WAGES AND SALARY ADMINISTRATION

Wages is the reward for the 2nd factor of production

namely labour. One of the most important factors in
human resource management is compensation
management. For a days wage what is paid as wage or
salary proves the soundness of compensation. Wages /
salary constitutes a major share of one’s income. Wages
is certainly a motivating factor in the society. Wages
provides more than a means of satisfying the physical
needs, It provides recognition, a sense of
accomplishment and determines social status. It is
therefore imperative to formulate and administrator a
sound remuneration policy to attract and retain right
personnel in right position in any organization.
 Development and administration of sound wage and
salary policies are not only important but also complex
managerial function. The complexities stem from the fact
that on the one hand a majority of union – management
problems and disputes relate to the question of wage
payment and on the other, remuneration is often one of
the largest components of cost of production. Thus it
influences the survival and growth of an organization to
the greatest extent.
The influence of remuneration over distribution of
income, consumption, savings employment and prices is
also significant. This aspect assumes all the greater
importance in an undeveloped economy like India where it
becomes necessary to take measures for a progressive
reduction of the concentration of income or to combat
inflationary trends. Thus the wage policy of an
organization should not become an evil to the economy.
 What is wage and salary administration?
Wage and salary administration is essentially the application
of a systematic approach to the problem of ensuring that employees
are paid in a logical, equitable and fair manner. The I.L.O. defined
the the term wages as “the remuneration paid by the employer for
the services of hourly, daily, weekly and fortnightly employees”. It
also means the remuneration paid to production and maintenance of
blue collar employee.
Salary :
The term salary is defined as the remuneration paid to the
clerical and managerial personnel employed on monthly or annual
basis.
But this distinction does not seem to be valid in the days of
human resources approach where all employees are treated as
human resources and are viewed at par. Hence those term can be
used interchangeably and so the term wages or salary can be
defined as the direct remuneration paid to an employee
compensating his services to an organization.
Earnings :
Earnings are the total amount of remuneration
received by an employee during a given period. These
include salary (pay), dearness allowance, house rent
allowance, C.C.A. allowance, and other allowances, O.T.
payment etc.
Normal wage:
It is the wage paid or received in monetary terms. It
is also known as money wage.
Take home salary:
It is the amount of salary left to the employee after
making authorized deduction like contributions to the
PF, ESI, LIC, Income tax, fine, local tax, recovery of
loan, recovery towards cooperative stores or credit
society etc.
 Minimum wages :
The concept of minimum wages connotes different
standards in different countries. The Fair Wages Committee in India
observed “In India, the level of national income is so low at present
that it is generally accepted that the country cannot afford to
prescribe by law a minimum wage which would correspond to the
concept of the living wage…
We consider that a minimum wage must provide not merely
for the bare sustenance of life but for the preservation of the
efficiency of the workers. For that purpose the minimum wages
must also provide for some measure of education, medical
requirement and amenities.
A minimum wages does not imply a wages which provides only
bare subsistence as implied by the subsistence theory of wages. It
does not aim at a mere keeping of soul and body of the worker
together, but also it aims at providing him with those comforts and
decencies which are promotive of better habits which give a
chance for the development of greater sense of self respect and
which be token a higher regard for the place occupied by these
workers in the scheme of citizenship.
 A very popular definition of minimum wages is
that it is one which could meet the normal needs of
the average employee regarded as a human being
living in a civilized society. A minimum wage may
thus be defined as one which may be sufficient to
enable a worker to live in a reasonable comfort
having regard to all obligations to which an
average worker would ordinarily be subject. The
principle of minimum wages has now been widely
recognized and accepted in almost all the
industrially developed countries of the world.
Statutory minimum wage:
It is the amount of wages determined according to the procedure
prescribed by the relevant provisions of the Minimum wages Act
1948. The question of state regulation of wages by fixing minimum
wages in this country was examined by the Royal Commission on
Labour 1931 who observed that “in order to conform to both the
letter and the spirit of the Minimum wages convention of 1921 of the
ILO it would first be necessary to create machinery for fixing
minimum rates of wages in those trades in which wages are the
lowest and where there is no question of collective bargaining”. The
question of minimum wages was examined again by various Labour
Enquiry Committees in Some states These committees were in
favor of fixing minimum wages but owing to a very low level of
wages prevailing in the country, recommended the fixation of
minimum wages at a comparatively low figure. During the II World
War real wage level of the working class declined further despite the
grant of some dearness allowance on account of great and study
rise in the cost of living. Consequently there was pressing demand
for the guarantee of a minimum living wage for the workers during
that period.
 Finally the Minimum wages Act was passed in 1948
based on the recommendations of the Standing Labour
Committee and the Tripartite Labour Conference in 1943,
1944 & 1945. The Act applies to the employments that are
included in parts I & II of the Schedule.

The authority to include any employment in the

schedule and to take steps for getting the minimum rates of
wages fixed or revised vests with the Central and State
Government according to the nature of employment.

The other concepts are the Need Based Minimum

Wages and Fair Wage and Living Wages.
Objectives of wages and salary administration
i. To establish a fair and equitable remuneration. There
should be internal and external equity in remuneration paid
to employees. Internal equity means similar pay for similar
work. In other words, wage differentials between jobs
should be in proportion to the difference in the worth of
jobs. External equity implies pay for a job which should be
equal pay for similar jobs in other organizations. Payments
based on jobs requirements, employee performance, and
industry levels to minimize favoritism and inequalities in
pay.
ii. To attract competent personnel: A sound wage and
salary administration helps to attract qualified and hard
working people by ensuring an adequate payment for all
jobs.
iii. To retain the present employees: by paying at
competitive levels, the company can retain its personnel.
It can minimize the incidence of quitting and increase
employees loyalty to the organization.

iv. To improve productivity:

Sound wage salary administration helps to improve the
motivation and morale of employees which in turn leads
to higher productivity.

v. To control costs: Through sound wage and salary

administration labour and administrative costs can be kept
in line with the ability of the company to pay.
Wage administration:
It facilitates administration and control of pay roll. The
company can systematically plan and control labour costs.

vi. To establish job sequences and lines of promotion

wherever applicable.

vii. To improve management - union relations.

Wages and salaries based on systematic analysis of
job and prevailing pay levels are more acceptable to the
trade unions. Therefore, sound wage and salary
administration simplifies collective bargaining and
negotiations over pay. It reduces grievances arising out of
wage inequalities.
viii. To improve public image of the company
Wage and salary programme also seeks to project
the image of a progressive employer and to comply
with legal requirements relating to wages and salaries.

ix. To keep labour and administrative costs in line with

the ability of the organization to pay.

x. To pay according to the content and difficulty of the

job and in tune with the effort and merit of the
employee
Principles of Wage and Salary Administrative :
1. Wage and salary plans and policies should be
sufficiently flexible
2. Job evaluation must be done scientifically
3. Wage and salary administrative plans must always be
consistent with overall organizational plans and programs
4. Wage and salary administrative plans and
programmes should be inconformity with the social and
economic objectives of the country like attainment and
equality in income distribution and controlling
inflationary trends.
5. Wage and salary administrative plans and
programmes should be responsible to the changing local
national condition.
6. These plans should simplify and expedite other
administrative process
ELEMENTS OF WAGE SALARY SYSTEM
Wage and salary system should have relationship with the
performance, satisfaction and attainment of goals of an
individual.
Henderson identified the following elements of wage
and salary system.
1. Identifying the available salary opportunities, their
costs, estimating the worth of its members of these salary
opportunities and communicating them to the
employees.
2. Relating salary to the needs and goals
3. Developing quality and quantity and time standards
relating to work and goals.
4. Determining the effort necessary to achieve standards
5. Measuring the actual performance
6. Comparing the performance with the salary
received

7. Measuring the job satisfaction gained by the

employees

8. Evaluating the unsatisfied wants and unreached

goals of the employees.

9. Finding out the dissatisfaction arising from

unfulfilled needs and unattained goals.

10.Adjusting the salary levels accordingly with a view

to enabling the employees to reach unreached
goals and fulfill the unfulfilled needs.
Wage differentials:
Wage differential among workers working in the same
unit, among different units, occupations, regions and the like
are common feature of labour markets in various countries.
Inter personal wage differentials are mainly due to variations
in personal characteristics like sex , age skill, knowledge etc
of the employees who work in the same unit and are in the
same or similar occupations. Inter firm or inter unit wage
differentials reflect relative wage levels of work in different
units in the same or similar occupation. These differentials
are mostly because of varying abilities of the firms to pay
wages. Inter occupational wage differentials are due to
varying requirements of physical skills, endurance,
knowledge, etc varying demand and supply conditions and
the like. Inter area differential are mainly due to varying
demand and supply factors, living costs, abilities of
employers to pay and the like.
Wage Theories
There are a number of theories on wages.
1. The just wages theory:
This was advocated during the medieval period. The
essence of this theory is that the worker should be paid to
the level of maintaining himself and his family.
2. Subsistence theory:
According to Ricardo “the labourers are paid to enable
them to subsist and perpetuate the race without increase or
diminution.
3. Standard of living theory : Karl Marx pointed out that the
“wage of labour is determined by a traditional standard of
living, which, in turn, is determined by the mode of
production of country concerned.
 4. The wage fund theory:
According to J.S. Mill, the wages are determined
on the basis of the relationship between the amount of
fund allocated for the purpose of wage payment and
the number of workers in a country.
i.e. wages =
Amount of fund allocated for wage payment
number of workers
5. Residual claimant Theory :
According to Walker the wages is determined on
the basis of the amount left after the payment of rent to
the land, profit to the entrepreneur and interest on
capital out of the production value.
The amount of wages = production value – (Rent + Profit
+ Interest)
6. Marginal productivity theory:-
According to J.B. Clark the wages is determined on
the basis of marginal contributions of the workers to the
productions. The employer stops employing further
workers where the contributions of the most recently
employed worker are equal to his wages.

7. The bargaining theory of wages:- According to this

Theory the wages and other terms of employment are
determined on the basis of the relative bargaining
strength of the two parties namely the employer and the
employees. Webbs stated that the higgling of the market
which under a system of free competition and individual
bargaining determines the conditions of employment
8. Contribution of behavioral scientists to the
wage theories - According to behavioral
scientists, wages is determined on the basis
of several factors like to size, nature, prestige
of the organization, financial soundness of the
organization strength of the union, social
norms, Traditions, Customs, Prestige of some
jobs in terms of authority responsibilities and
status, level of job satisfaction, morale, desired
lines of employee, behavior and level of
performance.
 MAINTAINING AND RETAINING HUMAN RESOURCES

Job changes – Transfers – Promotions - Separations

To have mobility and flexibility in the workforce in order to

cope with the changing needs and requirements of an
organization we have changes.

Employees move from one job to another by transfers,

promotions and demotions. This is called internal mobility.

Another movement is external mobility like resignation,

retirement, termination discharge, superannuation
Why all these things take place
1. When there is a re designing of the job or job re
grouping.
2. Changes in technology requiring rise in job demands
3. Changes in the jurisdiction of some departments
necessitating re location of employees
4. Due to expansion diversification, recession etc there
will be fluctuation in the volume of work.
5. Introduction of new products and processes
6. Changes in the knowledge, skills, aptitudes and
values of employees.
7. Changing demands of trade unions.
8. Problems relating to maintenance of inter personal
relationship.
9. Changing Government role or policy
10.Social and cultural changes.
Purposes of job change

1. To improve organizational effectiveness

2. To maximize the efficiency of the
employees.
3. To cope with changes in organization
4. To ensure discipline
 Philosophy or concept of transfer
Transfer is change of place of work of an
employee from one job to another in the same
organization without involving any change in
duties, responsibilities, skills needed or
compensation.
Transfers may be from the management or
employee’s side. It may be temporary or
permanent. Temporary transfers are due to ill –
health, absenteeism etc.
Whereas permanent transfers are due to
change in the work load, retirement, resignation,
discharge, termination or death.
Need and purposes of transfers
1. To satisfy the needs of the employee
2. To meet organizational needs - change in
production schedule or technology
3. To utilize the workers in a better manner.
4. To make the employee more versatile
5. To adjust the work force
6. To provide relief to those who are over burdened
7. to punish employees
Types of Transfers :
1. Production transfer – To increase production when it
has gone down, experienced workers are transferred to
those places.
2. Replacement Transfer – replacing new people by
experienced people.
3. To make the worker - a Jack of all trades
4. Remedial transfer when a wrong man is posted to a
right place. This is set right.
5. Shift transfer – due to personal reasons – Marriage,
child birth, aged parents care etc.
Transfer Policy :-
There should be a just and impartial policy on transfer
to be followed by any organization. Which will help
avoiding an adhoc and arbitrary approaches to transfer.
As transfers involve some description and cost, every
transfer should be made with justifiable reasons based
on a general policy.
Following are some of the requirements of a sound
transfer policy:
•The policy should clearly specify the type of transfer and
the circumstances under which such transfer will be
effected.
•There should be a basis for transfer. Supposing 2
persons want a transfer to the same job, some causes
such as seniority or merit or other factors may be
considered
•The authority who can transfer shall be specified
•It should be spelt out whether transfer can be within
or between department.
•It should specify the effect of transfer
•Always it should be in writing, explained &
communicated to the employee.
•Any transfer should be made known to the employee
or it should be in consultation
•Reasons should be specified
•The facilities like leave, special allowance etc should
be prescribed
Promotions
It is a vertical movement of an
employee in the hierarchy higher post
carrying higher status, responsibilities
salary increase, better working conditions
etc.
It may be temporary or permanent,
depending upon the needs of the
organization. If the promotion is without
any increase in the emolument, it is
called a dry promotion eg: professor
being made the HOD without any
increase in the emolument.
 Promotion vs up gradation
Promotion involves change of jobs with change in
status, authority and salary.
Whereas upgradation is simply a movement of an
employee to a higher scale. (This is called Japan
scheme as is being followed in public sector
companies like the transport etc). Here there is change
in the status or authority. This is warranted because
the vacancies in the higher post are limited. So
upgradation is given to motivate employees.
Promotion vs transfer :
In transfer which is horizontal there is no change
in the pay or authority or status. Whereas in promotion
there is change in the pay, authority, status etc.
While transfer is horizontal, promotion is vertical.
Promotion is a motivating factor whereas transfer is very
rarely a motivating factor.
Why promotion?
1. In due recognition of his performance, commitment
and loyalty
2. To boost the morale & sense of belongingness
3. To develop competitive spirit for acquiring knowledge
skill.
4. To retain skilled and talented persons
5. To develop competent internal source of employees for
higher level jobs.
6. To utilize the skill & knowledge of employees more
effectively
7. To attract competent and suitable employees for the
organization.
Criteria for promotion :
I. Seniority :
a. It is easy to measure length of service and thereby
judge the seniority of an employee
b. Every employee will know where he stands
c. no scope for favoritism – This will create a sense of
security.
d. it will reduce labour turn over.
e. it is supported by trade unions.
f. Seniors are respected
Defects
1. Oldest need not be the ablest long service need
not mean talent
2. It de-motivates & de-moralizes young persons
3. Kills ambition and zeal to improve performance,
because everybody will be promoted with out
improvement
4. No incentive for hard work and self
development
5. The company fails to attract young and hard
working persons.
II. Merit

This implies knowledge, skills & performance record

Advantages
1. it motivated competent persons to work hard &
acquire new skills

2. It helps to maintain the efficiency of the organization by

recognizing talent & performance

3. it helps to attract and retain young & promising

employees in the organization.
Disadvantages
1. It is very difficult to judge merit as subjective
judgement is involved.
2. Trade union & workers do not trust the
management and as a result industrial relations get
strained.
3. Merit indicates past achievement. It cannot denote
the future potential and past experience of an
employee.
4. If young man is promoted, old men will leave the
organization
5. Old people will feel insecure
III. Seniority cum merit
A sound promotion policy should be based on a
combination of both seniority and merit.
A proper balance between the two can be created in
several ways.
1. Minimum length of service may be prescribed
eg.: 5 yrs of service for consideration for promotion.
Among them merit is used as the criterion
This is being followed in the Banks as well as in the state
government services for promotion to I.A.S. cadre
Secondly : certain weightage can be assigned to seniority
and merit Say 40% for seniority and 60 % for merit or
45% seniority and 55 % for merit
Thirdly there should be a minimum performance record
and qualification
(This is like our internal assessment)
Promotion policy :
With a sound and recognized promotion policy there will
be no frustration or restlessness among employees.
Main features of a good promotion policy :
•The rationale of internal promotion and external
recruitment should be the same in all the department.
(Government service)
i.e. there should be equal opportunities in all the
departments
•Thre shall be a chart for promotion and every chart is a
path of advancement or a route of promotion called
opportunity chart or fortune sheets.
•The basis of promotion shall be specified clearly. There
shall be due weightage , to seniority , merit and future
potential of an employee. For every one of them, there
shall be clear cut norms & criteria. The assessment
system should be objective.
•The decision to promote a person should vest with the
appropriate, competent, unbiased authority. The HR
Department shall only suggest the names along with
their records
•There shall be provided a suitable training &
development opportunity for advancement
•A detailed record of service & performance shall be
maintained for all employees.
•It should be a fair and impartial policy without any
arbitrariness or favoritism
• It should be consistent i.e. to be applied to all
uniformly.
•It should be correlated to career planning. Sudden
spurt of promotion (bunching) and long period of no
promotion (promotional drought) should be avoided.
•A suitable system of follow up, counseling and review
should be established. All promotions should be on a
trial basis and the progress of the promoted employee
should be monitored to ensure that it had a smooth
sailing. Moreover counselling and guidance should be
provided to the employees rejected for promotion.
Alternatively up gradation may be thought of
•There shall be provision for appeal against
management decision in order to remove bias.
•The policy should be in writing & should be
communicated to the employees. Any senior person
when not promoted, shall be informed about it.
•The promoted employee should be released from the
present job immediately
•The policy should be flexible. Internal employees shall
be given a fair chance of promotion before higher level
posts are filled from outside.