Human Resource Management Unit 10

Unit 10 Wages and Salary

Structure:
10.1 Introduction
Objectives
10.2 Nature and Significance of Wage and Salary Administration
Objectives of wage and salary administration
Principles of wage and salary administration
Concepts of wages
10.3 Theories of Wages
10.4 Methods of Wage Fixation
Factors influencing wage fixation
Requisites of a good page plan
10.5 Summary
10.6 Glossary
10.7 Terminal Questions
10.8 Answers

10.1 Introduction
Everyone likes to be paid for the work they have done. Money still has the
capacity to get turned into items which most people desire. A person works
day and night in order to earn money and fulfil basic needs. These
earnings of people are known as ‘wage’ or ‘salary’. In unit 9 we have
discussed about the appraisal of employees performance done by their
superiors in order to reward them for their good work by offering promotions,
interesting tasks, more incentives, increased wages and salaries etc.
Wages and salary administration is a major responsibility of the
management of an organisation. Wages and salary are systematic ways of
providing monetary benefits to employees in return for their performance
and completion of the work.
Wages form the largest cost factor for the organisations. Although the
employers are inclined to save this cost, yet they have also realised that it
would not be possible for them to attract and maintain an efficient work force
without compensating it adequately. Wages and salary has a direct
influence on recruitment, job performance, job satisfaction and growth of the
organisation.

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Most organisations are trying to design most attractive wage and salary
structure to not only attract the best employees but also to retain them. To
retain employees, there must be a fine balance of work carried out and the
remuneration received. Employees consider wages as a means for
satisfying their needs. They desire to receive at least as much
remunerations as other individuals with similar skills for doing similar work. If
they find that their wages are lower than that earned by people doing similar
jobs in other organisations, then the employees have a tendency to leave
the organisation, seeking better remuneration.
The following case depicts how organisations are trying to keep their
employees by providing increments in salary.

HR managers work on salary hike to calm workers

Globally, economies are facing a down turn. Yet, in India we are seeing
that companies in different sectors are prepared to grant salary hikes of
up to 20percent
HR managers of many companies are carrying out salary surveys to
determine the percentage of increment in salary to be given. Firms want
to reward the employees who have shown loyalty and commitment during
the bad times. The average pay hike across sectors is 7-9percent. This
hike is not only to share the good fortunes that the company makes but
also to hold the employees who would otherwise switch to better paying
opportunities.
After the downfall of Wall Street investment bank Lehman Brothers
Holdings Inc. in September 2008 many Indian companies froze
recruitments and salary hikes. Many of the companies cut the salary of
the employees as a measure to save money as business prospects had
drastically reduced and the growth of the economy was slow. But
recently, food inflation has further burdened the lives of the workers and
this has forced them to think of opportunities that give better pay.
Huawei had planned to add 200 people to its headcount of 1,800 in 2010.
The HR of Huawei found that most candidates decided to change job
only because there were no pay revisions for months. Huawei gave pay
hikes of 8-10 percent in 2009.

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India’s second largest software firm Infosys Technologies Ltd. gave an

average interim hike of 8.5percent in October 2008.Axis Bank Ltd with
22,000 employees also gave more than 4-6 percent hike in 2009.
[Source:http://www.livemint.com/2010/01/17214514/HR-managers-work-
on-salary-hik.html(Retrieved on 24th November, 2011)]

Objectives:
After studying this unit, you should be able to:
 discuss the nature and significance of wages
 explain the theories of wages
 describe the methods of wage fixation

10.2 Nature and Significance of Wages and Salary Administration

Wages denote the payment for work on hourly or daily basis. Salary denotes
the monthly payment made to an employee, despite the number of hours
worked. Wages and salary is not constant to all employees. It differs from
one employee to another on the basis of the nature of work, years of
experience, level of position and also merit. ’Wages’ generally denote the
payment made on an hourly or daily basis to those employees who are
continuously engaged in the task of production. In business language these
employees are also known ‘blue-collar employees’, such as the crane
drivers, labourers, wielders etc.
On the other hand, ’salary’ indicates the monthly payment made to
employees who do clerical, managerial jobs and to those specialised
employees who are also known as the ‘white-collar employees’, such as
salesman, managers, teachers, doctors, etc.
The wages or salary received by the employees in return of their
contribution made to the organisation forms a system known as
remuneration or compensation. Compensation plays a very vital role in the
life of an employee. An employee’s status in the society, standard of living,
motivation, loyalty and productivity is largely influenced by the compensation
received.
Similarly, for the employers also it is a very significant factor due to its
contribution to the cost of production. Besides other conflicts that arise
between the employees and the employers, fights between these two

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groups frequently take place relating to the payment of their wages and
salaries. Thus, it is a very serious and critical issue for the employers as
well.
Administration of employee compensation is called wage and salary
administration.
According to D.S. Beach, “Wage and salary administration is the
establishment and implementation of sound policies and practices of
employee compensation. It includes job evaluation, surveys of wage and
salaries, analysis of relevant organisational problems, development and
maintenance of wage structure, establishing rules for administrating wages,
wage payment incentives, profit sharing, wage changes and adjustments,
supplementary payments, control of compensation costs and other related
expenditure.” Effective wage and salary administration aims at providing
employees with equitable wage and salary structure.
10.2.1 Objectives of Wage and Salary Administration
Wage and salary administration is not an easy process. However, it is
important to have a well-planned wage and salary administration.
The objectives of a comprehensive wage and salary administration plan are:
i. To provide a reasonable and equitable remuneration for all employees.
ii. To attract the best resource available in the labour market.
iii. To comply with the labour laws of the country.
iv. To retain the current employees and minimise employee turnover.
v. To ensure that the expenses for employees and administrative costs
are in balance to the organisation’s capacity to pay.
vi. To ensure that the management meets the agreed demands of the
trade or employee unions.
vii. To ensure that equal pay for equal work is provided.
viii. To eliminate any forms of discrimination based on caste, religion,
gender, age, region etc.
ix. To ensure that employees’ basic needs are met.
x. To create a favourable organisational climate, improve employee job
satisfaction.

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xi. To minimise employee problems such as absenteeism, destruction of

property etc.
We have now seen that a systematic wage and salary administration not
only aims at providing monetary benefits to the employees but also looks
into other important issues related such as eliminating discrimination,
increasing employee satisfaction etc.
10.2.2 Principles of wage and salary administration
Formulating an effective wage and salary structure takes effort and
planning. There has to be consistency in the salary structure. For this,
certain principles have to be applied while preparing the wage and salary
structure.
Important principles of wage and salary administration are:
i. Wage policy should match the needs of all the stakeholders of the
organisation such as employer, employees, consumers and the
society.
ii. Wage and salary plans and policies should be adequately flexible. It
should adapt to changes in the environment.
iii. It should satisfy needs of employees.
iv. It must be based on job analysis and job evaluation.
v. It should comply with the legal regulations of the country.
vi. Wages and salary must be paid promptly.
vii. Wage and salary administration plans should be formulated in such a
way it matches to the plans and programmes of the organisation.
viii. Wage and salary administration plans must be compliant to the
economic and social situations.
ix. It must be structured in such a way that the costs are in balance to the
profits made by the organisation.
x. It must be alert to the changes in the national as well as local
environment.
xi. The wage plans should help in simplifying and accelerating other
administrative processes.
xii. A grievance management system must be in place to address
complaints.

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10.2.3 Concepts of wages

The Fair Wage Committee has provided three concepts of wages in its
report. The three major concepts are minimum wage, fair wage and living
wage. These concepts are based on the employer’s capacity to pay, the
desires and needs of the employees and the existing economic condition of
the country. Let us now discuss the three concepts of wages in detail.
(a) Minimum wage: A minimum wage is the amount paid to the worker to
ensure at least the bare sustenance of life and also to preserve the
efficiency in work. For this purpose, the minimum wage must provide
for some measure of education, medical requirements and amenities.
The Minimum Wages Act, 1948, passed by the government ensures
that all workers are provided with a minimum wage. Most countries
have minimum wage legislations to fix the minimum wage for each
type of occupation in the various industries. The statutory minimum
wage fixation removes the evils of exploitation of labour and tries to
improve standard of living of the workers who get too low wages and
whose living conditions are deplorable. Such legislative action is
essential for workers who are illiterate, ignorant, isolated, unorganised
and hence have a weak bargaining power with the employers.
Minimum wage set up by law, is that amount below which no employer
can take the services of the worker. If any industry tries to pay wages
below the fixed rate of that particular industry, then legal actions may
be taken against them.
(b) Living wage: Living wage is the amount that provides the worker with
a standard of living which also ensures the maintenance of good
health and access to health facilities for the worker and family. It
should also provide for an amount that would help the worker in
safeguarding against any hardships. Its a wage that takes into
consideration the cost of living and varies from one location to another
as the cost of living varies. A literate and intelligent worker will use
living wage for steady rise in his standard of living i.e., healthy living
with a few comforts and provision for emergencies. Hence, it is a boon
to the worker. On the other hand, illiterate, backward and ignorant
workers may waste the remuneration given by living wage on vices
such as alcohol, tobacco, smoking and other useless avenues of
expenditure. Hence, in the context of current social and educational

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background in India, living wage may be a luxury or even a curse and

it may not yield desirable and happy results. Components of living
wage include bare necessaries, insurance cover against ill health,
disability, old age, reasonable expenditure in children’s educations and
some margin for recreation and saving for the future.
(c) Fair wage: According to the Committee on Fair Wages India, “it is the
wage which is above the minimum wage but below the living wage”,
the lower limit of the fair wage is obviously the minimum wage; the
upper limit is set by the “capacity of the industry to pay.” Between
these two limits, the actual wages should depend on factors such as
productivity of labour, prevailing rates of wages in the same or
neighbouring localities, level of the national income and its distribution,
the place of industry in the economy of the country. Fair wage is the
predominant rate available for similar jobs and occupations throughout
the country or in all industries.
Self Assessment Questions
Fill in the blanks
1. A ___________ is the amount paid to the worker to ensure the bare
sustenance of life and also preserve the efficiency in work.
2. The wage that is above the minimum wage but below the living wage is
________________.
3. __________ provide for an amount that would help the worker in
safeguarding against any hardships.

10.3 Theory of Wages

Wage payment practices tend to be different based on the country and also
the industry. Several theories have been propounded on the basis of
framing wage and salary. Several legislations and state guidelines affect
fixing wages. Collective bargaining by the workers also strongly influence
the fixing of wages. The main theories of wage determination are discussed
as below:
a) Subsistence theory: This theory was propounded by David Ricardo
(1772-1823) and is also known as ’Iron Law of Wages’. The theory
emphasises that wage levels are determined by the amount needed for
consumption to sustain and maintain life of the employees, known as

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subsistence wage. The theory is based on the assumption that if the

workers are paid more than subsistence wage, more people would be
available for work. Due to excess of workers, wages will be brought
down. But if the wages are paid below the subsistence level, workers will
suffer due to malnutrition, hunger, disease etc. So there would be lesser
number of employees available for work. Thus, wage levels will be
raised. In other words when demand for worker is less and the supply is
more, then automatically the wages will come down, whereas when the
demand is high and supply is less than the wages will go up as every
company will want to have more workers and will agree to pay more
wages to hire them.
b) Wages fund theory: Adam Smith (1723-1790) developed this theory.
The theory states that wages are influenced by the demand for workers
and the ability of employer to pay. Smith’s basic assumption was that
employers have a fund that is utilised for employing labourers for work.
The demand for labour and the amount of wages to be paid to the labour
depends upon the size of the fund available. If the fund is large, wages
would be high and if it is small, wages would be reduced to the
subsistence levels.
c) The surplus value theory of wages: This theory was developed by
Karl Marx. According to this theory, labour is considered as a commodity
that could be purchased by paying the subsistence wage. He said that
employers paid only the subsistence wages to the workers because of
the availability of a large pool of unemployed people. The surplus
amount remaining is the profit for the employers
d) Residual claimant theory: This theory owes its development to Francis
A. Walker. Walker says that there are four factors of production such as
land, labour, capital and entrepreneurship. The employers first make
payment for rent, loan interest, machines, maintenance etc. Whatever
amount is remaining after these expenses is given to the workers.
Therefore, Walker said that labour is the residual claimant. It implies that
if production factors consume more money, then wages paid to workers
will be less.
e) Marginal productivity theory: Phillips Henry Wicksteed and John
Bates Clark developed the theory. According to this theory, workers are
paid what they are economically worth of. This theory states that wages
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depend upon the demand and supply of labour. Till the employer finds
that the hired workers are increasing the production, the employer will
keep on hiring workers. But the moment it is found out that additional
worker is not adding any value to production and only adding to the cost,
the employer will stop hiring or reduce wages.
f) The bargaining theory of wages: This theory was propounded by John
Davidson. In this theory, wages are determined by the relative
bargaining power of workers or trade unions and employers. The basic
wages, fringe benefits, job differentials and individual differences are
determined by the relative strength of the workers or trade unions and
the employers. The party able to bargain more influences the payment
of wages.

Self Assessment Questions:

Match the following
4. Subsistence theory
5. Marginal productivity theory
6. Residual claimant theory
7. Wages fund theory
a) Phillips Henry Wicksteed & John Bates
b) Francis A. Walker
c) Adam Smith
d) David Ricardo

10.4 Methods of Wage Fixation

Wage policies of organisations differ from each other. Some organisations
pay only the minimum wages to attract the marginal workers, whereas,
some pay higher wages to attract the highest calibre of the labour market.
Each organisation follows a certain method of fixing the wages for workers.
Let us now look into the methods of fixing wages in detail.
Methods of fixing wages are:
i. Time rate: It is the most common and oldest method of wage fixation.
By this system, workers are paid on the basis of the period of time that
they work. Wages could be fixed at hourly, daily, weekly, monthly or
any other period of time. The system is most suitable when it is difficult
to measure the output of the worker or when the worker is in training.
Wage is calculated as:
Wage = Time used by worker × Rate of wage according to time

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For example, if the wage fixed for an hour is INR 12 and a worker does
the job for 8 hours, then the worker earns INR 96 (8 × 12 = 96).
The method is very simple to calculate and results in high quality of
output as the worker is not pressurised to complete the job in a
particular time period. The method is most suitable for creative work
and ensures proper health of the workers.
However, the method requires close supervision of the workers and
also results in lack of competition. It can also result in higher making
cost as workers may misuse or waste time. At the same time, it does
not provide for any incentive for high productive workers.
ii. Piece rate: Under this method, workers are paid according to the
amount of work done or the number of units completed during a given
period of time. Quantity of output is the significant factor in fixing the
wage. The method is adopted for jobs that are repetitive in nature and
when there is a high pressure to produce more. Here the worker has to
be fully trained and the work must also be measureable. Wage is
calculated as:
Wage = Units or pieces completed × Rate per unit
For example, if the wage fixed for INR8 per unit and a worker
completes 15 units a day, then the worker earns INR120 (15 × 8 =
120).
The method encourages workers to produce more and result in higher
production. Here, time is not wasted and very minimal supervision is
required. High performing workers get better pay.
However, the method adversely affects the health and safety of the
workers. The quality of output may suffer as workers only focus in
completing the work. There is also a high uncertainty in the case of
wages that a worker can earn. It may give rise to conflicts and ill-
feeling among the workers.
iii. Incentive wage plan: t is the co-ordinated form of both the above
mentioned methods for wage payment. Here, the employees get a
minimum guaranteed wage based on time rate and also earn
additional amount based on the number of units made. Incentive wage

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rate rises or falls with increase or decrease in the quantity of

production.
iv. Wage and salary survey: Organisations conducts a survey of the pay
levels for specific job categories with other employers in the same
labour market to fix pay levels. This helps organisations to pay
employees at the market rate and at the same time ensure that their
employees do not leave the organisation seeking better opportunities.
Most of the times wage and salary surveys are conducted in the
neighbouring localities or the closest metropolitan area for easier
comparison.
10.4.1 Factors influencing wage fixation
Fixing wage depends upon a number of factors such as external
competition, technological developments, the organisational policies etc.
These factors must be taken into care while deciding the method of fixing
the wage so that the employees are motivated and satisfied and also help
the organisations in attracting performing workforce.
The factors that should be taken into consideration while fixing the wages
are listed below:
a) External competition: The degree of competition varies from
organisation to organisation and among occupations. Most organisations
try to adopt the method used in the organisations that are in the same
industry.
b) Technological developments: Technological development and
changes also influences the kind of method necessary to fix the wages.
With the advent of technology, organisations are going for combinations
of piece rate and time rates so that the quality and quantity of output is
competitive.
c) The organisation’s ability to pay: Wage increases are given by those
firms who are able to afford it. Companies that have high sales turnover
and incur huge profits tend to pay higher wages to their workers than
those companies who earn very low profits or have very low sales. All
employers have to pay what is being paid by their competitors, even if
the organisation is under loss. During time of growth, employers pay
high wages to their workers due to their increased abilities and to
motivate their workers. While during depression times, due to lack of

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funds, organisations have to curtail the wages. Thus, the payment of

wages depends upon the situation of the company and their capacity of
paying the wages also.
d) Supply and demand of labour: The labour market conditions or supply
and demand forces determine the wage fixation. If the demand for
certain skills is high and its supply is less, the result will be in the form of
high wages being paid to attract these workers. Even if there is scarcity
of labour in the market, again to attract the workers, organisations are
ready to pay higher wages. But, if the demand for manpower skill is low
then the wages decline. Hence, the relationship between demand and
supply determines the price of the wages to be paid.
e) Prevailing market rate: It is also called as the ‘going wage rate’ or the
‘comparable wage’. This is a very widely accepted factor in wage
fixation. Organisation’s wage policies generally imitate the wage rates
that are paid by similar organisations of the same industry or the same
locality. This is generally done due to a number of reasons such as
competition from other companies, government laws and court
judgements that enforce organisations to adopt the payment of uniform
wage rates, for eliminating the geographical differences, ensure ‘equal
pay for equal work’, maintaining goodwill in the market, to attract and
retain adequate qualified and skilled manpower.
f) The cost of living: The cost-of-living also is an important factor in fixing
the wages. No employee will work for an amount that cannot meet the
cost of living. This means that if the cost of living rises, then the workers
need more wages to counterbalance the increase. However, it is
interesting to note that organisations cannot reduce the wages of the
workers if the cost of living declines.
g) The living wage: Wages should be paid keeping in mind that the
workers have to maintain a reasonable level of existence. The amount
should ideally change according to the needs and problems of the
employee. Though, employers do not favour this idea because they
prefer to base the wage on the contribution of the worker rather than on
his need.
h) Productivity: Productivity is measured in terms of output per man-hour.
This means that how much output has been given by a single worker in

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an hour. But, productivity is not due to labour efforts alone. It can be due
to technological advancements, quality material, efficient systems, better
management and so on. Though it sounds to be a good parameter but
due to many problems of measuring the contribution of each factor of
production and the different levels at which production takes place, it is
difficult to implement it.
i) Trade union’s bargaining power: Trade unions affect the wage fixation
in a significant way. Collective bargaining ensures a hike in wages better
than individual bargaining. Also, the strength of the trade union
influences changes in wages. If the trade union is weak, it is easier for
the management to restrict the union’s demands. Trade unions may
threat or even conduct a strike to demand more wages.
j) Job requirements: Examining the job difficulty helps in comparing one
job to another. This also helps the management in analysing the value of
the job in relation to other jobs. This could be done on the basis of
complexity of the work, the skill set required, level of experience
required, duties and responsibilities involved and also on the working
conditions. If the job is more complex and requires highly skilled
personnel, then the wages or salary has to be high.
k) Managerial attitudes: The attitude of the management also influences
the wage and salary determination. If the organisation wants to increase
its reputation and also ensure that the employee morale is increased,
they may provide more salary than the market rate. This also attracts
qualified employees to vacant job positions and also ensures that the
existing employees do not plan to leave the organisation.
l) Psychological and social factors: Management should not ignore the
psychological and social determinants of the workers while fixing their
wages. Workers want a secured job and want to increase their
compensations by working hard. But, if they do get lower wages, then
psychologically they might feel unsecured and have an inferiority
complex. This may affect their productivity. On the other hand, workers
firmly believe about equal pay for equal work and not being exploited by
the employers. This social and ethical aspect also plays a very vital role.
Hence, while fixing the wages, management should consider both the
aspects.

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m) Levels of skill available in the market: The technological

developments, rapid growth of industries, automation, and shortage of
skilled resources have affected the skill levels largely. Thus,
organisations have to keep their levels up to meet the market needs.
Thus, we have seen that fixing the wage and salary depends upon a
number of factors. Each of the factor influences the wage fixed. The process
of fixing wages and salary is complex, yet very crucial for any organisation
to run smoothly.
10.4.2 Requisites of a good wage plan
While designing a sound wage policy, the HR should consider some basic
important factors in order to eradicate or minimise the disparities. Following
are the requisites of formulating a good wage plan:
a) Easy to understand: Employees should have a clear idea as to how
they will earn their wages depending upon the nature of work.
b) Easy to compute: Any wage plan must be simple enough to allow quick
calculations. Wherever applicable, mathematical tables should be
provided as references for quick calculations.
c) Certainty: There has to be certainty for employees on the mode of
payment (cheque or cash), date of payment etc.
d) Cost-effective: The wage and salary fixed should not be a burden for
the employer. It should be based on the organisation’s capacity to pay.
e) Capable of motivating the employees: It should be so designed in a
way that it enhances the productivity of the workers by justifying their
payments in relation to their performance.
f) Compensating the employees on time: After the efforts have been
made, workers should receive the compensation as soon as possible.
Delay in payments can dissatisfy and reduce their productivity.
g) It should be relatively stable: To ensure the workers about their
earnings, the wage plan should not get changed very often. Otherwise, it
may create a sense of instability making them wonder how they will be
paid for the work performed.
Formulating the wage plan requires skill and expertise. The above said
criteria must be met with when we frame wage and salary for employees of

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any level. Providing adequate wage and salary is essential in ensuring that
employees remain with the organisation and also meet their needs.

Activity 1:
Browse the Internet and find out the minimum wage laws that exist in
Australia, India and China.
Refer: http://en.wikepedia.org/wiki/List _of_minimum_wage_laws

Self Assessment Questions

State whether the following statements are true or false
8. The oldest method of wage fixation is time rate.
9. The method of wage fixation in which workers are paid according to the
amount of work done or the number of units completed during a given
period of time is piece rate.
10. No increase in wages is required for workers when there is an increase
in the cost of living.
11. A good wage plan must be highly complicated.
12. The degrees of competition do not vary from organisation to
organisation and among occupations.

10.5 Summary
Let us recapitulate the important concepts discussed in this unit:
 Wages denote the payment for work on hourly or daily basis. Salary
denotes the monthly payment made to an employee, despite the number
of hours worked by an employee.
 Administration of employee compensation is called wage and salary
administration which includes the establishment and implementation of
sound policies and practices of employee compensation.
 The objectives of wage and salary administration are to provide a
reasonable and equitable remuneration, attract the best employees,
comply with the labour laws, retain the current employees, minimise
employee turnover, balance employee expenses and administrative
costs, meet the demands of the trade or employee unions, ensure that
equal pay for equal work, eliminate discrimination, meet employees’

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basic needs, create a favourable organisational climate, improve

employee job satisfaction and minimise employee problems.
 Principles of wage and salary administration are that wage policy should
match the needs of all the stakeholders, should be adequately flexible,
satisfy needs of employees, based on job analysis and job evaluation,
comply with the legal regulations of the country, prompt payment of
wages, match the plans and programmes of the organisation, compliant
to the economic and social situations, simplify and accelerate other
administrative processes, include a grievance management system.
 The Fair Wage Committee has provided three concepts of wages in its
report. The three major concepts are minimum wage, fair wage and
living wage.
 A minimum wage is the amount paid to the worker to ensure the bare
sustenance of life and also preserve the efficiency in work.
 Living wage is the amount that will provide the worker with a standard of
living which will also ensure the maintenance of good health and access
to health facilities for himself and his family.
 Fair wage is the wage which is above the minimum wage but below the
living wage.
 The major theories on wage determination are subsistence theory,
surplus value theory of wages, residual claimant theory, marginal
productivity theory and the bargaining theory of wages.
 Methods of wage fixation are time rate, piece rate, incentive wage plan
and wage and salary survey.
 The factors that influence wage fixation are external competition, the
organisation’s ability to pay, technological developments, supply and
demand of labour, the prevailing market rate, the cost of living, living
wage, productivity, trade union’s bargaining power, job requirements,
managerial attitudes, psychological and sociological factors and levels of
skills available in the market.
 A good wage plan must be easy to understand, easy to compute,
specific, cost-effective, capable of motivating employees, compensate
employees on time and should be relatively stable.

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10.6 Glossary
 Compensation: Compensation is total payment to an employee, mostly
in the forms of wages, salaries, commissions and other incentives in
return for their contribution to the organisation and achievements.
Compensation also includes employee benefits, employee stock
ownership plans, profit sharing and bonuses etc. It comprises of salary,
benefits and any other perks that the company gives which have some
monetary value.
 Cost of living: Cost of living refers to the cost of sustaining a certain
standard of living. Changes in the cost of living over a period of time are
calculated with the help of cost of living index. Cost of living calculations
are also used to compare the cost of maintaining a certain standard of
living in different geographic areas.
 Fair Wage committee: ’The Committee on Fair Wage’ was a tripartite
Committee formed in 1948 to provide guidelines for wage structures in
the country. The report of this Committee was a major milestone in the
history of formulating wage policies in India. The recommendations
made by it created concepts of the `living wage', ’minimum wages’ and
’fair wage’.
 Marginal productivity: Marginal productivity refers to the change in
total revenue earned by a firm that results from employing one more unit
of labour.
 Residual claimant: The right of an employee or a worker, to the profit of
a company, after all prior obligations have been paid.
 Salary: A salary is a form of periodic payment from an employer to an
employee, which may be specified in an employment contract. It is a
fixed regular payment, typically paid on a monthly or biweekly basis but
often expressed as an annual sum, made by an employer to an
employee, especially a professional or white-collar worker
 Subsistence wage: Subsistence wage refers to the lowest wage upon
which a worker and the family can survive. It provides only for the bare
survival.
 Wage fixation: When industrial tribunals establish appropriate wage
levels for workers, rather than letting workers and their employer work it

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out themselves through enterprise bargaining, it is known as wage

fixation.
 Wage survey: The collection and appraisal of data from various sources
used to determine the average salary for specified positions in the job
market.
 Wage: Wage refers to payment for labor or services to a worker,
especially on an hourly, daily or weekly basis or by the piece. Wages are
generally provided for unskilled workers or the lower level workers of the
organisation.

10.7 Terminal Questions

1. Explain the nature and significance of wages.
2. Discuss in brief the major theories of determination of wages.
3. Explain the methods of wage fixation.
4. What are the important requisites of a good wage plan?

10.8 Answers
Self Assessment Questions
1. Minimum wage
2. Fair wage
3. Living wage
4. (d) David Ricardo
5. (a) Phillips Henry Wicksteed& John Bates
6. (b) Francis A. Walker
7. (c) Adam Smith
8. True
9. True
10. False
11. False
12. False

Terminal Questions
1. Wages denote the payment for work on hourly or daily basis. Salary
denotes the monthly payment made to an employee, despite of the
number of hours worked by an employee. Refer section 10.2 for more
details.

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Human Resource Management Unit 10

2. The major theories on wage determination are subsistence theory,

surplus value theory of wages, residual claimant theory, marginal
productivity theory and the bargaining theory of wages. For more details
refer section 10.3.
3. Methods of wage fixation are time rate, piece rate, incentive wage plan
and wage and salary survey. For more details refer section 10.4.
4. A good wage plan must be easy to understand, easy to compute,
certain, cost-effective, capable of motivating employees, compensate
employees on time and should be relatively stable. For more details
refer section 10.4.2.

References:
 C. B., Mamoria and S.V, Gankar., (2010). Human Resource
Management. Mumbai: Himalaya Publishing House.
 D'Cenzo, David A. & Robbins, P. Stephen., (2001). Human Resource
Management. New Jersey: Prentice Hall.
 Deb, T., (2009). Human Resources and Industrial Relations. New Delhi:
Excel Books.
 Dessler, Gary, (2010) Human Resource Management .New Jersey:
Prentice Hall .
 K. Aswathappa., (2006). Human Resource and Personnel Management.
New Delhi: Tata McGraw Hill.
 Rao, Subba P. (2008) Essentials of Human Resource Management &
Industrial Relations (Text, cases and Games)., Mumbai: Himalaya
Publishing House.
 Rao, V. S. P., (2009). Human Resource Management. New Delhi: Excel
Books.
E-References:
 http://encyclopedia.thefreedictionary.com/marginal+productivity
(Retrieved on 26 November, 2011)
 http://hrmba.blogspot.com/2011/07/wages-and-salary-administration-
project.html(Retrieved on 25 November, 2011)
 http://jobsearch.about.com/od/salaryinformatio1/a/compensation.htm
(Retrieved on 26 November, 2011)

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 http://payroll.naukrihub.com/compensation/
(Retrieved on 25 November, 2011
 http://www.citeman.com/988-salary-and-wage-
management.html(Retrieved on 24 November, 2011)
 http://www.livemint.com/2010/01/17214514/HR-managers-work-on-
salary-hik.html (Retrieved on 24November, 2011)
 http://www.mbaknol.com/human-resource-management/factors-
influencing-wage-and-salary-structure-of-an-organization/
(Retrieved on 25 November, 2011).
 http://www.merriam-webster.com/dictionary/residual% 20claimant %
20theory (Retrieved on 25 November, 2011)

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