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    The document discusses several theories of wages: 1) Adam Smith's Wages Fund Theory which states that wages are determined by and paid out of a predetermined fund of wealth. 2) David Ricardo's Subsistence Theory which argues wages will remain at the subsistence level needed for workers to sustain themselves. 3) Karl Marx's Surplus Value Theory which claims wages are kept at subsistence levels while the surplus value of workers' labor goes to owners. 4) Francis Walker's Residual Claimant Theory that views workers as receiving whatever remains after rewarding the other factors of land, capital, and entrepreneurship. 5) John Davidson's Bargaining Theory where wages are set by

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    Case Study

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    shaminibinoy
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    The document discusses several theories of wages: 1) Adam Smith's Wages Fund Theory which states that wages are determined by and paid out of a predetermined fund of wealth. 2) David Ricardo's Subsistence Theory which argues wages will remain at the subsistence level needed for workers to sustain themselves. 3) Karl Marx's Surplus Value Theory which claims wages are kept at subsistence levels while the surplus value of workers' labor goes to owners. 4) Francis Walker's Residual Claimant Theory that views workers as receiving whatever remains after rewarding the other factors of land, capital, and entrepreneurship. 5) John Davidson's Bargaining Theory where wages are set by

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    short case study for HR students

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    The document discusses several theories of wages: 1) Adam Smith's Wages Fund Theory which states that wages are determined by and paid out of a predetermined fund of wealth. 2) David Ricardo's Subsistence Theory which argues wages will remain at the subsistence level needed for workers to sustain themselves. 3) Karl Marx's Surplus Value Theory which claims wages are kept at subsistence levels while the surplus value of workers' labor goes to owners. 4) Francis Walker's Residual Claimant Theory that views workers as receiving whatever remains after rewarding the other factors of land, capital, and entrepreneurship. 5) John Davidson's Bargaining Theory where wages are set by

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    3K views4 pages

    Case Study

    Uploaded by

    shaminibinoy
    The document discusses several theories of wages: 1) Adam Smith's Wages Fund Theory which states that wages are determined by and paid out of a predetermined fund of wealth. 2) David Ricardo's Subsistence Theory which argues wages will remain at the subsistence level needed for workers to sustain themselves. 3) Karl Marx's Surplus Value Theory which claims wages are kept at subsistence levels while the surplus value of workers' labor goes to owners. 4) Francis Walker's Residual Claimant Theory that views workers as receiving whatever remains after rewarding the other factors of land, capital, and entrepreneurship. 5) John Davidson's Bargaining Theory where wages are set by

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    of 4

    CASE STUDY

    In 2007, the Indian subsidiary of a multinational refinery became a Government of India


    company. The government company had announced an ambitious expansion programme which
    meant doubling the work force in less than four years. In 2007 at the time of wage revision, the
    union and management agreed to a two-tier pay structure. Those already employed will be
    eligible for a higher grade and those who are (to be) recruited afresh will get a lower grade
    though jobs are similar in skill, responsibility and effort. Both the union and the management
    justified that this is an innovative practice widely followed in deregulated companies abroad,
    particularly the airlines in North America.

    a) Is it fair agreement?

    b) Would it contravene with the concept of equal pay for equal work?
    CASE STUDY

    The case discusses the compensation management practices at Tata Consultancy Services Ltd.
    (TCS), one of the leading Indian IT companies. TCS compensation management system was
    based on the EVA model. With the implementation of Economic Value Added (EVA)-based
    compensation, the salary of employees comprised of two parts fixed and variable. The variable
    part of the salary was arrived after considering business unit EVA, corporate EVA, and also
    individual performance EVA. During the fourth quarter of the financial year (FY) 2007-2008,
    TCS announced its plans to slash 1.5 percent of the variable component of employee salaries
    since its EVA targets for the third quarter of FY 2007-2008 were not met The announcement
    came as s jolt not only to TCS employees but also to the entire Indian IT industry. The company
    came in for severe criticism and it was accused of not being transparent with respect to EVA
    calculation. However, some analysts felt that the pay cuts were a result of the macroeconomic
    challenges that the Indian IT companies were facing rapid appreciation of the rupee against
    the US dollar and the recession in the US economy (USA was the largest market for the Indian
    IT companies)

    Questions

    1. Analyze TCS HR practices with respect to its policy related to compensation of its
    employees.
    2. Discuss various concepts related to compensation management.
    3. 3. Discuss the importance of variable compensation in light of its ability to motivate
    employees and enhance organizational productivity.
    4. 4. Discuss the pros and cons of the EVA-based compensation management system and
    also analyze EVA as a performance measurement tool.
    5. 5. Understand the rationale behind the cut in the compensation of the employees at TCS.
    6. 6. Understand how macroeconomic variables could affect a companys HR policies.
    7. 7. Appreciate the importance of HR goals and strategies in the success of an organization
    Wages Fund Theory:

    This theory was developed by Adam Smith (1723-1790). His theory was based on the basic

    assumption that workers are paid wages out of a pre-determined fund of wealth. This fund, he

    called, wages fund created as a result of savings. According to Adam Smith, the demand for

    labour and rate of wages depend on the size of the wages fund. Accordingly, if the wages fund is

    large, wages would be high and vice versa.

    2. Subsistence Theory:

    This theory was propounded by David Recardo (1772-1823). According to this theory, The

    labourers are paid to enable them to subsist and perpetuate the race without increase or

    diminution. This payment is also called as subsistence wages. The basic assumption of this

    theory is that if workers are paid wages more than subsistence level, workers number will

    increase and, as a result wages will come down to the subsistence level.

    On the contrary, if workers are paid less than subsistence wages, the number of workers will

    decrease as a result of starvation death; malnutrition, disease etc. and many would not marry.

    Then, wage rates would again go up to subsistence level. Since wage rate tends to be at,

    subsistence level at all cases, that is why this theory is also known as Iron Law of Wages. The

    subsistence wages refers to minimum wages.

    3. The Surplus Value Theory of Wages:

    This theory was developed by Karl Marx (1849-1883). This theory is based on the basic assump-

    tion that like other article, labour is also an article which could be purchased on payment of its

    price i e wages. This payment, according to Karl Marx, is at subsistence level which is less than

    in proportion to time labour takes to produce items. The surplus, according to him, goes to the

    owner. Karl Marx is well known for his advocation in the favour of labour.
    4. Residual Claimant Theory:

    This theory owes its development to Francis A. Walker (1840-1897). According to Walker, there

    are four factors of production or business activity, viz., land, labour, capital, and

    entrepreneurship. He views that once all other three factors are rewarded what remains left is

    paid as wages to workers. Thus, according to this theory, worker is the residual claimant.

    The Bargaining Theory of Wages:

    John Davidson was the propounder of this theory. According to this theory, the fixation of wages

    depends on the bargaining power of workers/trade unions and of employers. If workers are

    stronger in bargaining process, then wages tends to be high. In case, employer plays a stronger

    role, then wages tends to be low.

    7. Behavioural Theories of Wages:

    Based on research studies and action programmes conducted, some behavioural scientists have

    also developed theories of wages. Their theories are based on elements like employees

    acceptance to a wage level, the prevalent internal wage structure, employees consideration on

    money or wages and salaries as motivators.

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