Тopic:

“Remuneration and
wages”
Questions on the topic:

 1. The essence of wages. Criteria and factors

 2. Job evaluation methods. Wage system -
payment by the results or time
 1. The essence of wages. Criteria and factors

THE CONCEPT OF "SALARY" IS CONSIDERED AS A SOCIAL, ECONOMIC AND LEGAL

CATEGORY
 In terms of the social category, wages must ensure a sufficient standard of living for the employee
and his/her family members.
 In the economic aspect, wages are the value of labor in monetary form as an employee's share in the
national income, which is paid to him on an equivalent basis for the work performed.
 Salary becomes a legal category when the amount and order of its payment are determined by legal
norms

Salary is a reward, calculated, as a rule, in monetary terms, which the

employer pays to the employee for the work performed by him under the
employment contract
 Salary structure:
 - the basic salary is a reward for the work performed, respectively to established labor
standards (time, production, service, job standards responsibilities). It is established in
the form of tariff rates (salaries) and unit rate states for workers and official salaries for
employees;
 - additional salary is a reward for work beyond the established ones standards, for
labor success and ingenuity, and for special working conditions. It includes surcharges,
allowances, guarantee and compensatory payments provided for in force legislation;
bonuses related to the performance of production tasks and functions;
 - other incentive and compensation payments. These include payments in the form of
rewards based on the results of work for the year, bonuses under special systems and
regulations, compensatory and other monetary and material payments, which are not
provided for by the acts of the current legislation or which are carried out beyond the
established ones specified normative acts.
CHARACTERISTICS of wages
 1. This is a fee for performing work;
 2. The form of its payment is mainly monetary;
 3. The amount of wages depends on the complexity, difficulty, etc. working
conditions;
 4. Limiting it to a maximum size is inadmissible
 5. Its size is limited by the amount of the minimum wage
 6. In relation to wages, the employee has the right to pay for work, and the
employer has the obligation to pay remuneration for his work in accordance
with the legislation, collective agreement and labor contract
Circumstances of the external form of the labor power
value and price manifestation

 the salary is given to the employee after he has spent his work. This
creates the appearance that it is not the labor force itself that is paid, but
the labor spent by the worker;
 when buying and selling labor, the basic working conditions are
determined by the agreement between the employer and the employee. The
amount of additional value assigned by the employer depends on the
amount of work and the amount of wages of employees
 In a market economy, wages perform the following functions:

 reproductive
 as a source of labor force reproduction;
 stimulating – setting the salary level depending on the quantity and
quality of work;
 regulatory – as a means of personnel redistribution;
 social – ensuring social justice - equal pay for equal work.
 The wages organization (regulation) operates on two levels:

 the state level — with the help of the tariff system, by establishing the
minimum wage and industry ratios, through the system of taxation of
enterprises and employee incomes, etc.;
 equal enterprises—according to the system of tariff agreements (choice
of forms and systems of labor remuneration, establishment of tariff rates
and salaries, types and amounts of additional payments, allowances and
bonuses, payment by contact, etc.).
 Factors influencing the level of wages
Factors influencing the level of wages

Social factors Market factors Institutional factors

Cost of living;
Employment day;
Consumer basket;
Demand and supply for labor; activities of trade union organizations;
Minimum salary;
Production costs for labor; employers' associations for contractual
Increasing the share of "social regulation of wage conditions;
wages"; Dynamics of consumer prices, inflation
expectations development and design of the social
Conditions of labor mobility partnership system

Production factors

The level of development of production and technical progress;

Difficulty of work and qualifications of employees;
Working conditions;
Labor results;
Quality of work
 There are two types of wages:
 nominal salary - the amount of funds in monetary terms
received by the employee for a certain period of time
(day, month, year);
 the real salary is the purchasing power of the nominal
salary, that is, the amount of goods and services that can
be purchased for this salary.
Remuneration should be based on the following principles:
 labor must be paid depending on its quantity and quality;
 the salary should depend on the employee's qualifications
and working conditions;
 the salary must be such that the employee can support himself
and his family;
 wages should consist of two parts: fixed (at the level of the
living wage) and variable (depending on the success
achieved).
 Organization of remuneration at the enterprise includes:
 definition of forms and systems of labor remuneration;
 development of a system of tariff rates and salaries;
 development of criteria and determination of the amounts of
additional payments for individual achievements;
 substantiation of indicators and employee bonus system.
 The wage system is based on the tariff system.

 The tariff system is a set of regulations that determine the

differentiation of wages depending on its complexity,
conditions, forms of wages and the industry of
production..
 The main elements of the tariff system:

 1. Tariff and qualification guides — collections containing a list of qualification

characteristics of works, as well as knowledge and skills that a worker of a certain
profession and grade must possess.
 2. The tariff grid is a scale with the help of which all works are divided into groups
(grades) depending on the complexity of the work spent on their execution. Tariff grids
include tariff categories and tariff coefficients. The tariff category is an indicator that
reflects the level of qualification of the worker. The tariff coefficient shows how many
times the salary of a worker of this grade is greater than the salary of a worker of the first
grade.
 3. Hourly tariff rates determine the level of remuneration of a worker of the
corresponding grade for 1 hour. The tariff rate of the 1st category is the main one. Hourly
tariff rates of other categories are calculated using tariff coefficients
7 Factors to Consider for Determining Wage and
Salary Structure of Workers

Labour Unions: The labour unions attempt to work and influence the wages primarily by regulating or affecting the supply of labour.
The unions exert their influence for a higher wage and allowances through collective bargaining with the representatives of the
management.

Personal perception of wage: Whether the wage is adequate and equitable depends not only upon the amount that is paid but also upon
the perceptions and the views of the recipients of the wage. Even though the wage is above the going wage rate in the community if it is
lower than that of fellow worker deemed inferior, it will be regarded as inequitable in the eyes of the recipients of the wage. A man’s
perception of the equity of his wage will undoubtedly affect his behaviour in joining and continuing in the organisation.

Cost of living: Another important factor affecting the wage is the cost of living adjustments of wages. This approach tends to vary money
wage depending upon the variations in the cost of living index following rise or fall in the general price level and consumer price index. It
is an essential ingredient of long term labour contracts unless provision is made to reopen the wage clause periodically. There are
measurement problems both in ascertaining productivity and cost of living increases. This problem may lead to lack of understanding and
unanimity on the part of the management and the workers.
Government legislation: The laws passed and the labour policies formed by the Government have an important influence on wages and salaries
paid by the employees. Wages and salaries can’t be fixed below the level prescribed by the government. The laws on minimum wages, hours of
work, equal pay for equal work, payment of dearness and other allowances, payment of bonus, etc. have been enacted and enforced to bring about
a measure of fairness in compensating the working class.

Ability to pay: Labour unions have often demanded an increase in wages on the basis that the firm is prosperous and able to pay. However, the
fundamental determinants of the wage rate for the individual firm emanate for supply and demand. If the firm is marginal and cannot afford to pay
competitive rates, its employees will generally leave it for better paying jobs. However, this adjustment is neither immediate nor perfect because of
problems of labour immobility and lack of perfect knowledge of alternatives. If the firm is highly successful, there is little need to pay for more
than the competitive rates to obtain personnel.

Supply and demand: As stated earlier, the wage is a price for the services rendered by a worker or employee. The firm desires these services, and
it must pay a price that will bring forth the supply, which is controlled by the individual worker or by a group of workers acting together through
their unions. The practical result of the operation of this law of supply and demand is the creation of “going- wage rate”.

Productivity:Increasingly there is a trend towards gearing wage increases to productivity increases. Productivity is the key factor in the operations
of a company. High wages and low costs are possible only when productivity increases appreciably. The above factors exercise a kind of general
influence on wage rates. In addition, there are several factors which do affect the individual difference in wage rates.
The most important factors which affect the
individual differences in wage rates are:

 Employee’s capacity;
 Educational qualifications;
 Employee’s experience;
 Hazards involved in work;
 Promotion possibilities;
 The prevailing wage in the community;
 Stability of employment;
 Demand for the product;
 Profits or surplus earned by the organization.
2. Job evaluation methods. Wage system - payment by the results or time

 The organization of employees' wages should ensure the

dependence of each employee's salary on his personal
contribution and on the final results of the team's work. In
conventional wage systems for employees, the amount of
manufactured products or the amount of time worked is
taken into account.
 Forms of wages

ABSOLUTEL
HOURLY
Y
 Hourly wages
 This is a form of salary, the amount of which depends on the
actually spent working time (hour, day, week, month).
Accordingly, there are hourly, daily, weekly, monthly wages.
Disadvantages of hourly wages
 does not create sufficient interest in the results of his work in
the employee does not stimulate the growth of labor
productivity causes the need to maintain a special staff of
supervisors and controllers at enterprises
 Piecework wages:
The amount of the fee is set in accordance with hourly wage rates and production
standards.
 The rate of production is the number of units of the product or operations that
must be produced in accordance with the established norms.

Piecework wages depend on two factors

the number of
products produced or prices for each product
work performed
 Types of piecework wages:

Individual  Collective
detachment detachment

Piece-progressive
Direct piece rate

Indirect piece rate

Direct piece rate - earnings are calculated by multiplying the piece
rate by the number of products produced.

Indirect Piecework - the amount of salary depends on the results of

the work of employees of the main production. It is used for support
employees (for example, repairmen).

Piece-progressive - payment for products within the norm is made at

constant prices, and for products above the norm - at progressively
increasing prices
The wage system is a combination of hourly and piecework wages

aimed at stimulating:

- increase in the quantity and quality of produced

products,
- labor intensification,
- increasing the interest and responsibility of hired
employees
 The evaluation process is systematic in
that it breaks down and evaluates the
relative worth of various tasks in a
company or organization. The primary
goal of the job evaluation process is to put
jobs against each other to rank them in
In an organization’s employment
terms of intensity, qualitative and
structure, job evaluation plays an initial
quantitative methods. This evaluation
role in ensuring pay equality. It is a
results in creating a payment structure
complex but vital process.
that promotes fairness, equity, and
consistency for all employees in an
organization. Moreover, the requirements
for each job must be outlined in a clear
way, with everyone getting paid what they
deserve.
What is the Job Evaluation Process?

 In the job evaluation process flowchart, the first step is gathering all
information and facts necessary for the job description. From the information
collected about varied tasks, you derive what value a job adds to an
organization. Determining job value is followed by the addition to the
organization’s job structure. Individual evaluation of tasks also promotes the
equal distribution of work, encompassing minorities and all genders in the
company structure.
 Job evaluation is supported in the employment sector. Influential advocates
in the business sector push for the utilization of this evaluation process.
Cordis’s report, 49% of privately owned European organizations, have an
official job evaluation structure. This percentage accounts for several
organizations that lack structured payment practices, careers based on
requirements, and skills advancement for their employees.
 Work evaluation methods:
The Ranking Method

The Classification or Grading Method

The Point–Factor Method

The Factor Comparison Method

The Competitive Market Analysis Method

Market Pricing Goals

The Ranking Method

The ranking option is a job classification method that evaluates

jobs based on how the tasks relate to each other, value-wise. Here are
some aspects of the ranking method of job evaluation and basic job
analysis options.

•The ranking method has no regard for compensation rates in the

existing market
•This method will not work for large organizations unless jobs are
categorized into phields, e.g., professional levels. However, it is better
applicable to smaller entities
The Classification or Grading Method

This is the job grading method that encourages grouping according to general
job characteristics. This grouping is done while considering pre-established
grade classifications, thus reflecting skill levels and individual responsibility
at handling tasks. This classification method is straightforward and does not
waste time. However, the system is bound to inflate job grades since some of
them get pushed to higher levels than they deserve to be.
Downfalls include:
• It compares and classifies individual jobs in job families with
predetermined characteristics
• One size fits approach pushes some tasks into job grades that they do not
fit in. This approach presents a significant challenge since organizations are
diverse
The Point–Factor Method

This evaluation method singles out all job evaluation factors, which
add merit to an employment position. Classification of job factors is in
groups, according to; skill, responsibility, and effort. The elements are
then given a point value (numerical/weighted). The individual factor
points are consolidated to derive a specific value for a complete task or
job.
The point-factor method has the following downfalls:
• It does not portray the value of jobs in the existent market
• It formulates a hierarchy, although it lacks components of external
nature
The Factor Comparison Method

This job evaluation method permits job factor identification under five
primary groups with expertise, personal drive, responsibilities, and
working conditions in mind. As opposed to assigning a point value,
each factor gets valued according to dollar value.
Cons of the factor comparison method are:
• It is a complicated system that countable organizations use
• The process complicates communication with employees
• Subjectivity is unavoidable to a substantial degree
The Competitive Market Analysis Method

The competitive market analysis approach focuses on external data. To

make possible the right market price, you must conduct job evaluation. It
forms the foundation for arriving at accurate market prices. Job
descriptions are used in job comparison through side by side comparison
to similar positions in the marketplace. Information on pay is collected,
and the determination of the position’s relative worth in the market occurs.
This approach is best method yet due to the following:
• This approach appreciates the organization’s goals for market visibility
(compensation philosophy)
• The competitive market analysis method evaluates an organization’s
internal value compared to the market data
Market Pricing Goals

Updated pricing in the market is vital as several organizations utilize it

to determine:
• Worth of individual employment positions within an organization
• How a company ranks in the external market
• An organization’s structure of pay against its philosophy on
compensation
• The proficiency of pay programs in achieving compensation
objectives
• Equity in the internal workplace
The following points highlight the top three
methods of wage payments.

The methods are:

 1. Time Rate System
 2. Piece Rate System
 3. Incentive Wage System.
 Method # 1. Time Rate System:

 Under this method of wage payment, the

workers are paid the wages on the basis of time.
In this system of wage payment, the workers are
paid the wages on the basis of time as, per hour,
per day, per week, per fortnight or per month
etc. This system does not consider the
production of the employees during this time.
Suitability of Time Rate System:
This system of Wage Payment is particularly suitable in the following circumstances:

When it is not possible to measure the production in terms of units or in any other
terms.

When the work is of high standard.

When it is not possible to divide the production into units.

When the production is of the nature that it requires efficiency more than the speed.

When the worker is undertraining.

 Merits of Time Rate System:
1. Simplicity: It is very easy to calculate the amount of wage under this system.

2. Certainty of the Amount of the Remuneration: This system of wage payment provides certainty of the amount of wage payment to the
employee. It develops the feeling of confidence and certainty among them.

3. High Quality of Production: As this system of wage payment has no concern with quantity of production, quality of production produced by
the workers under this system is very high.

4. Proper Utilisation of the Factors of Production: As this system is not related with speed, the workers perform their work in very confident
manner. They make the best Utilisation of the factors of production.

5. Co-Operation between Labour and Capital: This system of wage payment brings the industrial peace because it satisfies the workers and
the industrialists. Thus, it develops harmony and co­operation between labour and capital.

6. Best System for Artistic Work: This system of wage payment is most suitable for artistic work.

7. Co-Operation and Unity of Workers: As all the employees doing the work for same nature get the same amount of wages, this system
develops the feeling of co-operation and unity among the workers.

8. Suitable for the Health of Workers: This system of wage payment is suitable from the point of view of health of workers.
 Demerits of Time Rate System:
1. Need of Intensive Supervision: This system requires intensive supervision over workers. It increases the cost of supervision.

2. Lack of Incentive: This system of wage payment makes equal payment to both the efficient and inefficient workers. Therefore,
efficient workers do not get any incentive for more production.

3. Encouragement of Labour Unions: This system encourages labour unions. Sometimes, these labour unions misuse their powers.

4. Misuse of Time by Workers: Under this system of wage payment, the workers do not make proper Utilisation by their time.

5. Fall in the Quantity of Production: Under this system of wage payment, the quantity of production decreases because the
workers do not get any incentive for increasing the production.

6. High Cost of Production: As the production is low and the payment to the worker is more, this system increases the cost of
production.

7. It Kills the Efficiency of Workers: As this system does not make any difference between efficient and inefficient workers, it kills
the efficiency of efficient workers.

8. Increase in Cost Per Unit: This system increases the cost per unit of production. Under this system, the cost per unit of
production is uncertain because the quantity of production differs from time to time.

9. Difficult to Measure the Efficiency: Under this system of wage payment, it is very difficult to measure the efficiency of workers
because all the workers of equal status are paid the wages at equal rate.
Method # 2. Piece Rate System:

 Under this system of wage payment, the

workers are paid the wages on the basis of
quantity and quality of work performed by
them. Under this system, the rates of wages
are determined according to quantity and
quality of work and the workers are paid
according to these rates.
This system of wage payment is very suitable in the
following conditions:

 1. When the work is of standard nature.

 2. When the work can be measured easily.
 3. When there is a great need of increase in the
production.
 Merits of Piece Rate System:
1. Incentive to More Work: This system encourages the workers to do more and more work because they get their wages according to their work.

2. Proper Utilisation of Machines: Under this system, the workers use their machines and equipment with proper care because they feel that if their machine is out of order, their work
will be held up and their wages will be low.

3. Increase in the Quantity of Production: The system of wage payment gets more production because all the workers make their best efforts to increase the production.

4. Best Utilisation of Time: As the workers are paid according to their work, they make the best possible utilisation of their time. They do not want to waste their time.

5. Decrease in the Cost of Production: This system decreases the cost of production because the maximum production is done by the workers in the minimum time. It decreases the cost
per unit of production also.

6. Decrease in the Cost of Supervision and Administration: This system of wage payment minimises the needs of supervision. It reduces the cost of supervision.

7. Easy and Simple: This system of wage payment is very easy to understand and very simple to calculate.

8. Improvement in the Standard of Living of Workers: Workers get more wages because they produce more. It increases their efficiency and productivity. It increases their
remuneration also which improves their standard of living.

9. Mobility of Workers: This system of wage payment increases the mobility of workers because they can change their enterprise easily.

10. Measurement of the Efficiency of the Workers: This system provides an opportunity to measure the efficiency of the workers. It makes proper distinction between efficient and
inefficient working staff of the enterprise.

11. Justified: This system of wage payment justified also because the workers are paid the wages according to the work performed by them.

12. Helpful in Maintaining Industrial Peace: This system brings industrial peace also because it satisfies both the workers and the employer.
 Demerits of Piece Rate System:
1. Lack of Unity among Workers: This system lacks the unity and mutual co-operation among workers. They feel
themselves competitor to each other.

2. Loss of Workers on the Failure of Machines etc.: It because of any reason, the machines fail or the power fails, the
work of workers is held up and they lose their wages.

3. Misuse of the Factors of Production: The workers do not pay proper attention towards the factors of production. They
only want to increase the speed of production.

4. Adverse Effect on the Health of Workers: This system motivates the workers to do more and more work. It affects the
health of workers adversely.

5. Low Quality of Production: This system of wage payment does not pay any attention on the quality of production. As a
result of it the quality of production falls down.

6. Unsuitable for Artistic Work: This system is not suitable for artistic work because artistic work cannot be paid only on
the basis of quantity of production.

7. Uncertainty of Wages: As the amount of wages depends upon the quantity of production, the actual amount of wages to
be paid is always uncertain. The workers also cannot estimate their remuneration in advance.
Method # 3. Incentive Wage System:

 There are two basic systems of wage payment—time rate system and piece
rate system. Both the systems have their merits and demerits. No system
can be considered suitable for all times and under all circumstances. To
maintain the merits of both the systems and to overcome the demerits of
these systems, some experts have developed the systems of incentives
wage.
 These systems are also known as incentive wage systems, progressive wage
system and bonus schemes etc. Under these systems, both the time and
speed are considered as the basis of wage payment.
 These systems provide incentives to the workers to produce more and
more maintaining the quality as well. The workers are paid bonus or
premium for the additional work. It is important to note that almost all the
systems incentive wages provide for minimum guaranteed wages to the
workers.
Important characteristics of an Ideal Incentive
Wage System are as under:
 1. It must be easy to calculate and to understand.
 2. The standards of work must be determined on scientific basis.
 3. It must establish direct relationship between efforts and
remuneration.
 4. It must give a guarantee of minimum wage to all the workers.
 5. It must be in the interests of both the employers and the employees.
 6. It must be flexible but stable.
 7. It must be framed in the manner so that it may be used widely for
all the activities of the enterprise.
 8. It must be helpful in increasing the production as well as
productivity.
Advantages of Incentive Wage System:

There is increase in the prospect of workers to earn more. As shown by F. Herzberg good salary is one of the hygiene factors
in the absence of which people are unhappy and dissatisfied. Wage incentive offers them the prospect of earning more.

The scientific work study which is done before introducing a wage incentive plan brings about improvements in methods,
work­flow, and man-machine relationship and so on.

There is effective reduction in the supervision costs Closer supervision of employees becomes unnecessary because workers
become more responsible. Rather than the supervisor chasing the workers the workers themselves sometimes chase the
supervisor for materials, tools, etc.

Employees promptly expose all such problems before management which retard their earnings. Management becomes more
alert in areas such as flow of process materials, adequate spares, etc.

Employees are encouraged to become “inventive”. They invent and adopt ways and means to achieve their production
targets with lesser exertion and lesser expense of energy. They come forward with new ideas and suggestions.

There is improvement in discipline and industrial relations. Go-slow and similar other techniques are not resorted to by the
workers to express their dissatisfaction with management policies and practices. There is increase in workers’ punctuality
and decrease in absenteeism.

There develops a feeling of mutual co-operation among the workers as their operations are interdependent and any hold-up
at one point may affect the production and earning at other points.
These ill-effects are as under:
There is tendency among the workers to sacrifice quality for the sake of quantity. This calls for a very strict system of
checking and inspection.

In the absence of adequate provisions incentive payment brings about certain rigidity in the operations. This makes it
difficult for the management to revise norms and rates following changes in technology, methods, machines, materials
etc.

Employees very often ask for compensation whenever production flow is disrupted due to the fault of management.

Unless greater vigilance is exercised there is a danger of workers disregarding safety regulations.

Unless a maximum ceiling on incentive earning is fixed some workers tend to overwork and undermine their health.

Jealousies may arise among workers because some are able to earn more than others. In the case of group systems, the
fast workers may be dissatisfied with the efforts of the slower members of the group; where heavy work is involved
older workers in particular are likely to be criticised for being too slow. One likely effect of this is the splitting up of
trade unions.

The introduction of a system by results increases the amount and cost of clerical work since it involves considerably
more bookkeeping. This is particularly true when the production is subdivided into many processes.
Thank you!