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Wage and salary administration


• Dale S Beach:
Wage and salary administration refers to the establishment and
implementation of sound policies and practices of employee
compensation. It includes such areas as job evaluation, surveys
of wages and salary, analysis of relevant organisational
problems, development and maintenance of wage structure,
establishing rules for administrating wages, wage payment,
incentives, profit sharing, wage changes and adjustments,
supplementary payments, control of compensation costs and
other related items.

1. To establish a fair and equitable compensation.

2. To attract competent and qualified personnel.
3. To retain present employees by paying them equally with
4. To keep labour and administrative costs in line with the
ability of the organisation to pay.
5. To improve motivation and morale of employees.
6. To project a good image of the company and to comply with
legal requirements.
7. To minimise the chances of favoritism while assigning the
wage rates.
Principles of wage and salary Administration
1. Wages and salary plans should be sufficiently flexible.
2. Job evaluation must be done scientifically.
3. Wage and salary administration plans must always be
consistent with overall organisational plans and
4. Wage and salary administration plans and programmes
should be in conformity with the social and economic
objectives of the country.
5. Wage and salary administration plans and programmes
should be responsive to the changing local and national
6. These plans should simplify and expedite other
administrative processes.
Factors affecting wage and salary administration

• External • Internal
Demand and supply Ability to pay
Cost of living Job requirements
Trade union’s bargaining Managerial strategy
power The employee (performance,
Government legislation seniority, experience,
Social factors potential, luck)
Technological development
Prevailing market rates
Wage and salary determination process

1. Job evaluation
2. Conduct the salary survey
3. Group similar jobs into pay grades
4. Price each pay grade
5. Fine-tune pay rates
- developing rate ranges
- correcting out of line rates
6. Wage administration rules
Methods of wage payment
A. Time wage system
Wages are paid according to the time spent by the workers
irrespective of his output of work done.
Earnings = Time x rate

1. When productivity cannot be measured
2. When quality of products is important
3. When employees do not have control over production
4. When close supervision is possible
5. Where work delays are frequent
Time wage system
1. Simple
2. Guaranteed minimum wages
3. Better quality of goods
4. Support of unions
5. Beneficial for beginners
6. Less wastages

1. No incentive for efficiency
2. Difficulty in determining labour cost
3. More supervision required
Methods of wage payment

B. Piece wage system

Wages are based on output and not on time.
1. where quantity is important
2. When work is of repetitive nature
3. when work is standardised
4. When production of a worker can be separately measured
5. When strict supervision is not possible
Piece wage system
• Merits:
1. Wages linked to efforts
2. Increase in production
3. Better utilization of equipment
4. Effective cost control

1, No guaranteed minimum wages
2. Poor quality of goods
3. Deterioration of health
4. Opposition from unions
Piece wage system

Types of piece rate system:

1. Straight piece rate
2. Increasing piece rate
3. Decreasing piece rate
Wage policy in India

• Refers to all systematic efforts of the government in relation to

the national wage and salary system.
• Acts: Payment of Wages Act, 1936, Industrial Disputes Act,
1947; Minimum Wages Act, 1948; Equal Remuneration Act,
• Five Year Plans
• Wage Board
• Pay commissions
Concepts of wages
1. Minimum wage
Wage which must be paid whether the company earns any
profit or not.
- size of family: 3
- calorie intake: 2700 calories per adult
- clothing 18 yards per capita per person
- rent
- Fuel, lighting and other expenses – 20% of minimum
Concepts of wages
2. Fair wage
Wages which is above the minimum wage but below the
living wage
- productivity of labour
- The prevailing rates of wages in the same or similar
occupations in the same region or neighbouring regions.
- The level of national income and its distribution.
- The place of industry in the economy
- The employer’s capacity to pay.
Concepts of wages

3. Living wage
a dynamic concept which grows with the growth in national
- Basic amenities of life
- efficiency of worker
- satisfy social needs of workers
Wage differentials

• Differences or disparities in wages

• Types:
1. Occupational differentials
2. Inter firm differentials
3. Inter-area differentials
4. Inter-personal wage differentials