Module 4

Wage and Salary Administration

Learning Agenda

• Wage Concepts• Job Evaluation – Methods & Techniques • Wage Structure, Policy & Differentials • Wage Payment Methods • Incentives & Fringe Benefits • Performance Appraisal: Scope & Significance Methods of Appraisal Limitations of Appraisal.

Wages and salaries• Wages in the widest sense mean any

economic compensation paid by the employer under some contract to his workers for the services rendered by them.

• But, in the narrower sense wages are the price paid for the services of a labour in the process of production.

Basic Definitions and Concepts:

• Wage: According to Payment of Wages Act, 1936,

“Wages” means all remuneration (Whether by the way of salary, allowances or otherwise) expressed in terms of money or capable of being expressed , would be payable to a person employed in respect of his employment or of work done in such employment.

It includes:

• Any remuneration payable under any award or settlement between the parties or order of a court

• Any remuneration to which the person employed is entitled in respect of overtime work or holidays or any leave period.

• Any sum towards termination of employment of the person under any law

• Any sum to which the person employed is entitled under any scheme framed under any law for the time being in force.

it does not include:

• Any bonus which does not form part of the remuneration payable under the terms of employment.

• Any contribution paid by the employer to any pension or P.F and the interest accrued thereon

• Any travelling concession• Any gratuity payable• Any sum paid to the employed person to

settle special expenses entailed by the nature of his employment.

Salary:

• defined as the remuneration paid to the clerical and managerial personnel employed on monthly or annual basis.

• distinction between wage and salary doesn’t seem to be valid on these days of human resources approach where all employees are treaded as human resources .

• Hence, these two terms can be used interchangeably.

Earnings:

• Earnings are the total amount of remuneration received by an employee during a given period.

• These include salary, dearness allowance; house rent allowance, city compensatory allowances, other allowances, overtime payments etc.

Statutory minimum wage:

• It is the wage determined and fixed according to the procedure prescribed by the relevant provisions of the Minimum Wages Act, 1948.

• It is the obligation of the employer to pay them regardless of his ability to pay.

Living Wage:

• defined as wage to enable the earner to provide for himself and his family the bare essentials of food, clothing and shelter comfort.

• It is provided for a standard of living to ensure good health for the worker, and his family .

• Such a wage is determined by keeping in view the national income and capacity to pay of an industry.

Job analysis

• A job analysis is the process used to collect information about the duties, responsibilities, necessary skills, outcomes, and work environment of a particular job.

• Job analysis is a systematic description of the activities within a job.

Definition It is a scientific method to define the duties,

responsibilities and accountabilities of a job. It involves the identification and description of

what is happening on the job and also the skills and quality of personnel needed for the job.

Thus, the analysis produces information on job requirements, which is then used for developing job descriptions (what the job entails) and job specifications (what kind of people to hire for the job).

Methods of Job evaluation

• Ranking method• Classification method• Point method• Factor comparison

Job Evaluation Methods

Ranking method: • The job ranking method arranges jobs in

numerical order on the basis of the importance of the job's duties and responsibilities to the organization.

• This method, though easy to understand, is highly subjective in nature.

Classification method:• The job classification method slots jobs into pre

established grades. • Higher-rated grades demand more responsibilities,

tougher working conditions and varied job duties. • This method is easy to understand and takes care

of all relevant factors affecting the performance of a job.

• However, it is not easy to write broad descriptions of a grade.

• Further, the method oversimplifies differences between different jobs and different grades.

Point method

• The point system of job evaluation uses a point scheme based on the compensable job factors of skill, effort, responsibility and working conditions.

• The more compensable factors a job possesses, the more points are assigned to it.

• Jobs with higher accumulated points are considered more valuable to the organization.

Highlights in HRM 2 Point Values for Job Factors of the American Association of Industrial Management

1ST 2ND 3RD 4TH 5THFACTORS DEGREE DEGREE DEGREE DEGREE DEGREESkill

1. 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 20 259. Work of others 5 10 15 20 25

Job Conditions10. Working conditions 10 20 30 40 5011. Hazards 5 10 15 20 25

Factor comparison method:

In this method, jobs are ranked according to a series of factors such as

• mental effort, • physical effort, • skill needed,• responsibility, • supervisory • working conditions, etc. Pay will be assigned in this method by comparing

the weights of the factors required for each job.

Job Evaluation Advantages

Provides a systematic and rational procedure for valuing each job

Ensures a degree of equity and objectiveness in remuneration

Job descriptions generated are useful for other activities

Helps motivation and morale Both employee and employer needs are addressed Scope for union/employee involvement

Job Evaluation Disadvantages

Lack of allowance for differences in performance Assessment can be costly & time-consuming

especially at the start Assessment can be inaccurate or approximate It’s still subjective!

Wage curve • A wage curve is a graph of the relation between

the local rate of unemployment, on the horizontal axis, and the local wage rate, on the vertical axis.

• It shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation.

• Curve in a scatter gram representing the relationship between relative worth of jobs and wage rates.

Plotting a Wage Curve

Wage Structure comprises of• Wage Curve : A curve in a scatter gram representing the relationship

between relative worth of jobs and wage rates.• Pay Grades: Groups of jobs within a particular class that are paid the

same rate.• Rate Ranges: A range of rates for each pay grade that may be the

same for each grade or proportionately greater for each successive grade.

• Red Circle Rates: Payment rates above the maximum of the pay range.

Wage determination process

• Job analysis• Wage survey• Relevant organizational problems• Preparation of wage structure• Wage payments

Wage structure

• It depends on:1. organization's wishes2. Wage range for merits or common rates3. Pay grades4. Money value for each grades

Determining Individual wage rate

• Management wage philosophy• Wage theory• Industry wise wage rate• Job wage rate for grades• Performance appraisal

Criteria for wage fixation

• Organization’s ability to pay• Supply & demand of labour• Prevailing market rate• Cost of living• Productivity• Trade union • Job requirements• Psychological & social factors

Wage differentials

• Wages differ in different employments., industries, locations & persons.

• It has been classified as 1. Differences in market imperfections2. Differences in social values3. Any other