Wage and Salary Administration

Understanding the concept of Wage and Salary:

Salary- Pay, income, earnings, money, remuneration (monthly basis)
Wage- Take-home pay, net pay (hourly/daily/weekly basis)

Pay & Benefits

• Constitute an important element in HRM.
• Few considerations affecting Policies & Programmes concerning Pay & Benefits are: Theoretical, Public Policy and Legal Framework, Company objectives, Labour market situation, Pressures from Unions and Competition, etc.
• Systematic approach to finalising the Pay & Benefits is Job Evaluation and Pay Surveys.
• Certain part of the components of the Pay structure bear no relation to performance. Therefore organisations are finding the need to develop various incentive schemes and payment-by-results systems.

Factors affecting wage and Salary administration:

• Theoretical Considerations
• Public Policy and Legal Framework
• Company Objectives
• Labour market situation
• Pressures from Unions
• Competition

Theoretical Considerations

• Many economists have formulated theories which assert the following:
• The natural price for labour is the subsistence-level wage. Higher wages will, over the time, increase labour supply and bring down wage levels. The reverse also could happen. For, If wages fall below subsistence level, people will die of disease and malnutrition which will lead to diminition in the supply of labour (David Ricardo’s “Subsistence Theory of Wages”)
• There is a pre determined fund (surplus income) which decides the wages. It pays to increase the fund through collective efforts than to ask for a higher share in the existing fund through legislation or otherwise (Adam Smith’s “Wage Fund Theory”)
• That workers will never receive full compensation and that wages constitute an inadequate payment for the surplus value created by the workers for employer (Karl Marx “ Surplus Theory of Wages”).
• Not the theories of Wages: State has to manipulate the allocation of income to wage-earners to restore full employment (J M Keynes General Theory of Employment, Interest and Money).
• Cheap Labour would be a basis for comparative cost advantage in international trade (Comparative Costs Theory)

Other Theories:
Frederic Herzerg’s Two-Factor-Theory of Motivation.
It suggests that rewards affect work behaviour in substantially different ways depending upon whether they are intrinsic rewards (motivators/satisfiers) or extrinsic rewards (hygiene factors/dis-satisfiers)

The Process Theories seek to explain how the individual work behaviour is started, energized, directed, sustained and stopped.

The motivating power of rewards does not reside in the rewards themselves, but in a process which meets the perceptions and expectations of the employees as well as the needs of the Organization. An employee will perform at a given level if he believes that a series of conditions exist and organization would do well to ensure that these conditions are met.

Public Policy and Legal Framework

• Today most modern societies are moving towards becoming a Welfare State.
• Today State actively intervenes, directs and sets conditions which govern, among other things, the wage and salary administration policies.
• The Constitution, Employers, Unions, Legislatures and Courts actively influence Public Policy.

Public Policy concerning Wages/Salaries

• Industrial Truce Resolution (1947)
• Industrial Policy Resolution (1948)
• The Constitution
• Planning Documents
• Ministerial Speeches