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It presents the analytical framework for reward systems the company level which includes financial & non-financial rewards , employee benefits, incentives & their link with productivity. It summarizes the key issues in the wage system from the point of view of the key actors in the industrial relations system workers, unions, managements & the government.
Theories of Wage
There are mainly three types of theories of wage:
Economic Theories: These theories can be broadly classified into two categories:
The theories that explain wages predominantly in terms of factors that influence the supply price of labour.
The theories that consider wages as being determined primarily by factors which influence the demand price of labour.
This theory is associated with Karl Marx. According to his view, the supply of labour always tended to be kept in excess of the demand for it by a special feature of the capitalist wage system. Also, the worker did not get full compensation for the time spent on the job. The rate of surplus value , which is the ratio of surplus labour to necessary labour, is also referred as rate of exploitation under the capitalist for of production.
The Bargaining Theory John Davidson, an American economist, was the first exponent of the Bargaining Theory of Wages. He argued that the wages & hours of work were ultimately determined by the relative bargaining strength of the employers & the workers.
According to this theory, there is an upper limit & a lower limit on wage rates & the actual rates between these limits are determined by the bargaining power of the employers & the workers. The upper limit marks the highest wages the employers would be willing to pay, whereas, the lower limit indicates the minimum wages prescribed under the strength of resistance of the workers at the subsistence wages below which they will not available for work.
The Purchasing Power Theory Keynes applied a new theory to the economy as a whole & not to an individual firm or industry. According to him, wages are not only the cost of production for an employer but also incomes for the wage earners who constitute a majority in the total working population. A major part of the products of an industry is consumed by the same workers & their families. Hence, if the wage rates are high they will have more purchasing power, which would increase the aggregate demand for goods & the level of output. Conversely, if the wage rates are low, their purchasing power would be less, which would bring about a fail in the aggregate demand. Therefore, according to him, a cut in the wage rate instead of removing unemployment & depression will further add to the problem.
Expectancy theory
It suggests that motivation depends on individuals expectations about their ability to perform tasks & receive the desired rewards. An employers responsibility is to help employees meet their needs &, at the same time, attain organizational goals. Employers must try to find out match between employees skills & abilities & the job demands.