COMPENSATIO

N
Wage and Salary Administration
in an organization
Main objective is to have a scientific, rational and balanced
wage & salary structure
In salary administration, the employer should not feel
employees are getting more money than they deserve and
employees should not feel they getting lower money than
they deserve
Wage and salary administration includes allowances, leave
facilities, housing, travel, etc. and non-cost rewards such as
recognition, privileges and symbols of status
 Objectiv
es
❑ To establish fair and equal
compensation
❑ To attract competent personnel
❑ To retain the present employees
❑ To improve Productivity
❑ To control labor and administrative
cost
❑ To improve motivation and morale of
employees
Principles of wage and
salary administration
It must be flexible
Job evaluation must be scientific
It must consistent with overall plan of the
organization
It must be according to the social and economic
objective
of the organization
It must change according to the local and
national conditions
Types of compensation and
wages
Base compensation : Payment made to
employees in the form of wage and salaries, It
is a fixed and non- incentive payment based
on the basis of time spent in the job
Supplementary compensation : Payment made
to employees as Fringe benefits such as
housing, medical and paid leave
Incentive Compensation : Payment based
on the actual performance of employee to
motivate the employees
FOUR COMPONENTS OF COMPENSATION
1. Base compensation – Fixed pay in the form of salary or
as wage
2. Allowances - Dearness Allowance (DA), House rent
Allowance (HRA), City Compensatory Allowance(CCA),
Conveyance/Transport Allowance
3. Incentives – Bonus, Commission, Profit-sharing
4. Fringe Benefits/Perquisites – PF, Pension, Gratuity, LTC,
Accommodation, Holiday Homes etc.
Difference between wage,
salary and compensation
Wage : Paid to blue-collar workers- paid daily,
weekly or monthly- paid for the jobs which can
be measured in
terms of money’s worth to some extent
Salary : Paid to white collar workers-paid
monthly- paid to employees whose contribution
cannot be easily measured
Compensation : a comparative term- includes
wage and all other allowances and benefits like
allowances, leave facilities, housing, travel and
non-cost such as recognition, privileges and
symbol of status
 Factors influencing wage
and salary
Wage policy of the company
Job needs
Ability to pay
Cost of living
Prevailing wage rates
Unions
State regulations
Demand and supply of labour
Economic conditions of the nation
Methods of wage
payment
1. Time wage system : The workers is paid based on
the time spent on the work irrespective of the
work done. It may be based on hour, day, week
or month worked. It is the oldest method of
wage payment
It is issued in following kind of orgns
Quality is more important than quantity
Measurement of work is not easy
Work requires high degree of skill and dexterity
When efficiency of work can be measured only by
close supervision
Merits
It is simple to understand and easy to operate
Workers are assured of guaranteed minimum
wage irrespective of output
Suitable for beginners
It is advocate by trade unions
Demerits
It do not make any differentiation between
efficient and
inefficient workers
It does not have provision for offering
incentives to efficient workers
Management should spend more on supervision
The system is unfair as wage and productivity are
not
correlated
2. Guaranteed time rates : The wage is paid
according to the time rate and its adjusted
according to the cost of living.
3. Piece rate system : The workers are paid at
a stipulated rate for per unit of output.
Payment is based on speed,
Quality of work is not important
Work is of a repetitive nature
There is sufficient demand for output to
guarantee continuous work
Merits
It provides encouragement for high productivity
The workers will adopt better and more efficient methods
Idle time will be reduced to minimum
The cost of supervision is less

Types of piece rate system

a) Straight piece rate system : Paid according to fixed amount per fixed
units produced irrespective of time taken
b) Piece rate with guaranteed time rate: Workers are paid minimum
on the basis of time rate plus paid for number of units produced
c) Differential piece rate system : The rate per piece is increased as
the output level gets increased. The increase in rates may be
proportionate to the increases in output
Legal frame work on
wages
The Payment of Wages Act 1936
The Minimum wages Act 1948
The Companies Act 2013
The Payment of Bonus Act 1965
The Equal remuneration Act 1976
The Industrial Disputes Act, 1947
Pay Structure In India
❖ Basic Wage: It is a price for services rendered

❖ Minimum Wage: Wage sufficient enough to cover the

physical needs of a worker

❖ Fair Wage: It is more than the minimum wage

providing for the necessities of life.

❖ Living Wage: Given for certain amenities considered

necessary for the well-being of the worker