paid or received in monetary terms.

It is also known as money wage.

Take home salary:

It is the amount of salary left to the employee after

making authorized deduction like contributions to thePF, ESI, LIC, Income tax, fine, local tax, recovery of

loan, recovery towards cooperative stores or credit

society etc.

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A very popular definition of minimum wages is

that it is one which could meet the normal needs ofthe average employee regarded as a human being

living in a civilized society. A minimum wage may

thus be defined as one which may be sufficient to

enable a worker to live in a reasonable comforthaving regard to all obligations to which an

average worker would ordinarily be subject. The

principle of minimum wages has now been widely

recognized and accepted in almost all theindustrially developed countries of the world.

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Statutory minimum wage:

It is the amount of wages determined according to the

procedure prescribed by the relevant provisions of the Minimum

wages Act 1948. The question of state regulation of wages by fixing

minimum wages in this country was examined by the RoyalCommission on Labour 1931 who observed that in order to conform

to both the letter and the spirit of the Minimum wages convention of

1921 of the ILO it would first be necessary to create machinery for

fixing minimum rates of wages in those trades in which wages arethe lowest and where there is no question of collective bargaining.

The question of minimum wages was examined again by various

Labour Enquiry Committees in Some states These committees

were in favor of fixing minimum wages but owing to a very low level

of wages prevailing in the country, recommended the fixation of

minimum wages at a comparatively low figure. During the II World

War real wage level of the working class declined further despite the

grant of some dearness allowance on account of great and study

rise in the cost of living. Consequently there was pressing demand

for the guarantee of a minimum living wage for the workers during

that period.

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Objectives of wages and salary administration

i. To establish a fair and equitable remuneration. There

should be internal and external equity in remuneration paidto employees. Internal equity means similar pay for similar

work. In other words, wage differentials between jobs

should be in proportion to the difference in the worth of

jobs. External equity implies pay for a job which should be

equal pay for similar jobs in other organizations. Paymentsbased on jobs requirements, employee performance, and

industry levels to minimize favoritism and inequalities in

pay.

ii. To attract competent personnel: A sound wage andsalary administration helps to attract qualified and hard

working people by ensuring an adequate payment for all

jobs.

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iii. To retain the present employees: by paying at

competitive levels, the company can retain its personnel.It can minimize the incidence of quitting and increase

employees loyalty to the organization.

iv. To improve productivity:

Sound wage salary administration helps to improvethe motivation and morale of employees which in turn

leads to higher productivity.

v. To control costs: Through sound wage and salaryadministration labour and administrative costs can be kept

in line with the ability of the company to pay.

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Wage administration:

It facilitates administration and control of pay roll.

The company can systematically plan and control labourcosts.

vi. To establish job sequences and lines of promotion

wherever applicable.

vii. To improve management - union relations.

Wages and salaries based on systematic analysis of

job and prevailing pay levels are more acceptable to the

trade unions. Therefore, sound wage and salaryadministration simplifies collective bargaining and

negotiations over pay. It reduces grievances arising out of

wage inequalities.

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viii. To improve public image of the company

Wage and salary programme also seeks to

project the image of a progressive employer and tocomply with legal requirements relating to wages and

salaries.

ix. To keep labour and administrative costs in line withthe ability of the organization to pay.

x. To pay according to the content and difficulty of

the job and in tune with the effort and merit of the

employee

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Principles of Wage and Salary Administrative :

1. Wage and salary plans and policies should be

sufficiently flexible

2. Job evaluation must be done scientifically3. Wage and salary administrative plans must always

be consistent with overall organizational plans and

programs

4. Wage and salary administrative plans andprogrammes should be inconformity with the social

and economic objectives of the country like

attainment and equality in income distribution and

controlling inflationary trends.

5. Wage and salary administrative plans andprogrammes should be responsible to the changing

local national condition.

6. These plans should simplify and expedite other

administrative process

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ELEMENTS OF WAGE SALARY SYSTEM

Wage and salary system should have relationship with the

performance, satisfaction and attainment of goals of anindividual.

Henderson identified the following elements of wage

and salary system.

1. Identifying the available salary opportunities, theircosts, estimating the worth of its members of these

salary opportunities and communicating them to the

employees.

2. Relating salary to the needs and goals

3. Developing quality and quantity and time standardsrelating to work and goals.

4. Determining the effort necessary to achieve

standards

5. Measuring the actual performance

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Wage differentials:

Wage differential among workers working in the same

unit, among different units, occupations, regions and the like

are common feature of labour markets in various countries.

Inter personal wage differentials are mainly due to variations

in personal characteristics like sex , age skill, knowledge etc

of the employees who work in the same unit and are in the

same or similar occupations. Inter firm or inter unit wagedifferentials reflect relative wage levels of work in different

units in the same or similar occupation. These differentials

are mostly because of varying abilities of the firms to pay

wages. Inter occupational wage differentials are due to

varying requirements of physical skills, endurance,knowledge, etc varying demand and supply conditions and

the like. Inter area differential are mainly due to varying

demand and supply factors, living costs, abilities of

employers to pay and the like.

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Wage Theories

There are a number of theories on wages.

1. The just wages theory:This was advocated during the medieval period. The

essence of this theory is that the worker should be paid to

the level of maintaining himself and his family.

2. Subsistence theory:

According to Ricardo the labourers are paid to

enable them to subsist and perpetuate the race without

increase or diminution.

3. Standard of living theory : Karl Marx pointed out that

the wage of labour is determined by a traditional standardof living, which, in turn, is determined by the mode of

production of country concerned.

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4. The wage fund theory:

According to J.S. Mill, the wages are determined

on the basis of the relationship between the amount offund allocated for the purpose of wage payment and

the number of workers in a country.

i.e. wages =

Amount of fund allocated for wage payment

number of workers

5. Residual claimant Theory :

According to Walker the wages is determined on

the basis of the amount left after the payment of rent to

the land, profit to the entrepreneur and interest oncapital out of the production value.

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The amount of wages = production value (Rent + Profit

+ Interest)

6. Marginal productivity theory:-According to J.B. Clark the wages is determined

on the basis of marginal contributions of the workers to

the productions. The employer stops employing further

workers where the contributions of the most recently

employed worker are equal to his wages.

7. The bargaining theory of wages:- According to this

Theory the wages and other terms of employment are

determined on the basis of the relative bargainingstrength of the two parties namely the employer and the

employees. Webbs stated that the higgling of the market

which under a system of free competition and individual

bargaining determines the conditions of employment

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8. Contribution of behavioral scientists to the

wage theories - According to behavioral

scientists, wages is determined on the basisof several factors like to size, nature, prestige

of the organization, financial soundness of the

organization strength of the union, social

norms, Traditions, Customs, Prestige of some

jobs in terms of authority responsibilities and

status, level of job satisfaction, morale, desired

lines of employee, behavior and level ofperformance.

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MAINTAINING AND RETAINING HUMAN RESOURCES

Job changes

TransfersPromotions - Separations

To have mobility and flexibility in the workforce in order to

cope with the changing needs and requirements of an

organization we have changes.

Employees move from one job to another by transfers,

promotions and demotions. This is called internal mobility.

Another movement is external mobility like resignation,retirement, termination discharge, superannuation

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Why all these things take place

1. When there is a re designing of the job or job re

grouping.2. Changes in technology requiring rise in job demands

3. Changes in the jurisdiction of some departments

necessitating re location of employees

4. Due to expansion diversification, recession etc there

will be fluctuation in the volume of work.

5. Introduction of new products and processes

6. Changes in the knowledge, skills, aptitudes and

values of employees.

7. Changing demands of trade unions.8. Problems relating to maintenance of inter personal

relationship.

9. Changing Government role or policy

10. Social and cultural changes.

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Purposes of job change

1. To improve organizational effectiveness

2. To maximize the efficiency of the

employees.

3. To cope with changes in organization4. To ensure discipline

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Philosophy or concept of transfer

Transfer is change of place of work of an

employee from one job to another in the sameorganization without involving any change in

duties, responsibilities, skills needed or

compensation.

Transfers may be from the management oremployees side. It may be temporary or

permanent. Temporary transfers are due to ill

health, absenteeism etc.

Whereas permanent transfers are due tochange in the work load, retirement, resignation,

discharge, termination or death.

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Need and purposes of transfers

1. To satisfy the needs of the employee

2. To meet organizational needs - change inproduction schedule or technology

3. To utilize the workers in a better manner.

4. To make the employee more versatile

5. To adjust the work force6. To provide relief to those who are over burdened

7. to punish employees

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Types of Transfers :

1. Production transfer

To increase productionwhen it has gone down, experienced workers are

transferred to those places.

2. Replacement Transfer replacing new people by

experienced people.

3. To make the worker - a Jack of all trades

4. Remedial transfer when a wrong man is posted to

a right place. This is set right.

5. Shift transfer due to personal reasons

Marriage, child birth, aged parents care etc.

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TransferPolicy :-

There should be a just and impartial policy on transfer

to be followed by any organization. Which will helpavoiding an adhoc and arbitrary approaches to transfer.

As transfers involve some description and cost, every

transfer should be made with justifiable reasons based

on a general policy.

Following are some of the requirements of a soundtransfer policy:

The policy should clearly specify the type of transfer and

the circumstances under which such transfer will be

effected.There should be a basis for transfer. Supposing 2

persons want a transfer to the same job, some causes

such as seniority or merit or other factors may be

considered

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The authority who can transfer shall be specifiedIt should be spelt out whether transfer can be within

or between department.

It should specify the effect of transfer

Always it should be in writing, explained &

communicated to the employee.

Any transfer should be made known to the employee

or it should be in consultation

Reasons should be specified

The facilities like leave, special allowance etc shouldbe prescribed

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Promotions

It is a vertical movement of an

employee in the hierarchy higher post

carrying higher status, responsibilities

salary increase, better working conditions

etc.It may be temporary or permanent,

depending upon the needs of the

organization. If the promotion is without

any increase in the emolument, it iscalled a dry promotion eg: professor

being made the HOD without any

increase in the emolument.

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Promotion vs up gradation

Promotion involves change of jobs with change in

status, authority and salary.Whereas upgradation is simply a movement of an

employee to a higher scale. (This is called Japan

scheme as is being followed in public sector

companies like the transport etc). Here there is changein the status or authority. This is warranted because

the vacancies in the higher post are limited. So

upgradation is given to motivate employees.

Promotion vs transfer :

In transfer which is horizontal there is no changein the pay or authority or status. Whereas in promotion

there is change in the pay, authority, status etc.

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While transfer is horizontal, promotion is vertical.

Promotion is a motivating factor whereas transfer is very

rarely a motivating factor.

Why promotion?1. In due recognition of his performance, commitment

and loyalty

2. To boost the morale & sense of belongingness

3. To develop competitive spirit for acquiringknowledge skill.

4. To retain skilled and talented persons

5. To develop competent internal source of employees

for higher level jobs.

6. To utilize the skill & knowledge of employees more

effectively

7. To attract competent and suitable employees for

the organization.

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Criteria for promotion :

I. Seniority :a. It is easy to measure length of service and thereby

judge the seniority of an employee

b. Every employee will know where he stands

c. no scope for favoritism This will create a sense ofsecurity.

d. it will reduce labour turn over.

e. it is supported by trade unions.

f. Seniors are respected

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Defects

1. Oldest need not be the ablest long service need

not mean talent

2. It de-motivates & de-moralizes young persons

3. Kills ambition and zeal to improve performance,

because everybody will be promoted with out

improvement

4. No incentive for hard work and self development

5. The company fails to attract young and hard

working persons.

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II. Merit

This implies knowledge, skills & performance record

Advantages

1. it motivated competent persons to work hard &

acquire new skills

2. It helps to maintain the efficiency of the organization by

recognizing talent & performance

3. it helps to attract and retain young & promisingemployees in the organization.

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Disadvantages

1. It is very difficult to judge merit as subjective

judgement is involved.

2. Trade union & workers do not trust the

management and as a result industrial relations get

strained.

3. Merit indicates past achievement. It cannot

denote the future potential and past experience of anemployee.

4. If young man is promoted, old men will leave the

organization

5. Old people will feel insecureIII. Seniority cum merit

A sound promotion policy should be based on a

combination of both seniority and merit.

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A proper balance between the two can be created in

several ways.

1. Minimum length of service may be prescribedeg.: 5 yrs of service for consideration for promotion.

Among them merit is used as the criterion

This is being followed in the Banks as well as in the state

government services for promotion to I.A.S

. cadreSecondly : certain weightage can be assigned to seniority

and merit Say 40% for seniority and 60 % for merit or

45% seniority and 55 % for merit

Thirdly there should be a minimum performance record

and qualification(This is like our internal assessment)

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Promotion policy :

With a sound and recognized promotion policy there will

be no frustration or restlessness among employees.

Main features of a good promotion policy :The rationale of internal promotion and external

recruitment should be the same in all the department.

(Government service)

i.e. there should be equal opportunities in all thedepartments

Thre shall be a chart for promotion and every chart is a

path of advancement or a route of promotion called

opportunity chart or fortune sheets.

The basis of promotion shall be specified clearly. Thereshall be due weightage , to seniority , merit and future

potential of an employee. For every one of them, there

shall be clear cut norms & criteria. The assessment

system should be objective.

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The decision to promote a person should vest with the

appropriate, competent, unbiased authority. The HR

Department shall only suggest the names along withtheir records

There shall be provided a suitable training &

development opportunity for advancement

A detailed record of service & performance shall bemaintained for all employees.

It should be a fair and impartial policy without any

arbitrariness or favoritism

It should be consistent i.e. to be applied to all

uniformly.It should be correlated to career planning. Sudden

spurt of promotion (bunching) and long period of no

promotion (promotional drought) should be avoided.

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A suitable system of follow up, counseling and review

should be established. All promotions should be on a

trial basis and the progress of the promoted employee

should be monitored to ensure that it had a smoothsailing. Moreover counselling and guidance should be

provided to the employees rejected for promotion.

Alternatively up gradation may be thought of

There shall be provision for appeal against

management decision in order to remove bias.

The policy should be in writing & should be

communicated to the employees. Any senior person

when not promoted, shall be informed about it.

The promoted employee should be released from thepresent job immediately

The policy should be flexible. Internal employees shall

be given a fair chance of promotion before higher level

posts are filled from outside.