FACTORS INFLUENCING WAGES - HUMAN RESOURCE MANAGEMENT



FACTORS  INFLUENCING  WAGES
BY
SMART LEARNING WAY


CONTENTS 

INTRODUCTION.
DEFINITIONS.
FACTORS INFLUENCING WAGES.
ESSENTIAL CHARACTERISTICS OF IDEAL WAGE SYSTEM.
PRINCIPLES OF WAGE ADMINISTRATION.
OBJECTIVES OF WAGE STRUCTURE.
CASE STUDY.
CONCLUSION.

INTRODUCTION

Remuneration paid to the workers, engaged by the day, week, fortnight or month, is usually referred to as wages. 

In an industry wages constitute that share of the total cost of production which can be attributed to labour. But for workers, wages constitute the income by which he lives.

Wages include family allowance, relief pay, financial support and other benefits.    

Wages are composed of two parts:
Basic wage.

Other allowances.

Wages have at least two connotations from the standpoints of employers and employees in the organizational setting.

Wages form the largest cost factor of the enterprise.

Wage and Salary Administration refers to the establishment and implementation of sound policies and practices of employee compensation. 

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

The wage and salary administration is concerned with the financial aspects of needs, motivation and rewards.

Its secondary objective is the establishment and maintenance of an equitable labour cast structure i.e. an optimal balancing of conflicting personnel interest so that the satisfaction of employees and employer is maximized and conflicts minimized.  

DEFINITION

A “wage” is the remuneration paid, for the service of labor in production, periodically to an employee/ worker. 

Wages usually refers to the hourly rate or daily rate paid to such groups as production and maintenance employees (“Blue-Collar workers”).

Wage Levels represent the money an average worker makes in a geographic area or in his organization.
Wages in the widest sense mean any economic compensation paid by the employer under some contact to his workers for the services rendered by them.

Wages in the narrower sense are the price paid for the services of labour in the process of production and include only the performance wages or wages proper. 

Wages is “Any award of settlement and production bonus, if paid, constitutes wages”. 

The term wages includes any non-pecuniary benefits attached to money payment. 

Employers prefer wages as a cost of their business efforts. But employees considered wages as a means for satisfying their needs in terms of an expected standards.

Wages are payments for labour services rendered frequently, expressed hourly rates. 

Wage is the average rate paid for the jobs of an enterprise, labour market or a nation.

FACTORS INFLUENCING WAGES

Marginal units pay the minimum wages necessary to attract the required number of labour. Some units pay well about going rates in the labour market. They do so to attract and retain the highest caliber of labour force. 

Some managers believe in the economy of higher wages. They feel that, by paying high wages, they would attract better workers who will produce more than average worker in the industry. 

This greater production per employee means greater output per man hour. Some units pay high wages because of a combination of a favourable product market demand, higher ability to pay and the bargaining power of trade union. 

Most units give greater weight to two wage criteria, i.e. job requirements and the prevailing rates of wages in the labour market.

The main 40 Factors Influencing Wages are as follows:

The Organizations Ability to Pay: 

Wage increases should be given by those organizations which can afford them. Companies that have good sales and, therefore, high profits tend to pay higher those which running at a loss or earning low profits because of higher cost of production or low sales. In the long run, the ability to pay is important.

Supply and Demand of Labour: 

The labour market conditions or supply and demand forces operate at the national, regional and local levels, and determine organizational wage structure and level. If the demand for certain skills is high and supply is low, the result is a rise in the price to be paid to these skills.

Prevailing Market Rate:  

This is known as the ‘comparable wage’ or ‘going wage rate’, and is the   widely used criterion. An organization compensation policy generally tends to conform to the wage rate payable by the industry and the community. This is done for several reasons. This results in a considerable uniformity in wage and salary rates.

The Cost of Living: 

The cost of living pay criterion is usually regarded as an automatic minimum equity pay criterion. This criterion calls for pay adjustments based on increases or decreases in an acceptable cost of living index. When the cost of living increases, workers and trade unions demand adjusted wages to offset the erosion of real wages.

The Living Wage:  

Criterion means that wages paid should be adequate to enable an employee to maintain himself and his family at a reasonable level of existence.

Psychological Factors:

 Psychologically, persons perceive the level of wages as a measure of success in life; people may feel secure; have an inferiority complex, seem inadequate or feel the reverse of all these. These things should not be overlooked by the management in establishing wage rate.

Social Factors:

Sociologically and ethically, people feel that “equal work should carry equal wages” that “wages should be commensurate with their efforts,” that “they are not exploited, and that no distinction is made on the basis of caste, color, sex or religion.”

Skill Levels Available in The Market: 

With the rapid growth of industries business trade, there is shortage of skilled resources. The technological development, automation has been affecting the skill levels at faster rates. Thus the wage levels of skilled employees are constantly changing and an organization has to keep its level up to suit the market needs.

Productivity:

 It is another criteria, and it is measured in terms of output per man hour. It is not due to labour efforts only . Technological improvements, better organization and management, the development of better methods of production by labour and management, greater ingenuity and skill by labour are all responsible for increases in productivity.

Trade union’s bargaining power:

 It affects rate of wages. The stronger and more powerful trade union means higher the wages. A trade union bargaining power is often measured in terms of its membership, its financial strength and the nature of its leadership. A strike or a threat of a strike is the most powerful weapon used by it.

Job Requirements:

A more difficult a job, the higher are the wages. Measures of job difficulty are frequently used when the relative value of one job to another in an organization is to be ascertain. Jobs are graded according to the relative skills, efforts, responsibilities, and job conditions required.

Managerial Attitudes:

These have a decisive influence on the wage structure and wage level since judgment is exercised in many areas of wage and salary administration. Desire to improve or maintain morale, attract high caliber employees, to reduce turnover, and to provide high living standard for employees as possible and also appear to be factors in management’s wage policy decisions.

Remuneration in Comparable Industries:

Prevailing rates of remuneration in comparable industries constitute an important factor in determining salary level. The organization, in the long run, must pay atleast equal to the going rate for similar job in similar organizations. Comparable industries constitute organization engaged in the same or similar activities, of the same size, in similar type of management. 

Location of the Industry: 

 The wage rate for similar jobs in the firms located in the same geographical region also influence a wage rate in the organization. The organization has to pay the wages equal to that paid for similar jobs in comparable industries in order to secure and retain the competent employees as that of same categories of employees in competitive organizations located around them. 

Government Legislations:

It influence wage determination. The important legislation which affects wage fixation are Payment of Wages Act 1936, Minimum Wages Act 1948, Statutory Minimum Wage Policy, Wage Boards, Pay Commissions, Collective Bargaining and Adjudication.

 Job Evaluation:

It determines the relative worth or money value of the jobs. It may be defined as a process of determining the relative worth of the jobs, ranking and grading them by comparing the duties, responsibilities, requirements like skills, knowledge, and attitude, with a view to fixing a compensation payable to the concerned job holders. It helps to stabilize, control and forecast cost of human resources. 

Collective Bargaining & Adjudication:

 It is a procedure in which compromise is reached through balancing of opposed strengths. It is a means through which employee problems relating to various issues including wages are settled. 

Government Intervention:

Government may intervene in the employment relationship in terms of attempting to influence the wage inflation through incentives introduced in the public sector and by encouraging certain types of compensation also.

 Individual characteristics: 

Certain specific factors such as workers age and potential, education qualifications, work experience, promotion possibilities, hazards involved in the job, stability of employment, demand of the product, industries role in the economy, performance of the employee etc. influence workers for wages.

Society: 

Wages paid to the employees is reflected in the prices fixed by an organizations for its goods and services. For this reason, the consuming public is interested in wage decisions. Wages paid to the employees has a social implication too. Supreme court has being keeping social and ethical considerations in adjusting wages and salary dispute. 

 The Economy:

 In most cases, the cost of living will rise in an expanding economy. Since the cost of living is commonly used as a pay standard, the economy’s health exerts a major impact upon pay decisions. Labour unions, the government, and the society are all less likely to press for increases in a depressed economy. 

 Condition of Product Market:

 The wage level will be influenced also by the degree of competition prevailing in the market for products of an industry. If it is a perfectly competitive market the wage level may be at par with the value of the net addition made by the workers to the total output. 

Business Strategy:

  The overall strategy which a company pursues should determine the wages to its employees. Where the strategy of the enterprise is to achieve rapid growth, remuneration should be higher than what competitors pay.  

 The Employee:

Several employee related factors interact to determine his or her wages. These include seniority, experience, even sheer luck and many other. Unions view seniority as the most objective criteria for pay increases. Experience make an employee gain valuable insides and should therefore be rewarded. Some people have strong luck to be at a right place and at a right time. 

Performance:

             It is always rewarded with a pay increases. Rewarding performance motivates the employees to do better. Management prefers performance to affect pay increases but workers prefer performance to influence pay increase. 

Potential:

It is useless if it is never realized. Yet, organizations do pay some individuals based on their potential. Young managers are paid more because of their potential to perform even if they are short of experience.

State Regulation: 

Wage policy and laws of government exercise a significant influence on wage levels. Government has enacted laws to protect the interest of the working class. No organization can violate laws relating to minimum wages, equal pay for equal work etc. 

Minimum Wage: 

        It is that which must invariably be paid whether the company, big or small, makes profits or not. It is the bare minimum that a worker can expect to get for services rendered by him.

Fair Wage:

               It is understood in two way. In a narrow sense, wage is fair if it is equal to the rate prevailing in the same trade and in the neighborhood for similar work. In a wider sense, it will be fair if it is equal to the predominant rate for similar work throughout the country and for trades in general.

 Living Wage:

The living wage is the highest of all wages. It must provide:
     (1) Basic amenities of life.
     (2) Efficiency of worker.
     (3) Satisfy social needs of workers such as:
          Medical, Education, Retirement, etc. Living wage  is a dynamic concept, which grows in line with the growth of national economy.

 Simplicity:

             The wage plan should be simple and easily understandable by the employees so that the workers can make calculation for themselves. They should not have to be mathematicians in order to figure their pay. 
 
Direct Effort – Reward Relationship:

The wages under a plan must be as nearly related to effort as possible both in amount, and in time of payment. Thus, the wages should increase above a minimum limit in the same proportion as increases in output as far as possible. “ Variable relationships at different levels of output are confusing and therefore, undesirable. 
     
Justice: 

The wage scheme must be just both to the employers and the employees. On one side, it should not be uneconomical to the management, while, on the other, it should give the worker due reward for an increase in output brought about by him. 

Scientifically – Set Standards:

              The wage earnings or rewards must be based on standards of output (task). Such standards can be set only after jobs and conditions of work have been standards. For the establishment of task, time studies may have to be conducted. Thus, a standard time for the performance of a task may be set.

Guaranteed Time Rates:

Job evaluation methods can be used to establish guarantee hourly or daily rates for workers. This gives the workers a feeling of security about their incomes. Usually, these rates are fixed at such levels that workers will earn above average, on the basis of their output.    

Definiteness

   The wage scheme must be definite and should not be changed every now and then. Changes should be made only if there is a substantial change in the method of work, materials, equipments. The wage should not be affected by matters outside the employee’s control. E.g. Shortage of Materials. 

Comprehensive Coverage:

 The wage scheme should embrace all jobs for which the incentive method of wage payment can be profitably adopted. If any such job is left out, the workers so neglected will develop grievances against management.

Output:

 An ideal wage scheme of an incentive wage payment uses output as the basis of payment and adopts guaranteed time rate for all workers, with reward for those who exceed the standards of output set through scientific methods.     
 
Incentive Plans Of Wage Payment:

 It consist of both time wage and piece wage plans and are blended together in such a manner that the workers are induced to increase their productivity and the employer happily parts with a part of is increase revenue to encourage the workers towards the end. under such systems, both timer and speed form the bases of wage payment.  

 Encouragement:

The basic object of a good plan of incentive wage payment is to encourage workers to put in their best on their jobs by overcoming the usually shortcomings in their nature like laziness, indifference, suspicion, distrust of management, and conservatism. 

ESSENTIAL CHARACTERISTICS OF IDEAL WAGE SYSTEM

Rational & Equitable.
Economical.
Guarantees minimum wages.
Provision for incentives.
Stable.
 Simple.
Linked with Productivity.
Workers Share in Excess profits.
 Encourage cooperation between workers and employers.
 Initiative to be rewarded.

Principles of wage administration

1.      There should be definite plan to ensure that differences in pay for jobs are based upon variations in job requirements, such as skill effort, responsibility or job or working conditions and mental and physical requirements.

2.      The general level of wages should be reasonably in line with that prevailing in the labour market. The labour market criterion is most commonly used.

3.      The plan should carefully distinguish between jobs and employees. A job carries a certain wage rate, and a person is assigned to fill it at that rate.

4.      Equal pay for equal work, i.e., if two jobs have equal difficulty requirements, the pay should be the same, regardless of who fills them.

5.      An equitable practice should be adopted for the recognition of individual differences in ability and contribution.

6.      There should be a clearly established procedure for hearing and adjusting wage complaints. This may be integrated with the regular grievance procedure, if it exists. 

7.      The employees and the trade union, if there is one, should be informed about the procedure used to establish wage rates. Every employee should be informed of his own position, and of the wage and salary structure. Secrecy in wage matters should not be used as a cover up for haphazard and unreasonable wage programme.

8.      The wage should be sufficient to ensure for the worker and his family reasonable standard of living. Workers should receive a guaranteed minimum wage to protect them against conditions beyond their control.

9.      The wage and salary structure should be flexible so  that changing conditions can be easily met.

10.  Prompt and correct payments of the dues of the employees must be ensured and arrears of payment should not accumulate.

Objectives of wage structure
1.)     To Acquire Qualified Competent Personnel.
2.)     To Retain the Present Employees.
3.)    To Secure Internal and External Equity.
4.)     To Ensure Desired Behaviour.
5.)     To Keep Labour and Administrative Costs.
6.)    To Protect in Public as Progressive Employers.
7.)     To Pay According to the Content.
8.)     To facilitate Pay Roll Administration.
9.)    To Simplify Collective Bargaining.
10.)    To Promote Organization Feasibility.


CASE STUDY

 Ashok Corporation:

 Pramod verma and s. venkatraman

The case deals with the problem of introducing a job evaluation scheme in large organizations. While the trade union cooperated in the study of various jobs and in the evaluation of the scheme, the scheme itself had to be abandoned because of the opposite from workers. The cases describes the responses of both the management and the union in introducing new managerial concepts.

Hindustan Fertilizer Corporation Ltd.  Haldia:

The plant was shut down in August, 1986 but the 1500 strong employees continue to receive all their salaries and wages totaling to Rs 150-175 lacs per month. The company seems to run on the principle “No work but Full pay”. Even additional installments of DA are payable to them.
The accumulated losses up to 1992 were over Rs. 1400 crore.

Conclusion

 The wage and salary structure is concerned with the financial aspects of needs, motivation and regards. Its basic purpose is to establish and maintain an equitable wage and salary structure.

It refers to the establishment and implementation of sound policies and practices of employee.   

The wage levels  represents the money an average  worker makes in his organization.Wages in the widest sense means any economic compensation paid by the employers. 

Wages form the largest cost factor for the enterprise.The employers perceive wages as a cost of their business efforts. Employees consider wages as the means of satisfying their needs in terns of an expected standards.



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