T.Latha Chakravarthi

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Pay is a statement of an employee’s worth by an employer.

Pay is a perception of worth by an employee.

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The basic nature of wage and salary administration is to establish and maintain an equitable wage and salary structure.

Steven Kerr says, “People do what they do to satisfy some need. Before they do anything, they look for a reward or pay-off.”

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Motivate & Retain Staff

Attract talent

Contribution based Remuneration

Administratively Efficient

Reward Valued Behavior

Effective Compensation

Ensure Equity

Institutionalized Processes

Legal Compliance

1. Employees are paid according to requirements of their jobs.

2. Favouritism is minimized

3. Job sequences, lines of promotion are established

4. Employees morale and motivation are increased - wage programme can be explained & based on facts

5. Employers can control the labour costs

6. Dealing with trade unions is easier

7. Attracts qualified employees

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Wage – ILO defines, “the remuneration paid by the employer for the services of hourly, daily, weekly and fortnightly employees”

Salary – it is the remuneration paid to the clerical and managerial personnel employed on monthly or annual basis

Earnings – it is the total amount of remuneration received by an employee during a given period. (pay + DA+HRA+CCA+other allowances+overtime payment)

Nominal Wage – it is the wage paid or received in monetary terms

Real Wage – it is the amount of wage arrived after discounting nominal wage by the living cost.

The Living Wage – According to the committee on fair wages, the living wage is the higher amount of remuneration (needed for a modern civilized society)

Take home Salary

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Minimum Wage – it is the amount of remuneration which could meet the “normal needs of the average employee regarded as a human being living in a civilised society”

Statutory Minimum Wage – it is the amount of remuneration fixed according to the provisions of the Minimum Wages Act, 1948.

The Fair Wages – Incentive Wage Wage Rate – it is an amount of remuneration for a unit of

time excluding incentives, overtime pay etc Standard Wage Rate – it is the amount of wage fixed for

a unit of time fixed on the basis of job evaluation standards

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Total CompensationTotal CompensationTotal CompensationTotal Compensation

DirectDirectDirectDirect IndirectIndirectIndirectIndirect

BonusesBonusesBonusesBonuses

GainsharingGainsharingGainsharingGainsharingSecurity Plans• Pensions

Security Plans• Pensions

Employee Services• Educational assistance• Recreational programs

Employee Services• Educational assistance• Recreational programs

CommissionsCommissionsCommissionsCommissions

Wages / SalariesWages / SalariesWages / SalariesWages / Salaries

Insurance PlansInsurance Plans• MedicalMedical• DentalDental• LifeLife

Insurance PlansInsurance Plans• MedicalMedical• DentalDental• LifeLife

Time Not WorkedTime Not Worked• VacationsVacations• BreaksBreaks• HolidaysHolidays

Time Not WorkedTime Not Worked• VacationsVacations• BreaksBreaks• HolidaysHolidays

Presentation Slide 9–1

Salary is structured, fixed, adjusted on the basis of several systems

1. Wage Theories

i. The Just Wage Theory

ii. Subsistence Theory

iii. Standard of Living Theory

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iv. The Wage Fund Theory : According to J.S.Mill, Wage = Amount of fund allocated for wage payment

Number of workersv. Residual Claimant Theory : According to Walker, The amount of wages = Production value – (Rent + Profits +

interest)v. Marginal Productivity Theory : basis of marginal contributions

of the worker to the productionvi. The Bargaining Theory of wages : relative bargaining strength

of the two parties, (Employer and Employees)vii. Contribution of behavioural scientists to the wage theories –

based on size, nature, prestige of organisation, strength of union, social norms, traditions, customs, job authority, responsibility & status, job satisfaction, morale, employee behaviour and level of performance

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2. Job Evaluation

3. Wage/Salary Survey

4. Factors affecting Wage/Salary Levels

5. Wage Fixation Institutions in India

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WAGEWAGEFixationFixation

Labor MarketConditions

Area WageRates

Cost ofLiving

CollectiveBargaining

LegalRequirements

Compensation Strategyof the Organization

Worth ofthe Job

Employee’sRelativeWorth

Employer’sAbilityto Pay

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Wage survey & analysis of relevant organizational problems

Job Evaluation

Job Analysis

Job Description & Specification

Performance Standards

Differential Employee Appraisal

Wage Payments

Rules of Administration

Wage Structure

Wage Legislation

Wages are fixed by the following institutions in India. They are:

1. Collective Bargaining & Adjudication2. Wage Boards3. Pay Commissions

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The Executive Pay Package◦ Base salary◦ Short-term incentives or bonuses◦ Long-term incentives or stock plans◦ Perquisites (perks)

Copyright © 2004 South-Western. All rights reserved.

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Stock Price Appreciation Plans

Stock Options

Stock Appreciation Rights (SARS)

Stock Purchase

Phantom Stock

Restricted Stock/Cash Plans

Restricted Stock

Restricted Cash

Performance-Based Plans

Performance Units

Performance Shares

Formula-value Grants

Dividend Units

Copyright © 2004 South-Western. All rights reserved.

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Figure 10.3b

Incentives are most useful when:◦ Focused on key performance targets that

produce employee and organizational gains.

◦ Variable costs of payouts are linked to the achievement of competitively important results.

◦ Directly relating payouts to achieving operating performance objectives (quantity and/or quality).

◦ Teamwork and unit cohesiveness are fostered by basing payments to individuals on team results.

◦ Used to distribute success among those responsible for producing that success.

Copyright © 2004 South-Western. All rights reserved.

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Figure 10.1Presentation Slide 10–1

INDIVIDUAL GROUP ENTERPRISE

Piecework Team compensation Profit sharing

Standard hour plan Scanlon Plan Stock options

Bonuses Rucker Plan Employee stockMerit pay Improshare ownership plans

Lump-sum merit pay Earnings-at-risk plans (ESOPs)

Sales incentives

Incentives for professional employees

Executive compensation