Compensation

management
 MEANING
• Wage and salary administration refers to the establishment and
implementation of sound policies and practices of employee
compensation. Thus, it is:-

• administration of employee compensation.

• systematic approach to provide monetary value to employees.
• establishment and maintenance of equitable as well as cost-
effective wage structure.
 DEFINITIONS

“Wage and salary administration denotes the process of

managing a company’s compensation programme.”
- S.P. Robbins

“ Wage and salary administration is essentially the application of

a systematic approach to the problem of ensuring that
employees are paid in a logical and fair manner."
- Bewath & Reins
 Definitions
 COMPENSATION: Compensation may be defined by as money
received in performance of work plus many kinds of services and
benefits that organisation s provide to their employees.
 Compensation may be classified into (a) Base or primary
compensation and (ii) Supplementary compensation. Primary
compensation refers to basic pay in the form of wages and salaries.
It is a fixed and non-incentive payment on the basis of time
expended on the job.
 Supplementary compensation consists of incentive and variable
payments, based on either individual output or output of the group
as a whole.
 WAGE: Wage is a general term referring to direct monetary
compensation. It is also used specifically to refer to payments to
service workers on the basis of hourly rated production.
 Definitions (contd.)
 SALARY: Salary refers to weekly or monthly rates paid
to clerical, administrative and professional employees.
 WAGE LEVELS: The wage levels represent the money
an average worker makes in a geographical area or in
his organisation. It is only an average. Specific markets,
firms and individual wage rates can vary widely from
the average.
 WAGE STRUCTURE: The term ‘wage structure’ is used to
describe wage relationships within a particular
grouping. The grouping can be according to occupation
or organisation such as wage structure of mechanics,
carpenters etc.
PRINCIPLES OF WAGE AND SALARY
ADMINISTRATION
 In view the interests of all concerned parties
 Should be sufficiently flexible
 Should be made on ensure that differences in pay for job are based on
variations in job requirements
 Be consistent
 Be in conformity
 Should be responsive the changing local national conditions.
 Should expedite and simplify administrative process
 Be associated, as far as possible
 Should be developed compensation determination and administrative
 Clearly established procedure for hearing and adjusting wage complaints
 Receive a guaranteed minimum wage to protect them conditions beyond
their control.
 CONCEPTS OF WAGES
 Minimum Wage: wage which must be pays whether
the company earns profit or not.
 Fair Wage: Wage is the above the minimum wage
but below the living wage.
 Living Wage: The living wage is the highest among
the three. It must provide :
 Basic amenities of life
 Efficiency of worker

 Satisfy social needs of workers such as medical,

education retirement etc.
 Acquire competent personnel
 Retain present employees
 Provide fair and equitable compensation
 Ensure desired behaviour
 Keep labour costs in control
 Keep organization ability in mind
 Improve motivation and morale
 Project good image of the organization
 Impartial implementation
Factors influencing wagE
and salary administration
 ABILITY TO PAY
 High profits : high wage rate
 Low profits : low wage rate

 DEMAND AND SUPPLY

 Demand > Supply : high wage rate
 Supply > Demand : lower wage rate

 PREVAILING MARKET RATES

 High market rates : high wage rate to retain good workers and
vice – versa.

 COST OF LIVING
 High cost of living : higher wages
 Low cost of living : lower wages
 PRODUCTIVITY
 High productivity : higher wages
 Low productivity : lower wages

 GOVERNMENT REGULATIONS
 It may pass legislation for fixing minimum wages. For example : In India
Minimum Wages Act, 1948

 JOB REQUIREMENTS
 Difficult job : higher wages
 Easy job : lower wages

 LIVING WAGE
 Associated with the maintenance of adequate standard of living
 BARGAINING OF TRADE UNIONS
 Stronger trade unions : higher wages
 Weak trade unions : lower wages

 TECHNOLOGICAL DEVELOPMENT
 Workers having updated knowledge : higher wages and vice – versa

 MANAGEMENT STRATEGY
 Strategy is to expand and grow : higher wages
 Strategy is to maintain status quo : average wages

 PSYCHOLOGICAL AND SOCIAL FACTORS

 Fair wages : psychological and social satisfaction
PROCESS
1. Job Analysis
 Job description
 Job specification
 Grading and ranking the jobs
 Value of a job is determined
 At last, the job is given a price
2. Wage Surveys
 To determine actual amount to be paid
 Provides information about differences in wage levels
 surveys through telephone, questionnaire, personal interviews etc.
3. Assigning Pay Grades to Job
 Pay rates are assigned
 Similar jobs are grouped together
 Each group is assigned grade
4. Preparing Wage Structure
 Pay scales of industry
 Higher payments or single grade
 Number and width of pay grades
 Jobs to be placed in each pay grade
 Actual money value to be assigned to various pay grades
 Differentials in pay grades

5. Wage Administration Rules

 Determine the basis of advancement, frequency of pay increases, control
over wage costs, rules of promotion from one grade to another
METHODS OF WAGE PAYMENTS
 TIME WAGE SYSTEM: Earnings = T*R
T stands for time spent R rate of pay.
SUITABILITY:
 Productivity cannot be measured
 Quality is more important than quantity
 Individual employees don't have control over production.
MERITS
 Simplicity
 Security
 Less wastages
 Beneficial for beginners
DEMERITS
 Wastage of time
 No incentive for efficiency.
 Low production
 PIECE WAGE SYSTEM: Wages= Output*Piece rate
MERITS
 Wages linked to efforts
 Increase in production
 Better Utilization of equipment
 Distinction between efficient and inefficient
 Less supervision required
 Effective cost control
 Better Planning and controlling
DEMERITS
 No guarantee of minimum wages
 Poor quality of goods
 Not suitable for beginners
 Cause of dissatisfaction
 Opposition from unions
 Difficulty in fixing piece-rates
 Straight Piece Rate
 Increasing Piece Rate
 Decreasing Piece Rate

TYPES OF PIECE RATE SYSTEM

 Payment of Wages Act, 1936
 Industrial Disputes Act, 1947
 Minimum Wages Act, 1948
 Equal Remuneration Act, 1976

WAGE POLICY IN INDIA