Economic and Behavioral Issues in Compensation

Economic and Behavioral issues in compensation Management
INTRODUCTION-
Many behavioural scientists- notably industrial psychologists and
Sociologist-like Marsh and Simon, Robert Dubin, Eliot Jacques have
Presented their views or wages and salaries, on the of research studies
And programmes conducted by them. Briefly such theories are:
The Employee’s Acceptance of a compensation level:
This type of thinking takes into consideration the factors which may
Induce an employee to stay on with a company. The size and prestige of
The company, the power of the union, the wages and benefits that the
Employee receives in proportion to the contribution made by him- all
Have their impact.
The Internal Compensation Structure:
Social norms, traditions, customs prevalent in the organization and
Psychological pressures on the management, the prestige attached to
Certain jobs in terms of social status, the need to maintain internal
Consistency in compensation at higher level, the ratio of the maximum
And minimum wage differentials, and the norms if span of control, and
Demand for specialized labour all affect the internal wage structure of
An organization.
Wage and Salary and Motivators:
Money often is looked upon as means of fulfilling the most basic needs
Of man. Food, clothing, shelter, transportation, insurance, pension
Plans, education and other physical maintenance and security factors
Are made available through the purchasing power provided by
Monetary income- wages and salaries. Merit increases, bonuses based
On performance, and other forms of monetary recognition for
Achievements are genuine motivators. However, basic pay, cost of
Living Increases, and other wage increases unrelated to an individual’s
Own productivity typically may fall into maintenance category.
Economic and Behavioural issue in Compensation Management-
The nature of Human Resource market is one of the most important
Issues affecting compensation plan of any organization. In analyzing the
Nature of human resource market there are three issues which must be
Analyzed. These Ares-
Demand and Supply
Productivity
Prevailing market rate of wages and salary of different classes of personnel
1. Demand and Supply-

The nature of demand and supply are of
Various types and operates at regional, national and global level
And determine wages and salary structure. In the case of Human
Resource the level of demand and supply of a product is decided-
If the demand of a certain category of product exceeds their supply
Their price is tend to higher in respect of their productivity which may
Remain constant. When the shortage of a certain type of personnel is
Prelaunched and acute the market force.
2. Productivity-
Productivity of human resource is another market
Related force which affects compensation management. If productivity
Of a personnel is high the wages and salary rate will also be high and if
The productivity of personnel is low the wages and salary payable to
He will also be low. E.g. many foreigners have opted to open their
Business in India though there are many issues behind it. One of those
Factors/issues is low employee cost but this low employee cost is offset
By lower productivity in India. There is low productivity in India as
Compare to other industrial advanced countries.
Prevailing market rate of wages and salary of different classes of personnel-
This is also known as comparable rates. Prevailing market

Rate helps an organization in deciding compensation plan in several
Ways like in order to attract and retain the personnel with certain
Specific skill, it is essential to pay comparable rates. If an organization
Wants to acquire personnel with the similar skills as his competitor’s
Have therefore they have to pay competitive rates. In determining the
Rate of prevailing market in formulating compensation plan an
Organization can act as a leader or it may act as a follower.
Cost of living-
While nature of resource market affects different
Classes of personnel. Different cost of living affects all personal at one
Place similarly. Cost of living varies at different levels i.e. from country
To country and different place within a same country e.g. urban and
Rural areas varies from a place over a period of time because of
Inflating rate of money. So cost of living may also be taken as the base
For adjusting compensation plan e.g. wages and salary in industrial
Advanced countries are much higher than the economically less
Developed countries.
So from the above description we can conclude that economic and

behavioural issues have their own importance and have great impact on
compensation management so such issues like demand and supply, productivity,
prevailing market rate and cost of living should given considerable importance
while doing compensation management

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Economic and Behavioral issues in compensation Management

Many behavioural scientists- notably industrial psychologists and

Sociologist-like Marsh and Simon, Robert Dubin, Eliot Jacques have

Presented their views or wages and salaries, on the of research studies

And programmes conducted by them. Briefly such theories are:

The Employee’s Acceptance of a compensation level:

Induce an employee to stay on with a company. The size and prestige of

Employee receives in proportion to the contribution made by him- all

Have their impact.

The Internal Compensation Structure:

Social norms, traditions, customs prevalent in the organization and

Psychological pressures on the management, the prestige attached to

Certain jobs in terms of social status, the need to maintain internal

Consistency in compensation at higher level, the ratio of the maximum

Wage and Salary and Motivators:

Of man. Food, clothing, shelter, transportation, insurance, pension

Plans, education and other physical maintenance and security factors

Are made available through the purchasing power provided by

Monetary income- wages and salaries. Merit increases, bonuses based

On performance, and other forms of monetary recognition for

Achievements are genuine motivators. However, basic pay, cost of

Living Increases, and other wage increases unrelated to an individual’s

Own productivity typically may fall into maintenance category.

Economic and Behavioural issue in Compensation Management-

The nature of Human Resource market is one of the most important

Issues affecting compensation plan of any organization. In analyzing the

Analyzed. These Ares-

Demand and Supply

Prevailing market rate of wages and salary of different classes of personnel

1. Demand and Supply-

Various types and operates at regional, national and global level

And determine wages and salary structure. In the case of Human

Resource the level of demand and supply of a product is decided-

If the demand of a certain category of product exceeds their supply

Their price is tend to higher in respect of their productivity which may

Remain constant. When the shortage of a certain type of personnel is

Prelaunched and acute the market force.

Productivity of human resource is another market

Related force which affects compensation management. If productivity

The productivity of personnel is low the wages and salary payable to

By lower productivity in India. There is low productivity in India as

Compare to other industrial advanced countries.

Prevailing market rate of wages and salary of different classes of personnel-

This is also known as comparable rates. Prevailing market

Specific skill, it is essential to pay comparable rates. If an organization

Wants to acquire personnel with the similar skills as his competitor’s

Have therefore they have to pay competitive rates. In determining the

Rate of prevailing market in formulating compensation plan an

Organization can act as a leader or it may act as a follower.

While nature of resource market affects different

Classes of personnel. Different cost of living affects all personal at one

Rural areas varies from a place over a period of time because of

For adjusting compensation plan e.g. wages and salary in industrial

Advanced countries are much higher than the economically less

So from the above description we can conclude that economic and

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