Essentials of Sound Wage and Salary Administration

Sound Wage and salary administration demands some essentials to satisfy, so that one who is shoulder with the responsibility of designing administrative aspects with this regards, may come out with efficient system for managing the issues related with it. Some of the pre requisites for the sound compensation system are:

  1. Rational Job Analysis: It is an important exercise with regards to each category of jobs. It reveals detailed aspects of the job, like duties, responsibilities associated with the performance, performance standards as a fair parameter for evaluation of the performance. It gives fair idea about job specification i.e. qualification, experience, skill and other essential requirements that job performer must satisfy. Thus rational job analysis always put policy decider in a better condition to lay down appropriate content in policy design.
  2. Proper Job Evaluation: Job evaluation is a systematic process of analyzing and evaluating jobs to determine the relative worth of job in an organization. It forms the basis for designing the sound compensation system in an organization. Since wage and salary administration and the perceived fairness of approach adopted under it have a immense influence on employee morale, motivation and satisfaction, proper job evaluation exercise demands sensible consideration.
  3. In Depth Knowledge About an Organization and Market Factors: Apart from job evaluation, the various other factors that determine the administrative aspects for wage and salary administration are the size and structure of the organization and the industry in which it operates, the strength of employees union, position of a person and his importance to the organization, demand and supply for particular skill sets in the industry, organizational ability and capacity to pay and its economic condition like profitability, and legislative aspects related with wage determination. Sound system for compensation management demands detail knowledge about all these factors in order to its sound framework and operation in the organization.
  4. Clarity of Objectives or Purposes of Wage and Salary Administration : Last but not the least in terms of its significance, in order to have effective and efficient administration of compensation as an area in the organization, one must have accurate clarity about the purposes that it may tries to satisfy through policy decisions .objectives may be attracting talented resources; retaining and motivating employees; financial management of an organization; satisfying legal requirement; and many more. Sometimes these objectives are conflicting in nature also. So it is very essential that one, who is going to carry out this responsibility of designing the compensation system in the organization, should have reasonable clarity for objectives to be satisfied with the design.

Factors affecting Wage and Salary Administration

The term employees remuneration includes both wages and salaries. Wages are commonly considered as the price of labor paid to the workers for the services rendered to the organization employing them. Where quantum of services rendered is difficult to measure the payment is called salary.

Normally, payment made to workers is referred to as wages, and remuneration paid periodically to persons whose output cannot be measured such as clerical, supervisory and managerial staff, is called salary. Wage and salary administration is affected by so many factors and most of them are uncontrollable in nature so probably, this decision is more crucial and critical. Major factors affecting wage and salary administration are discussed as under:

Factors Affecting Wage and Salary Administration

  1. Demand and Supply: Demand for and supply of labor and its availability will have great influence on the determination of wage rates. If there is a shortage of labor, the wages demanded will be high. If, on the other hand labor is plentiful, workers will be too willing to work at low rates of wages. However, wages cannot be regarded today merely a price for services rendered. In recent years therefore, both management and labor has been becoming less and less dependent on this factor as a basic factor. An employee will not hesitate to accept lower wages if he has opportunities for growth in the organization. Today, the money which is paid as compensation should enable a worker to buy goods and services which will enable him and his family to live a better and fuller life and satisfy his hierarchical needs.
  2. Organization’s Ability to Pay: This is a major affecting factor in determining wage and salary structure of an organization. Financial position and soundness of an organization can put it in a position to offer attractive compensation package. Some of the reputed economically sound organizations are offering good compensation package and thereby successful in obtaining and maintaining talented workforce. Good compensation package helps in attracting and retaining quality talent in an organization. Generally wages in most of the organization decide through collective bargaining and , organization’s ability and capacity to pay attractive wages depends upon over all financial soundness and economic condition of an organization
  3. Prevailing Market Rate or “Going Wage Rate”: This is practically the major factor that induces any organization to take it as a base while determining wage and salary structure for it. Prevailing market rate is also known as ‘most comparable rate of wage’, and most popular method for wage rate determination, especially for lower cadre positions. There are many reasons for an organization to pay wages at a market rate like competition and a practice of ‘Brain Drain’ prevails in the market. Further more certain laws framed laid down principal of’ minimum wages’, ‘equal wage for equal work’. In addition to this trade unions are also prefer to bargain upon and in accordance with market rate of wages.
  4. Productivity: Productivity is measured in terms of output per man hour. It a result of several factors such as technology, labor efforts, method of doing work, management contribution and support and so on. However, productivity has always remained as base for wage differences since it a base which is apparently justifiable and acceptable to all in the organization. Many a time this as base is not acceptable to many trade unions as it is very difficult to have accurate measurement and is has always remain at a discretion of management policies.
  5. Cost of Living: It is always expected that there has to be adjustment in pay rates in accordance with prevailing cost of living. The changes in the cost of leaving affect purchasing power of the person. Trade union also considers this as a base for collective bargaining on wage issues.
  6. Trade Union’s Bargaining Power: Generally the mechanism for fixing of wages for majority of workers is collective bargaining or negotiation, and collective bargaining and negotiations depends upon the trade union’s strength. If there is a strong union operates in the organization, it may dictate its terms on wage fixation and revision over a period of time and vice versa. The strength and power of the trade union depends upon its membership, financial strength and leadership it may have, for its functioning.
  7. Trade Union’s Bargaining Power: Generally the mechanism for fixing of wages for majority of workers is collective bargaining or negotiation, and collective bargaining and negotiations depends upon the trade union’s strength. If there is a strong union operates in the organization, it may dictate its terms on wage fixation and revision over a period of time and vice versa. The strength and power of the trade union depends upon its membership, financial strength and leadership it may have, for its functioning.efforts likely to be put for job performance. Wage or compensation package very in accordance with job description and job specification.
  8. Management Attitude: Attitude of employer or management towers the working community of the organization does influence in wage determination and revision at an appropriate time. Some reputed and professional organization does prefer to pay wage in accordance with their reputation or prestige of an organization in the market. They may give participation to workers in sharing profits. On the other hand conservative organizations do not prefer to go for such profit sharing.
  9. Psychological and Social Factors: Psychologically person perceive wages and compensation package as sole parameter for success or failure in the life. Compensation package plays significant role in the employees pride, moral, motivation and psychological engagement and involvement in the work. Therefore such variable should not be overlooked by the organization while determining wage and salary structure. Socially and ethically also people feels that “equal work should carry equal pay “ i.e. wage should be in accordance with efforts and workers should not be felt like being cheated. Compensation policy should not make any discrimination on the basis of caste  color, Sex or region, and must try to satisfy condition for fairness equity and justice.
  10. Legislative Considerations: Legislative provisions do provide protection to the working community by fixing bottom line for wage payments. Many a time it was found that the bargaining power of the workers was not strong enough to ensure fair wages. Consequently, the state legislative frame work stepped in to regulate wages and provide for certain benefits to the workers. Legislation like Minimum Wages Act, 1936, provides for statutory minimum wages to be prevails in the industrial organization so that workers can satisfy their bare requirements and maintain their minimum living standard. These aspects are also considered while deciding compensation policy for an organization.
Read More Topics
Principles of Wage and Salary Administration
Career Planning and Development
Scope of Human Resource Management – HRM
Objectives of Human Resource Management (HRM)
Role of HRM (Human Resource Management)

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