Wages and salaries are the remuneration paid or payable to employees for work performed on

behalf of an employer or services provided. Normally, an employer is not permitted to withhold

the wages or any part thereof, except as permitted or required by law. Employers are required by
law to deduct from wages, commonly termed "withhold", income taxes, social contributions and
for other purposes, which are then paid directly to tax authorities, social security authority, etc., on
behalf of the employee. Garnishment is a court ordered withholding from wages to pay a debt.

Wages and salaries are typically paid directly to an employee in the form of cash or in a cash
equivalent, such as by cheque or by direct deposit into the employee's bank account or an account
directed by the employee. Alternatively, all or a part may be paid in various other ways, such as
payment in kind in the form of goods or services provided to the employee, such as food and board.

For tax purposes, wages and salaries normally do not include other non-cash benefits received by
an employee, such as flights, payment of school fees etc. These are usually referred to as fringe
benefits.

In the national accounts, in accordance with the System of National Accounts, wages and salaries
are the sum of remuneration paid to employees, including the values of any social
contributions, income taxes, etc., payable to employees. For administrative convenience, or due to
a legal requirement or some other reason all or a part of such payments may actually be withheld
by the employer and paid directly to tax authorities, etc., on behalf of the employee.
However, labour-related expenses of a business, such as payroll taxes, pension fund
contributions, social insurance schemes, workers compensation insurance, etc., are not counted as
wages and salaries for national accounts purposes. Similar concepts apply to general accounting
treatment of labour expenses.

Wages and salaries in cash consist of such amounts payable at regular intervals, such as weekly,
monthly or other intervals, including payments by results and piecework payments; plus
allowances, such as those for working overtime; plus amounts paid to employees away from work
for short periods (e.g., on holiday, sick leave, etc.); plus ad hoc bonuses and similar payments; plus
commissions, gratuities and tips received by employees.
Wages and salaries in kind consist of remuneration in the form of goods or services that are not
necessary for work and can be used by employees in their own time, and at their own discretion,
for the satisfaction of their own needs or wants or those of other members of their households.

A Wage is the remuneration paid for the service of labour in production periodically to an
employee / worker. So payment made to labour is generally referred to as wages. Wages also refer
to the hourly rate paid to such groups as production and maintenance. Salary normally refers to
the periodically rates paid to clerical. administrative and professional employees. So money paid
periodically to person whose output cannot be measured is generally referred as salary. Wage and
salary are paid as per contract of employment. Wages include basic wage / salary and allowances.
Allowances are paid in addition to basic wage to maintain the value of basic wage over a period
of time. In India, different Acts include different item under wages. Though all the lets includes
basic wages and Dearness allowance under the item wages. E.g. under the Workmens
Compensation Act, 1923, section 2(m) wages for leave period, holiday, overtime pay, bonus,
attendance bonus and good conduct bonus form part of wages and under the payment of wages
Act, 1936 section 2(vi) any reward of settlement and production bonus, if paid constitutes wages.

Wage and salary administration is establishment and implementation of sound policies and
practices of employee compensations. Wage policies of different organisations very somewhat.
Some organisations pay minimum necessary to attract the required number and kind of labour,
while some organisations pay well above the going rates in the labour market. Various factors
influence wage and salary structure and administration like govt. legislation and public policy,
organisations ability to pay, labour supply and demand, going wages and salaries, cost of living,
productivity, trade unions bargaining power, job requirement, management attitude about wage
to be paid etc.

The basic objective of wage and salary administration is to establish and maintain an equitable
wage and salary structure and secondary objective is to establish and maintain an equitable labour
cost structure. Generally sound wage and salary administration tries to achieve following
objectives.

(1) To attract and retain the service of employee.

(2) To pay employees according to the content and difficulty of the job.
(3) To reward employees according to the effort and merit.

(4) To improve employee morale and productivity.

(5) To satisfy employee as to how and why they are paid.

The main objective of wage and salary administration is to establish and maintain an equitable
wage and salary system. This is so because only a properly developed compensation system
enables an employer to attract, obtain, retain and motivate people of required calibre and
qualification in his/her organisation. These objectives can be seen in more orderly manner from
the point of view of the organisation, its individual employees and collectively. There are outlined
and discussed subsequently:

Organisational Objectives:
The compensation system should be duly aligned with the organisational need and should also be
flexible enough to modification in response to change.

Accordingly, the objectives of system should be to:

1. Enable an organisation to have the quantity and quality of staff it requires.

2. Retain the employees in the organisation.

3. Motivate employees for good performance for further improvement in performance.

4. Maintain equity and fairness in compensation for similar jobs.

5. Achieve flexibility in the system to accommodate organisational changes as and when these
take place.

6. Make the system cost-effective.

Individual Objectives:
From individual employees point of view, the compensation system should have the
following objectives:
1. Ensures a fair compensation.
2. Provides compensation according to employees worth.

3. Avoids the chances of favouritism from creeping in when wage rates are assigned.

4. Enhances employee morale and motivation.

Collective Objectives:

These objectives include:

1. Compensation in ahead of inflation.

2. Matching with market rates.

3. Increase in compensation reflecting increase in the prosperity of the company.

4. Compensation system free from management discretion.

Beach has listed the five objectives of wage and salary administration:

1. To recruit persons for a firm

2. To control pay-rolls

3. To satisfy people, reduce the incidence of turnover, grievances, and frictions.

4. To motivate people to perform better

5. To maintain a good public image.

System of wage and salary payment: Wages if dependent generally on the rates of wages which
may be an hourly rate or time rate or based on a piece rate i.e. dependent on workers output. The
time and piece output rate wage plans are the two basic systems. All other plans are simply
variation of these two. In this wage system, an employee is paid a define amount of money for a
specific period of work. Production of an employee is not taken into consideration to fix the wages.
In piece wage system, an employee is paid fixed rate per unit produced of job completed.

CONCEPT OF WAGES

Wage and Salary Administration refers to the establishment and implementation of sound
policies and practices of employee compensation. The basic purpose of wage and salary
administration is to establish and maintain an equitable wage and salary structure. Wages and
salaries are often one of the largest components of cost of production and such have serious
implications for growth and profitability of the company. On the other hand, they are the only
source of workers income.

After the independence and particularly after 1948, some new terms relating to wages began to be
used. These are:

1. Statutory Minimum Wages

2. Basic Minimum Wages

3. Minimum Wages

4. Fair Wages

5. Living Wages

6. Need Based Wages

1. Statutory Minimum Wages: By it we mean the minimum amount of wages which should
essentially be given to the workers as per provisions of the Minimum Wages Act, 1948.
2. Basic Minimum Wages: This minimum wage is fixed through judicial pronouncement, awards,
industrial tribunals and labour. The employers are essentially to give this minimum wage to the
workers.
3. Minimum Wages: The concept of minimum wages has developed due to different standards in
different countries. In Indian context, minimum wage means the minimum amount which an
employer thinks necessary for the sustenance of life and preservation of the efficiency of the
worker. According to Fair Wage Committee, the minimum wages must also provide for some
measures of education- medical requirements and amenities.

4. Fair Wages: In order to bring about improved relations between labour and management an
effort has been made in modern times that the labour gets a fair deal at the hands of owners and
managers of industries. Various proposals were undertaken at the Industries Conference in 1947
and a resolution known as the Industrial Truce Resolution was passed. It is provided for the
payment of fair wages to labour. The government of India appointed a Fair Wages committee in
1948 to determine the principles on which fair wages should be based and to suggest the lines on
which those principles should be applied. According to the report on this Committee, Fair Wages
is that wages which the labourer gets for his work just near to minimum wages and living wages.
Generally, the current rate of wages being paid in the enterprise are known as fair wages.

5. Living Wages: According to Fair Wage Committee Report, The living wage should enable the
male earner to provide for himself and his family not merely the bare essentials of food, clothing
and shelter, but also a measure of frugal comfort including education for children, protection
against ill health, requirements of essential social needs and a measure of insurance against the
more important misfortunes including old age. According to the Committee on Fair Wages, the
living wages represent the highest level of the wages and include all amenities which a citizen
living in a modern civilized society is to expect when the economy of the country is sufficiently
advanced and the employer is able to meet the expanding aspirations of his workers. The Living
Wage should be fixed keeping in view the National income and the capacity of the industry to
pay.

6. Need Based Wages: The Indian Labour Conference at its 15th session held at New Delhi in July,
1957 suggested that minimum wage fixation should be need based. Following are the important
points of the Resolution of the Conference.

a) The standard working class family should include three consumption units for the one earner.
b) Calculation of minimum food requirements should be made on the basis of the
recommendationof Dr. Aykoroyed i.e. 27000 calories for an average Indian adult.

c) Calculation of cloth should be made @ 18 yards annually for one member. As such, a family
consisting of four members will require 72 yards of cloth.

d) The workers should get minimum rent as per guidelines fixed by the government in the industrial
housing policy.

e) Expenses for fuel, light and so on should be equal to 20% of the entire minimum wages.

WAGE DETERMINATION PROCESS

Wage determination is a complex process. However, wage determination process consists of the
following steps:

1. Job Analysis: Job analysis describes the duties, responsibilities, working conditions and inter-
relationships between the job as it is and the other jobs with which it is associated. It attempts to
record and analyse details concerning the training, skills, required efforts, qualifications, abilities,
experience, and responsibilities expected of an employee. After determining the job specifications,
the actual process of grading, rating or evaluating the job occurs. A job is rated in order to
determine its value relative to all the other jobs in the organization which are subject to evaluation.
The next step is that of providing the job with a price. This involves converting the relative job
values into specific monetary values or translating the job classes into rate ranges.

2. Wage Survey: In determining the wages for a specific job it is very necessary to work as to what
wages are being given for the same job in other enterprises. If, on the basis of utility, the wages
for a specific job are determined below the wages for the same job on other enterprises, following
will be its disadvantages:

1. Good persons and persons of merit will not be available.

2. If such people are at all obtained for employment, they will shift to another enterprise after some
time.
It is, therefore, necessary to keep in mind the following in wage-survey:

i) Term of survey, (weekly or monthly)

ii) The whole wage-payment-knowledge of daily working hours or monthly payment.

iii) Definition of jobs.

iv) Appropriate questionnaire for collecting information.

v) Scientific technique of collecting the data.

3. Group Similar Jobs into Pay Grades: After the results of job analysis and salary surveys have
been received, the committee can turn to the task of assigning pay rates to each job, but it will
usually want to first group jobs into pay grades. A pay grade is comprises the jobs of approximately
equal difficulty or importance as determined by job evaluation. Pay grading is essential for pay
purposes because instead of having to deal with hundreds of pay rates, the committee might only
have to focus on a few.

4. Price Each Pay Grade: The next step is to assign pay rates to pay grades. Assigning pay rates to
each pay grade is usually accomplished with a wage curve. The wage curve depicts graphically
the pay rates currently being paid for jobs in each pay grade, relative to the points or ranking
assigned to each job or grade by the job evaluation. The purpose of wage curve is to show the
relationship between (i) the value of the job as determined by one of the job evaluation methods
and (ii) the current average pay rates for the grades.

5. Fine-Tune Pay Rates: Fine tuning involves correcting out of line rates and developing rate
ranges.

(i) Correcting out of Line Rates: The average current pay for a job may be too high or too low,
relative to other jobs in the firm. If a rate falls well below the line, a pay rise for that job may be
required. If the rate falls well above the wage line, pay cuts or a pay freeze may be required.

(ii) Developing Rate Ranges: Most employers do not pay just one rate for all jobs in a particular
pay grade. Instead, they develop rate ranges for each grade so that there might be different levels
and corresponding pay rates within each pay grade. The rate is usually built around the wage line
or curve. One alternative is to arbitrarily decide on a maximum and minimum rate for each grade.
As an alternative, some employers allow the rate for each grade to become wider for the higher
pay ranges reflecting the greater demands and performance variability inherent in these more
complex jobs.

6. Wage Administration Rules: The development of rules of wage administration has to be done
in the next step. It is considered advisable in the interests of the concern and the employees that
the information about average salaries and ranges in the salaries of group should be made known
to the employees concerned; for secrecy in this matter may create dissatisfaction and it may also
vitiate the potential motivating effects of disclosure. Finally, the employee is appraised and the
wage is fixed for the grade he is found fit.

WAGE PAYMENT PROCEDURE

Normally wages are always to be paid in cash. However there may be a system of paying a worker
in kind as well as in cash. Moreover as per the Act of wage payment, the salary of a person has to
be paid either daily, weekly, fortnightly or monthly. Besides there should be proper records of
payment of wages and no deduction except what is permissible is to be allowed against payment
of wages.

Determination of reasonable wages is a difficult task for the management and so they should give
adequate attention to this area. However, different types of wage payment can be divided into three
parts:
1. Time wage

2. Piece wage

3. Wage incentive plan

1. Time wage: In this type the worker is given remuneration according to time. This type of
remuneration may be per hour, per day or per month or per year. There exists no relationship
between the quantum of work and the wage. This type is in operation in all industries in India.
This plan is very simple to understand. The worker works after due thinking and with convenience.
However it encourages the tendency of prolonging or delaying the work unnecessarily. Moreover,
it is very difficult to measure the productivity of the workers under this type of plan.

2. Piece Rate System: In this type of plan, a worker gets remuneration according to his output
irrespective of the time he takes in finishing his job. Here, the payment of remuneration is related
to work and not to time. Under this type, the workers are encouraged to earn more and more. The
more the output is, the more the remuneration is. The workers are also at liberty for their job with
interest and they need not be supervised. However, this type of wage payment is not suitable for
commodities of artistic taste. Moreover, the quality of goods goes down.

3. Wage incentive Plan: This type of wage payment is the combination of two types the above
referred. Efforts have been made here to obtain the advantages of both these types while avoiding
their disadvantages. This includes:

a) Halsey Premium Scheme: Under this scheme if a worker gives an output more than the fixed
standard job, he is given about 33% to 50% of the remuneration for that job as bonus. Here a
standard of output is fixed and a standard of time is also fixed for the completion of that job before
hand. If the job of fixed standard is completed with the standard time fixed for the purpose, the
worker gets his fixed wages. But, if he completes the job before the fixed standard time and,
thereby, saves some time, he gets a fixed percentage of his wages for the time so saved as bonus.

b) Rowan Premium Scheme: This plan is an improvement upon Halsey Plan. Under this plan,
premium is that proportion of the wages for the time taken which the time saved bears to the
standard time. The credit of this incentive premium method goes to Rowan of Scotland. The
worker is paid wages at normal rates for the duration he has worked and is paid extra money in the
form of premium on the basis of the time he has saved. Under this scheme, the standard work and
the standard time both are fixed. The wages for the time saved will increase in the same percentage
that is equal to the proportion the time saved bears to standard time. The premium for the time
saved cannot be more than the total standard wages. Thus, a worker cannot get cleverly wages
more than needed.

c) Taylors Plan: Taylor plan is based on wages per unit. In other words, a worker is paid wages
in accordance with his output. Higher price rate is fixed for the workers who give production over
and above the standard workload fixed. The lower rate is fixed for the workers who give production
below the standard workload fixed.

d) Merrick Plan: This plan is somewhat a modified form of Taylors plan. This plan offers three
grade piece rates than the two offered in the Taylors plan.

I. First limit is for new workers and is very low.

II. Second limit is for workers with average efficiency.

III. Third limit is for very efficient workers.

e) Gantt Plan: This is also a modified form of Taylor plan. In it, wages are fixed on the basis of
time. On the other hand, the efficient workers are given wages per unit. Thus, the workers who
give more output get their wages at enhanced rates.

f) Emerson Plan: This plan is a combination of Taylor, Merrick and Gantt plans. However, a slight
modification in these plans has been made and different rates of bonus have been fixed under this
plan. The amount of bonus increases with the increase in efficiency. These percentages are as
under:
1% bonus on 67.5 efficiency.

10% bonus on 90% efficiency.

20% bonus on 100% efficiency.

20% + 30% extra on bonus on efficiency more than 100%.

g) Profit-Sharing Scheme: Under this scheme, workers are given a certain percentage of profits as
bonus. But it suffers from one defect. Suppose, there is no profit in a particular year. Workers will
also not be given the bonus for that very year. The workers think that they have been deceived by
the employers and therefore, clash with them on this very issue. This assumes the form of worker-
management unrest and has its bad effect on the production. This scheme is undoubtedly a new
and better scheme. But, the trade unions misuse the scheme.

h) Scalan Plan: Under this scheme, the workers are paid bonus equal to the percentage of profits
earned more than the profits earned last year by the organisation. 15% of the bonus is deducted
and this deduction is deposited in the fund which is distributed among the workers in the year to
come.

Wage differentials mean differences or disparities in wages. Wages differ in different

employments or occupations, industries and localities and also between persons in the same
employment or grade. One, therefore comes across such terms as occupational wage differentials,
inter-industry, inter-firm, inter-area or geographical differentials and personal differentials. In
other words, wage differentials may be as follows:

i) Occupational Differentials: The reasons for occupational wage differentials can be varying
requirements of skill, knowledge, demand supply situation, degree of responsibilities etc. In
countries adopting a course of planned economic development, skill differentials play an important
role in manpower and employment programmes, for they considerably help in bringing about an
adequate supply of labour with skills corresponding to the requirements of product plans.

ii) Inter-firm Differentials: Inter-firm differentials reflect the relative wage levels of workers in
different plants in the same area and occupation. Differences in technological advancement,
managerial efficiency, financial capability, age and size of them, relative advantages and
disadvantages of supply of raw materials, power and availability of transport facilities- those are
also accounted for considerable disparities in inter-firm wage rates. Lack of co-ordination among
adjudication authorities, too, are responsible for such anomalies.
iii) Inter-area or Regional Differentials: Such differentials arise when workers in the same industry
and the same occupational group, but living in different geographical areas, are paid different
wages. Regional wage differentials may be conceived in two senses. In the first sense, they are
merely a part of inter-industry differentials in a particular region. In the second sense, they may
represent real geographical differentials, resulting in the payment of different rates for the same
type of work. In both cases, regional differentials affect the supply of manpower for various plants
in different regions.

iv) Inter-industry Differentials: These differentials arise when workers in the same occupation and
the same area but in different industries are paid different wages. Inter-industry differentials reflect
skill differentials. The industries paying higher wages have mostly been industries with a large
number of skilled workers, while those paying less have been industries with a large proportion of
unskilled and semi-skilled workers. Other factors influencing inter-industry differentials are the
extent of unionisation, the structure of product markets, the ability to pay, labour-capital ratio, and
the stage of development of an industry.

v) Inter-personal Wage Differentials: These differentials are between workers in the same plant
and the same occupation. These may be due to differentials in sex, skills, age, knowledge or
experience.

Factors influencing wage and salary structure and administration

The first and the most important problem in wage and salary administration is the establishment
of base compensation for the job. This problem is enormously complicated by such factors as
Supply and Demand, Labor organization, the firms ability to pay, Variations in productivity and
Cost of living, Government legislation, Including CIVICS RIGHTS ACT. In order to attract and
retain needed personnel for the organization, employees must perceive that compensation offered
is equitable in relation to their inputs and relative contributions. The most likely to be used method
to solve this problem at present would be job evaluation, a systematic and orderly process for
establishing the worth of job. The importance of a pay system to an event of major importance to
employees and its effects upon them cannot be ignored. It is a valid system if it results in a structure
acceptable to both employee and employer. In general, structures that are internally and externally
consistent have the greatest chances of affecting overall satisfaction. Under reward, Over-reward
and inconsistency of reward not only tend to lead to lower satisfaction but encourage behaviour
that often proves dysfunctional to organizational objectives. A sound, systematic, consistent
system of compensation determination will do much to promote equity and satisfaction, provided
that such a system is understood and accepted by most employees. Factors influencing wage and
salary structure and administration The wage policies of different organization vary some what.
Marginal units pay the minimum necessary to attract the required number of kind of labour. Often,
these units pay minimum wage rates required by labour legislation, and recruit marginal labour.
At the other extreme, some units pay well about going rates in the labour market. They do so to
attract and retain the highest caliber of labour force. Some managers believe in the economy of
higher wages. They feel that, by paying high wages, they would attract better workers who will
produce more than average worker in the industry. This greater production per employee means
greater output per man hour. Hence, labour costs may turn those existing in firms using marginal
labour. Some units pay high wages because of a combination of a favourable product market
demand, higher ability to pay and the bargaining power of trade union. But a large number of them
seek to be competitive in their wage programme, i.e., they aim at paying somewhere near the going
rate in the labour they employ. Most units give greater weight to two wage criteria, viz, job
requirements and the prevailing rates of wages in the labour market. Other factors, such as changes
in the cost of living the supply and demand of labour, and ability to pay are accorded a secondary
importance.

A sound wage policy is to adopt a job evaluation programme in order to establish fair differentials
in wages based upon differences in job contents. Beside the basic factors provided by a job
description and job evaluation, those that are usually taken into consideration for wage and salary
administration are:

The organizations ability to pay;

Supply and demand of labour;

The prevailing market rate;

The cost of living;

Living wage;
 Productivity;

Trade unions bargaining power;

Job requirements;

Managerial attitudes; and

Psychological and sociological factors.

Levels of skills available in the market.

(1) The organizations ability to pay: Wage increases should be given by those organizations which
can afford them. Companies that have good sales and, therefore, high profits tend to pay higher
those which running at a loss or earning low profits because of higher cost of production or low
sales. In the short run, the economic influence on the ability to pay is practically nil. All employers,
irrespective of their profits or losses, must pay no less than their competitors and need to pay no
more if they wish to attract and keep workers. In the long run, the ability to pay is important.
During the time of prosperity, pay high wages to carry on profitable operations and because of
their increased ability to pay. But during the period of depression, wages are cut because the funds
are not available. Marginal firms and non profit organization (like hospitals and educational
institutions) pay relatively wages because of low or non profits.

(2) Supply and demand of labour: The labour market conditions or supply and demand forces
operate at the national, regional and local levels, and determine organizational wage structure and
level. If the demand for certain skills is high and supply is low, the result is a rise in the price to
be paid to these skills. When prolonged and acuter, these labour market pressures probably force
most organizations to reclassify hard to fill jobs at a higher level that suggested by the job
evaluation. The other alternative is to pay higher wages if the labour supply is scarce; and lower
wages when it is excessive. Similarly, if there is a great demand for labour expertise, wages rise;
but if the demand for manpower skill is minimal, the wages will be relatively low. The supply and
demand compensation criterion is very closely related to the prevailing pay, comparable wage and
on going wage concepts since; in essence, all of these remuneration standards are determined by
immediate market forces and factors.
(3) Prevailing market rate: This is known as the comparable wage or going wage rate, and is
the widely used criterion. An organization compensation policy generally tends to conform to the
wage rate payable by the industry and the community. This is done for several reasons. First,
competition demand that competitors adhere to the same relative wage level. Second, various
government laws and judicial decisions make the adoption of uniform wage rates an attractive
proposition. Third, trade union encourages this practice so that their members can have equal pay,
equal work and geographical differences may be eliminated. Fourth, functionally related firms in
the same industry requires essentially the same quality of employees, with same skill and
experience. This results in a considerable uniformity in wage and salary rates. Finally, if the same
or about the same general rates of wages are not paid to the employees as are paid by the
organizations competitors, it will not be able to attract and maintain the sufficient quantity and
quality of manpower. Some companies pay on a high side of the market in order to obtain goodwill
or to insure an adequate supply of labour, while other organizations pay lower wages because
economically they have to or because by lowering hiring requirements they can keep jobs
adequately manned.

(4) The cost of living: The cost of living pay criterion is usually regarded as an automatic minimum
equity pay criterion. This criterion calls for pay adjustments based on increases or decreases in an
acceptable cost of living index. In recognition of the influence of the cost of living. escalator
clauses are written into labour contracts. When the cost of living increases, workers and trade
unions demand adjusted wages to offset the erosion of real wages. However, when living costs are
stable or decline, the management does not resort to this argument as a reason for wage reductions.

(5) The living wage: Criterion means that wages paid should be adequate to enable an employee
to maintain himself and his family at a reasonable level of existence. However, employers do not
generally favor using the concepts of a living wage as a guide to wage determination because they
prefer to base the wages of an employee on his contribution rather than on his need. Also, they feel
that the level of living prescribed in a workers budge is open to argument since it is based on
subjective opinion.

(6) Psychological and Social Factors: These determine in a significant measure how hard a person
will work for the compensation received or what pressures he will exert to get his compensation
increased. Psychologically, persons perceive the level of wages as a measure of success in life;
people may feel secure; have an inferiority complex, seem inadequate or feel the reverse of all
these. They may not take pride in their work, or in the wages they get. Therefore, these things
should not be overlooked by the management in establishing wage rate. Sociologically and
ethically, people feel that equal work should carry equal wagesthatwages should be
commensurate with their efforts,thatthey are not exploited, and that no distinction is made on
the basis of caste, colour, sex or religion. To satisfy the conditions of equity, fairness and justice,
a management should take these factors into consideration. (7) Skill Levels Available in the
Market: With the rapid growth of industries business trade, there is shortage of skilled resources.
The technological development, automation has been affecting the skill levels at faster rates. Thus
the wage levels of skilled employees are constantly changing and an organization has to keep its
level up to suit the market needs.

ADMINISTRATION OF WAGES AND SALARIES

Wage and salary administration should be controlled by some proper agency. This responsibility
may be entrusted to the personnel department or to some job executive. Since the problem of wages
and salary is very delicate and complicated, it is usually entrusted to a Committee composed of
high-ranking executives representing major line organizations. The major functions of such
Committee are:

a) Approval and/or recommendation to management on job evaluation methods and findings;

b) Review and recommendation of basic wage and salary structure;

c) Help in the formulation of wage policies from time to time;

d) Co-ordination and review of relative departmental rates to ensure conformity; and

e) Review of budget estimates for wage and salary adjustments and increases.

This Committee should be supported by the advice of the technical staff. Such staff committees
may be for job evolution. Job description, merit rating, wage and salary surveys in an industry,
and for a review of present wage rates procedure and policies.

Alternatively, the over all plan is first prepared by the Personnel Manager in consultation and
discussions with senior members of other departments. It is then submitted for final approval of
the top executive. Once he has given his approval, for the wage and salary structure and the rules
for administration, its implementation becomes a joint effort of all heads of the departments. The
actual appraisal of the performance of subordinates is carried out by the various managers, who in
turn submit their recommendations to higher authority and the latter, in turn, to the personnel
department. The personnel department ordinarily reviews recommendations to ensure compliance
with established rules of administration. In unusual cases of serious disagreement, the president
makes the final decision.

PRINCIPLES OF WAGES AND SALARY ADMINISTRATION

The generally accepted principles governing the fixation of wages and salary are:

a) There should be definite plan to ensure that differences in pay for jobs are based upon variations
in job requirements, such as skill effort, responsibility or job or working conditions and mental
and physical requirements.

b) The general level of wages and salaries should be reasonably in line with that prevailing in the
labour market. The labour market criterion is most commonly used.

c) The plan should carefully distinguish between jobs and employees. A job carries a certain wage
rate, and a person is assigned to fill it that rate. Exceptions sometimes occur in very high level jobs
in which the job holder may make the job large or small, depending upon his ability and
contributions.

d) Equal pay for equal work, i.e., if two jobs have equal difficulty requirements, the pay should be
the same, regardless of who fills them.

e) An equitable practice should be adopted for the recognition of individual differences in ability
and contribution. For some units, this may take the from of rate ranges, with in grade increases; in
others, it may be a wage incentive plan; in still others, it may take the from of closely integrated
sequences of job promotion.

f) There should be a clearly established procedure for hearing and adjusting wage complaints. This
may be integrated with the regular grievance procedure, if it exists.

g) The employees and the trade union, if there is one, should be informed about the procedure used
to establish wage rates. Every employee should be informed of his own position, and of the wage
and salary structure. Secrecy in wage matters should not be used as a cover up for haphazard and
unreasonable wage programme.

h) The wage should be sufficient to ensure for the worker and his family reasonable standard of
living. Workers should receive a guaranteed minimum wage to protect them against conditions
beyond their control.

i) The wage and salary structure should be flexible so that changing conditions can be easily met.

j) Prompt and correct payments of the dues of the employees must be ensured and arrears of
payment should not accumulate.

k) For revision of wages, a Wage Committee should always be preferred to the individual
judgement, however unbiased, or a manager.

l) The wage and salary payment must fulfill a wide variety of human needs, including the need for
self-actualisation. It has been recognized that money is the only form of incentive which is wholly
negotiable, appealing to the widest possible range of seekers. Monetary payment often acts as
motivation and satisfies interdependently of other job factors.

Desire to maintain or enhance the companys prestige has been a major factor in the wage policy
of a number of firms. Desires to improve or maintain morale, to attract high caliber employees, to
reduced turnover, and to provide a high living standard for employees as possible also appear to
be factors in managements wage policy decisions.

(10) Psychological and Social Factors: These determine in a significant measure how hard a person
will work for the compensation received or what pressures he will exert to get his compensation
increased. Psychologically, persons perceive the level of wages as a measure of success in life;
people may feel secure; have an inferiority complex, seem inadequate or feel the reverse of all
these. They may not take pride in their work, or in the wages they get. Therefore, these things
should not be overlooked by the management in establishing wage rate. Sociologically and
ethically, people feel that equal work should carry equal wagesthatwages should be
commensurate with their efforts,thatthey are not exploited, and that no distinction is made on
the basis of caste, colour, sex or religion. To satisfy the conditions of equity, fairness and justice,
a management should take these factors into consideration.
(11) Skill Levels Available in the Market: With the rapid growth of industries business trade, there
is shortage of skilled resources. The technological development, automation has been affecting the
skill levels at a faster rate. Thus the wage levels of skilled employees are constantly changing and
an organization has to keep its level up to suit the market needs.

Wage Policy in India

Minimum Wage
Fair wage
Living wage

State regulation of wages

Minimum wages act, 1948

Payment of Wages Act, 1936

Wages and Salary Administration in India:

Wage policy refers to all systematic efforts of the government in relation to a national wage and
salary system. It includes orders, legislations, etc., to regulate the levels or structures of wages and
salaries with a view to achieving economic and social objectives of the government. Specifically,
the objectives of wage policy are:

To obtain for the workers a just share of the fruits of economic development
To set minimum wages for workers whose bargaining position is weak
To bring about a more efficient allocation and utilization of human resources through wage
and salary differentials, and
To abolish malpractices and abuses in wage and salary payments.

The first step towards the evolution of a wage policy was the enactment of the Payment of Wages
Act, 1936. The main objective of the Act is to prohibit any delay or withholding of wages
legitimately due to the employees. The next step was the passing of the Industrial Disputes Act,
1947, authorizing all the state governments to set up industrial tribunals which would look into
disputes relating to remuneration. Another notable development that led to the evolution of wage
policy was the enactment of the Minimum Wages Act, 1948. The purpose of the Act is the fixation
of minimum rates of wages to workers in sweated industries such as woolen, carpet making, flour
mills, tobacco manufacturing, oil mills, plantations, quarrying, mica, agriculture and the like. The
Act was amended several times to make it applicable to more and more industries. Then came the
Equal Remuneration Act, 1976, which prohibits discrimination in matters relating to remuneration
on the basis of religion, region or sex. The Constitution of India committed the government to
evolve a wage policy.

Successive five year plans documents have also devoted necessary attention to the need for wage
policy. Following the recommendations of the First and Second Plans, the Government of India
constituted wage boards for important industries in the country. A wage board is a tripartite body
comprising representations from the government, owners, and employees. Technically speaking,
a wage board can only make recommendations, and wage policies are normally implemented
through persuasion. In spite of legislations, tribunals and boards, disparities in wages and salaries
still persist.

Some of the disparities are:

Employees of MNCs are paid much more than their counterparts in host countries for
identical work.
Different industries have different wage and salary structures resulting in disparities in
remuneration for identical work.
Wide gaps exist between wages and salaries of employees in the organized sector and of
those in the unorganized sector, the latter earning much less than the former.
Differences exist between earnings of employees in the government sector and those in the
private sector.
Within the government sector salary differences exist among employees of different
departments.