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Wage concepts
Money paid to the workers is considered as wages
Wage is the payment made to the workers for placing theirskill and energy at the disposal of an employer, the methodof use of that skill and energy being at the employers
discretion and the amount to the payment being inaccordance with terms stipulated in a contract service.
British Ministry of Labour and National Services
Manoj Mathew, RCBS
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Wage concepts
Wages are remuneration for labour. Like interest and rent,wages are contractual income. Wage rates, whether piecerates or time rates or whether fixed in money or in goods,are agreed upon by the payers and the recipients of wages
before the product is sold.
Encyclopedia of Social sciences. 1957
Compensation is a comprehensive term which includeswage and all other allowances and benefits. The process of
compensation is a complex network of sub-processesdirected towards remunerating people for the servicesrendered and motivating them to attain a desired level ofperformance.
Manoj Mathew, RCBS
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Wage Administration
Refers to the establishment and implementation of sound policyand practices of employee compensation . It includes such areas as
job evaluation, survey of wages and salaries analysis, development
and maintenance of wage structure, establishing rules foradministrating wage payments, incentives, profit sharing, wagechanges and adjustments, supplementing payments, control ofcompensation costs and other related areas.
Manoj Mathew, RCBS
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Remuneration
financial
Hourly andMonthlyRatedWages
Salaries
IncentivesIndividualplansGroup plans
FringeBenefitsPFGratuity
MedicalcareAccidentreliefHealth andGroup
Insuranceetc
PerquisitesCompanycarClub
MembershipPaidholidaysFurnishedhouse
Stockoption
Components Of Employee Remuneration
N F
JobContentsChallenging
JobResponsibilities
Recognitiongrowthprospect
sManoj Mathew, RCBS
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Components of the Wage Mix
WAGEMIX
Labor Market
Conditions
Area WageRates
Cost ofLiving
CollectiveBargaining
LegalRequirements
Compensation Strategy
of the Organization
Worth ofthe Job
EmployeesRelativeWorth
EmployersAbilityto Pay
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Legal Frameworkfor WageDetermination in India
Payment of Wages Act 1936
Minimum wages Act 1948
Industrial Dispute Act 1947
Equal Remuneration Act 1976 Payment of Bonus Act 1965
Wage Boards
Pay Commission
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Report of the Committee on Fair Wages1948
Minimum wage the wage which must provide not only forthe bare sustenance of life, but for the preservation of theefficiency of the worker. For this purpose the minimum wagemust provide for some measure of education, medical
reimbursements and amenities
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Living wage
Living wage is one which should enable the earner to providefor himself and his family not only the bare essentials of food,clothing and shelter but a measure of frugal comfort, includingeducation for his children, protection against ill health,
requirements of essential social needs and a measure ofinsurance against the more important misfortunes, includingold age.
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Fair wage
It is the wage which is above the minimum wage but below theliving wage..
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Wage Theories
Manoj Mathew, RCBS
Subsistence TheoryWages tend to settle at the minimum subsistence level
Originated by Pysiocratic School and developed by AdamSmith and classical economists
Thomas Malthus- Theory of Population Karl Max The reserve army of labour- capital
accumulation leading to technological unemployment
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Wage Theories
Manoj Mathew, RCBS
Wage Fund Theory Associated with J S MillWages depend upon two quantities:
the wage fund or the circulating capital set aside forthe purchase of labour, and
the number of labourers seeking employment
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Wage Theories
Manoj Mathew, RCBS
Marginal Productivity Theory Associated with Alfredmarshall and J R HicksWages depend upon marginal productivity of labour.
the wages received by the marginal labourer
determines the wages paid to all the other labourerson the same grade.
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Wage Theories
Manoj Mathew, RCBS
The residual claimant Theory Associated with Francis AWalkerWages are that part of residual surplus which is left afterother factor charges (rent, interest and profits) are met.
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Wage Theories
Manoj Mathew, RCBS
Bargaining Theory The actual wage rate which isultimately decided in a collective bargaining agreement willdepend upon the relative bargaining strength of theemployers and employees.
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Wage Theories
Manoj Mathew, RCBS
Employment Theoryo Two schools of thoughto J B Say and Pigou
Unemployment will disappear if the workers
were to accept a voluntary cut in wages.o J M Keynes General Theory of Employment,
Interest and Money (1936) Advocated wage rigidity in place of wage
flexibility Aggregate Effective Demand
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Wage Theories
Manoj Mathew, RCBS
Labour theory of valueo Karl Marx surplus value
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Click to edit Master subtitle style
3/18/13 Manoj Mathew, RCBSManoj Mathew, RCBS
JOB EVALUATION
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Job Evaluation
Job Evaluation
The systematic process of determiningthe relative worth of jobs in order to
establish which jobs should be paid morethan others within an organization.
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Different Job EvaluationSystems
JOB AS JOB PARTSBASIS FOR A WHOLE OR FACTORSCOMPARISON (NONQUANTITATIVE)
(QUANTITATIVE)
Job vs. job Job ranking Factor comparisonsystem system
Job vs. scale Job classification Pointsystem system
SCOPE OF COMPARISON
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Job Evaluation Systems
Job Ranking System
Oldest system of job evaluation bywhich jobs are arrayed on the basis of
their relative worth.
Disadvantages
Does not provide a precise measure of
each jobs worth.
Final job rankings indicate the relativeimportance of jobs, not extent ofdifferences between jobs.
Method can used to consider only a
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Paired-Comparison Job RankingTable
Directions: Place an X in the cell where the value of a row job is higher than thatof a column job.
index
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Job Evaluation Systems
Job Classification system
A system of job evaluation in which jobsare classified and grouped according to a
series ofpredetermined wage grades.
Successive grades require increasingamounts of job responsibility, skill,
knowledge, ability, or other factorsselected to compare jobs.
index
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Point System Point System
A quantitative job evaluation procedurethat determines the relative value of a
job by the total points assigned to it.
Permits jobs to be evaluatedquantitatively on the basis of factors orelementscompensable factorsthatconstitute the job.
Point Manual
A handbook that contains a description
of the compensable factors and thede rees to which these factors ma exist
P i t V l f J b F t
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Point Values for Job Factorsof The American Association of Industrial
Management
1ST 2ND 3RD 4TH 5TH
FACTORS DEGREE DEGREE DEGREE DEGREE DEGREE
Skill1. Education 14 28 42 56 702. Experience 22 44 66 88 1103. Initiative and ingenuity 14 28 42 56 70
Effort4. Physical demand 10 20 30 40 505. Mental or visual demand 5 10 15 20 25
Responsibility6. Equipment or process 5 10 15 20 257. Material or product 5 10 15 20 258. Safety of others 5 10 15 20 25
9. Work of others 5 10 15 20 25
Job Conditions10. Working conditions 10 20 30 40 5011. Hazards 5 10 15 20 25
index
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Factor Comparison System
Factor Comparison System
A job evaluation system that permits theevaluation process to be accomplished
on a factor-by-factor basis by developinga factor comparison scale.
The compensable factors of ajob
evaluated are compared against thecompensable factors ofkey jobs withinthe organization that serve as the jobevaluation scale.
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Characteristics of Key Jobs Key Jobs
Jobs that are important for wage-setting purposes and are widely knownin the labor market.
Characteristics of Key Jobs
They are important to employees and theorganization.
They vary in terms ofjobrequirements.
They have relatively stable job content.
The are used in salar surve s for wa e
index
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Job Evaluation forManagement Positions
Hay Profile Method
Job evaluation technique using threefactorsknowledge, mental activity, and
accountabilityto evaluate executiveand managerial positions.
E it d It I t
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Equity and Its Impact onPay Rates
ExternalEquity
ProceduralEquity
InternalEquity
IndividualEquity
Forms of Equity
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Relationship between PayEquity and Motivation
The greater the perceived disparity between myinput/output ratio andthe comparison persons input/output ratio, the greater mymotivation to reduce the inequity.
Th K S i C i
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The Key Steps in CreatingCompensation Plans
1998 by Prentice
1. JobAnalysis
Job Evaluation forInternal Equity
2. JobDescriptions
Identify
CompensableFactors
3. JobSpecifications
4. Rate Worth of All
JobsUsing aPredeterminedSystem5. Job
Hierarchy
7. Establish FinalPayPolicy
IndividualPay
6. Classify Jobs
byGrade Levels
1. Check Market
Value UsingBenchmark or KeyJobs
Market SurveysforExternal Equity
Within-Pay-RangePositioning
Criteria forIndividual E uit
Criteria for PayPositioning WithinRange for Each Job Experience Seniority Performance
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Pay for Performance Systems /Incentive Systems
Pay-for-performance systems, also calledincentive systems, reward employeeperformance on the basis of three
assumptions: Individual employees and work teams differ in
how much they contribute to the firmnotonly in what they do, but also in how well theydo it.
The firms overall performance depends to alarge degree on the performance of individualsand groups within the firm.
To attract, retain, and motivate highperformers and to be fair to all employees, a
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Pay-for-Performance Programs
Microlevel
Meritpay
Bonuse
s
Awards
Piece
rate
Individual Team
Macrolevel
Business Unit/Plant Organization
Bonuses
Awards
Gainsharing
Bonuses
Awards
Profitsharing
Stock
plans
Unit of Analysis
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Gainsharing is aplant wide incentive plan
in which a portion of the companys costsavings is returned to workers, usually in theform of a lump-sum bonus.
Profit sharingis a corporate wide incentiveplan that uses a formula to allocate a portion
of declared profits to employees.
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Key Strategic Pay Policy Questions in theDesign of Executive Long-Term Income
Programs1. How long should the time horizon be for
dispensing rewards?2. Should length of service be considered in
determining the amount of the awards?
3. Should the executive be asked to share part ofthe costs and, therefore, increase his or herpersonal risk?
4. What criteria should be used to trigger theaward?
5. Should there be a limit on how much executives
can earn or a formula to prevent large unexpectedgains?
6. How often should the awards be provided?7. How easy should it be for the executive to
convert the award into cash?
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Advantages of Individual-BasedPay-for-Performance Plans
Performance that is rewarded islikely to be repeated.
Individuals are goal-oriented and
financial incentives can shape anindividuals goals over time.
Assessing the performance of eachemployee individually helps the
firm achieve individual equity. Individual-based plans fit in with an
individualistic culture.
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Disadvantages
Tying pay to goals may promotesinge-mindedness.
Many employees do not believe that
pay and performance are linked. Individual pay plans may work
against achieving quality goals.
Individual-based programs promoteinflexibility in some organizations.
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Conditions Under Which Individual-
Based Plans Are Most Likely to Succeed
When the contributions of individualemployees can be accurately isolated.
When the job demands autonomy. When cooperation is less critical to
successful performance or whencompetition is to be encouraged.
They foster group cohesiveness.
They aid performance measurement.
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Advantages of Team-Based
Pay-for-Performance Plans
They foster groupcohesiveness.
They aid performance
measurement.
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Disadvantages of Team-BasedPay-for-Performance Plans
Possible lack of fit withindividualistic cultural values.
The free-riding effect. Social pressures to limit
performance.
Difficulties in identifyingmeaningful groups.
Intergroup competition leading to a
d li i ll f