IK 425: COMPENSATION AND BENEEITS MANAGEMN
Module One: Factors influencing wage and
siHU
The wage and
organizations may pavsalaryonly policies of diferent organizations may vary many a times. Certai
Certain organizations, in the mininmunm wage rates as required by the labour legislaticon of the land
minimum wages through devcloping countries ineluding India are also notorious for payng less tharn
which pay their workers wagesIraudulent ways. At the other extreme, there also otlher organizations
much above the "goine rales' in the labour mrket
There are various factors,
considered as the most importantwhich intluence wage and salary strueture. The lollowing can be
factors, which intluence and
decide the wage and Saly
Ihe organization's ability to pav:
those organizations, which can Itis widely nccented that wae
increases should be
must puy at least the wages paid bythem. All emnlovers, irrespeetive of their protits orgven
aftord t
losses
Companies /organizations that have good their competitors in order to attract
those suftering losses or earning sales and high profits tend to pay and keep workes.
wages are usually cut bccause low profits, It is also noticed that during higher wages tha
funds a period of depresston.
organizations pay relatively low wages are not available Marginal |small] tirms and non-protit
because of low or no profits.
2. Supply and demand of
forces which operate at labour: The labour market
the national, regional and conditions that is 'Supply and Demand
determines organizational wage structure. local levels, is
is low, it results in the If the demand for certain skills a najor factor which
payment of is high and the
higher wages are paid if the labourhigher wages for these skills. It is noted that in the job supply
supply is excessive. Similarly if there supply is scarce and lower wages market
is are
great demand for 'labour expertise', paid when the labour
and if the demand for manpower skills is minimal, the wage levels wage
levels rise
will be relatively low.
3. Prevailing market
rates:
rate is also known as theThis is another important criteria for wage tixation. Prevailing market
compensations policies usuallycomparable
tend to
wage' or going wage rate'
confirm to the wage rates payable by theAnindustry.
organization's
[i.e. paying the prevailing market rate This is
for employees] is done for
Competition demands that the competitors/emplovers several reasons viz A)
Various Government (labour loss) and judicial adhere to the same relative wage level. B).
on the adoption of uniform wage decisions. (Decisions of various law courts) insist
rates. C). Trade unions encourage this
members can have equal pay for equal work and practice so that their
geographical difterences
Functionally related firms in the same industry require essentially may be eliminated. D).
with the same skills and experience the same quality of employees
which
salary rates. E. If the same or about the results in a considerable uniformity in wage and
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 a sufticient quantity and quality of workforce.
4. The cost of living: This factor is usually
regarded as an
According to this factor, wages paid are connected to the cost ofautomatic equity pay criterion.
living index. In recognition of
influence of the cost of living, "Escalator Clauses" are written in labour
of living increases. workers and trade unions demand adjusted wagescontracts. When the cost
(Decline) of real wages. However, it must be noted that when living costs toareoffsct the erosion
stable or when it
declines. the management does not resort to this argument. As a reason for wage reduction in
most cases,
5. Living Wages: The living wage criterion is one of the most important factors which decide the
wage and salary levels in mnost countries. The living wages 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 some emplovers may prefer to base the wages of the employee on
his contribution rather than on his need.
6. Productivity is one of the criterions for wage fixation. Productivity is the result of technological
improvements, better organization, efforts of workers and Management. In many cases.
increased productivity also results in payment of higther wages.
7. Bargaining power of trade unions: Trade unions can play a significant role in the fixation of
wages. Generally the stronger a more powerful the trade union, the higher the wages. A trade
union with more member ship, good financial strength and effective leadership will have good
and effective bargaining power. Thus powerful trade unions can even force wages up faster than
Increases in productivity. Workers gain better wages as a consequence of a trade union's stronger
bargaining power.
8. Job requirements: Job is graded according to the relative skill, qualifications, eftort,
responsibility and other job conditions required. The more the demand for a person to perform a
particular job, higher the salaries for such jobs.
9. Managerial attitudes: It has been considered as a very inmportant factor in the fixing of wages.
The top executives/Management have decisive influence on the wage structure. The management
often decides whether the firm should pay below average or above average rates etc. The
management's desire to enhance the company's prestige. improve the morale of the workers.
attract efticient workers ete, may result improving the wages.
10. Psychological and Social factors: Psychologically, persons perceive the level of wages as a
measure of success in life. Wages can result in making a person feel secure, develop an
inferiority complex etc. Sociologically and ethically people feel that equal work should carry
equal wages", workers should not be exploited and no distinction should be mnade on the basis of
caste. colour, sex or religion for the payment of wages. A good management should not overlook
the psychological and social factors in wage fixation. A management should take all these factors
into consideration to satisfy the conditions of equity, fairness and justice in any
civilized society.
Reading materials for Il B.A. I.R. Students. For private circulation only.
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