23 Wages & Salary Administration II: Method of wage Payments, Process of Wage Determination, Wage Policy in India

Pragya Dheer

Learning Outcomes:

Wage in the widest sense mean any economic compensation paid by the employer under some contract to his workers for the service rendered by them. Wages therefore, include family allowance, relief pay, financial support & other benefits. But in the narrower sense wages are the price paid for the services of labour in the process of production & include only the performance wages or wages proper. They are composed of two parts- the basic wages & other allowances.

The basic wage is the remuneration, by way of basic salary & allowances, which is paid or payable to an employee in terms of his contract of employment for the work done by him. Allowances, on the other hand, are paid in addition to the basic wage to maintain the value of basic wages over a period of time. Such allowances includes holiday pay, overtime pay, bonus & social security benefits. There are usually not included in the definition of wages.

However, in India, different Acts include different items under wages, though all the Acts include basic wage & dearness allowance under the term wages. For example under the Workmen Compensation Act 1923, Section 2 (m), “Wages for leave period, holiday pay, overtime pay, bonus, attendance bonus & good conduct bonus” form part of wages.

    23.1. Introduction:

Compensation may be defined as money received in the performance of work, plus the many kinds of benefits & services that organisations provide their employees. ‘Money’ is included under direct compensation (popularly known as wages, i.e; gross pay); while benefits come under indirect compensation & may consist of life, accidents & health insurance, the employers contribution to retirement, pay for vacation or illness & employer’s required payments for employee welfare as social security.

Source: http://www.broadbentinstitute.ca/inequality_wages_bargaining_power

A ‘wage’ (or pay) is the remuneration paid, for the service of labour in production, periodically to an employee/worker. “Wages” usually refers to the hourly rate or daily rate paid to such groups as production & maintenance employees (“blue collar workers”). On the other hand, ‘Salary’ normally refers to the weekly or monthly rates paid to clerical administrative & professional employees (“white-collar workers”). The “Wage levels represent the money at an average worker makes in a geographical area or in his organisation. It is only an average, specific markets or firms & individual wages can vary widely from the average. The term ‘Wage structure’ is used to describe wage/salary relationship within a particular grouping. The grouping can be according to occupation, or organisation, such as wage structure of craftsman. (Carpenters, mechanics, bricklayers etc)

23.2. Basic kinds of Wage plans:

There are two major kinds of wage & salary payments plans: those under which remuneration does not vary with output or the quality of output, but depends on the time unit consumed in performing work. These are known as time wage plan. The time unit may be the day, week, fortnight or month. Time plan are non-incentive in the sense that earnings during a given time period do not vary with the productivity of an employee during that period.

The second kind is concerned with the output or some other measure of productivity during a given period of time. To earn more, an employee is required to put in more labour & produce more. This kind is known as the piece or output wage plan. It is a direct financial incentive plan.

23.3. Elements or Ingredients of a Good Wage Plan:

1.    It should be easily understandable, i.e; all the employees should easily understand what they are to get for their work. They should be instructed in how the wage plan works.

2.  It should be capable of easy computation, i.e; it should be sufficient simple to permit quick calculation. Mathematical tables may be supplied, be reference to which calculations can be quickly made.

3.   It should be capable of effectively motivating the employees, i.e; it should provide an incentive for work. If both the quality & quantity of work are to be stressed at the same time, a plan should be selected that will not unduly influence the worker to work too fast or to become careless of quality.

4.   It should provide for remuneration to employees as soon as possible after the efforts has been made. Daily or weekly payment of wages would be preferable to induce employees to work.

5.   It should be relatively stable rather than frequently varying so that employees are assured of a stable amount of money.

23.4. Methods of Wage Payments:-

Basically there are two methods of paying labour remuneration& other methods are combination or modifications of these two. One is the time wage system & another is piece wage system.

23.4.1. Time Wage System:

This is the oldest & the most common method of fixing wages. Under this system, wages are paid on the basis of time spent on the job irrespective of the amount of work done. The unit of time may be a day, a week, a fortnight or a month. In past, daily wages have been the most common basis & therefore, it came to be known as the ‘Day Wage System’

Source: https://content.wisestep.com/advantages-disadvantages-time-rate-pay/

Time Wage system has the following advantages:

1.  It is the simplest & the oldest method. It is easy to understand & workers can easily compute their own remunerations.

2.   Earnings of workers are regular & fixed & they do not offer from temporary loss of efficiency. This gives them a sense of economic security & self- confidence. The worker is assured of a fixed income & can therefore, plan his expenses accordingly.

3.   The plan is economical as no detailed records of output are required. Clerical work in computation of wages is minimum. The employer knows the cost of labour.

4.  As there is no pressure to speed up production, the quality of work can be kept high. A worker can slow his skills.

5.   This method also avoids wasteful handling of materials & tools. In the absence of rough handling of machinery, repairs & maintenance expenditure is low. Workers can adjust the pace of work so that there is no injury to their health.

6.   Learners can concentrate on learning the best methods of work as their earnings are not dependent on the amount of work.

7.  Unions prefer time wage as it does not differentiate between efficient & inefficient workers. A sense of equality & solidarity is created among them.

8.  Where work done is of an intangible nature eg: mechanics, design engineers, services etc. It is difficult to measure output accurately & standards of output cannot be laid down. In mental & non-repetitive jobs, therefore, time wage is a more equitable & convenient method.

9.   In continuous or assembly line production, the pace of work is beyond the control of an individual worker. Time wage is, therefore, a better method.

10.   It is an objective method.

11.   The employer can calculate the wage bill in advance.

The time wage system suffers from the following disadvantage:

1. The method provides no incentive for better performance as reward is not proportionate to effort. It makes no distinction between efficient & inefficient workers. Efficient & hardworking employees receive the same remuneration as inefficient employees & shirkers. It thus has a demoralising influence & encourages soldiering on the jobs.

2.  Guaranteed remuneration makes workers indifferent & complacent.

3. Calculation of labour cost per unit is difficult as the total wage bill does not change with the volume of production.

4.  In the absence of an incentives to hard work, productivity of labour becomes low unless close supervision is used. Thus, costs of supervision are high.

5.  Control over labour cost become difficult & more payment may be made for the lesser amount of work.

6.  There is no basis for finding the merit of difficult employees & promotions may have to be made on the basis of seniority. This may lead to deterioration in the morale of efficient & young employees.

Time Wage system is suitable under following conditions:

1.   Where units of output are non-measurable as in case of office work & mental work is involved as in policy working.

2.    When employees have little control over the quantity of output or there is no clear cut relations between efforts & output as in some machine-placed or assembly line jobs.

3.  When delays in work are frequent & beyond the control of the employees i.e; where output is uncertain & irregular.

4.  When quality of work is especially important eg; artistic furniture, fine jewellery etc.

5.  When supervision is good & supervisors know what constitutes a ‘fair day’s work’.

6.  When competition conditions & cost control do not require in advance the precise knowledge of labour costs per unit of output.

7.  Where machinery & material used are very sophisticated & expensive.

8.  Work is of highly varied nature & standards of performance cannot be established.

9.  Employees & trade unions strongly oppose incentive payments

10.   When workers are new & learning the job.

11.   When collective efforts of a group of persons are essential for completing the jobs.

23.4.2. Piece Wage System:-

Under this system, remuneration is based on the amount of work done or output of a worker. One unit of output is considered as one piece & a specific rate of wage is paid per piece. Greater is the number of pieces produced by a worker, higher is his remuneration. Thus, a workman is paid in direct proportion to his output. It is called payment by results.

Source: https://content.wisestep.com/advantages-disadvantages-piece-rate-pay/

Piece wage system has the following advantages:

1.   There is a direct relation between effort & reward; worker who work hard & produce more get more wages. This produces an incentive to increase productivity.

2.  Ambitious & efficient workers are provided ample opportunities to utilize their talent & increase their earnings & thereby improve their standard of living & morale.

3.   The method is just & fair to all. Efficient workers get ample reward, while shirkers are penalised, it prevent soldiering on the job.

4.  Management can distinguish between efficient & inefficient workers for the purpose of promotion etc.

5.  Increase in productivity results in higher output & lower costs of production per unit.

6.  The cost of labour per unit of output can be easily calculated as the wage bill varies in direct proportion to the output.

7.  As workers themselves have a stake in maximisation of efficiency, cost of supervision is low.

8.    Workers are more likely to cooperate with the schemes of rationalization designed to improve efficiency of operation.

9.  If the benefits of lower costs are passed to consumers in the form of lower prices or better quality, the society as a whole stands to gain.

Piece Wage system is, however, subject to the following drawbacks:

1.  It is very difficult to fix piece wage rates. Employees often cut the piece rates when they find workers are producing large quantities.

2.  The earnings of workers are not stable & they may suffer due to temporary delays or difficulties. They feel insecure & dissatisfied.

3.  In order to maintain their earnings, workers work with excessive speed. This may affect their health. It also increases the wastage of materials & wear & tear of machinery. The method is not suitable for work of artistic & delicate nature.

4.  Employees may not stress quality so that rigid quality control becomes necessary.

5.  This system may create jealously between efficient & inefficient workers. Trade unions do not like it as it affects their solidarity.

6.  Detailed records of production have to be kept so that the clerical work is increased. The method is not practicable when contribution of individual workers cannot be calculated i.e; construction work.

7.   The method may lead to industrial disputes. Fixation of piece rates may create controversy. Workers resent loss of output & earnings due to breakdown of machinery or power, non-availability of materials & such other factors beyond their controls. Trade Unions dislike piece wage system.

Piece Wage system is suitable under the following conditions:

1.  When work done by an individual worker can be measured accurately, e.g. production of standardized goods in the factory.

2.  When the quantity of output depends directly upon the skill & efforts of the worker.

3.  Where the flow of work is regular & interruptions minimum, i.e; repetitive jobs.

4.  Where quality & workmanship are not very important.

5.  In large scale production involving heavy overheads & broad supervision.

6.  When competitive conditions & cost control require that labour cost per unit fixed in order.

7.  When methods of productions are standardized & the job is of a repetitive nature.

23.4.3. Balance or Debt Method:

This method is a combination of time & piece wage systems. The worker is guaranteed a time rate with an alternative piece rate. If the wages calculated at piece rate exceed the time rate, the worker gets credit. On the other hand, if time wages exceed piece wages, the worker is paid time wage & the deficit is carried forward as dept to be reconserved in future.

Source: http://www.bbc.co.uk/education/guides/zscmtfr/revision/3

Suppose, the time rate is Rs 250 per week & the piece rate is Rs 2 per unit. The wages of a worker who produces 150, 100, 125 units in three weeks will calculated as follows:

Table 23.2 Balance Method

Week	Piece Wage	Time wage	Credit	Debit	Balance
	Rs	Rs	Rs	Rs	Rs
First	300(150* 2)	250	50	NIL	50
Second	200(100*2)	250	–	50	NIL
Third	250(125*2)	250	NIL	NIL	NIL

This method provides a sense of security to employees. At the same time an employee is given the opportunity to increase his earnings beyond the guaranteed time wage. This method is appropriate in industries where the flow of work is minimum, eg. dock worker. But rates in this method have to be fixed on the most scientific basis.

23.5. Type of Wage Incentive Plans:

Wage Incentive Plans may be discussed as (i) plans for blue-collar workers; and ; (ii) plans for managerial personnel because each of these categories of employees have separate & distinct needs & specific plans tailored for each category may prove beneficial.

23.5.1 Incentive Plans for Blue Collar Workers: For Individual

23.5.1.1 Short term Plans:

These systems may be broadly classified into 3 categories:

(a)  Systems under which the rate of extra incentive is in proportion to the extra output.

(b)  Systems under which the extra incentive is proportionately at a lower rate than the increase in output; and;

(c)  Systems under which the rate of incentives is proportionately higher than the rate of increase in output.

All bonus of premium plans relate to two factors: one, they set a standard time for the completion of a definite output or piece of work for a fixed wage; two, the fixing of a rate of percentage by which bonus would be earned by a worker over & above his set wage, if the standard time is saved or standard output is exceeded.

The chief advantages of an incentive-wage plan are:

(i)   When well-designed & properly applied, payment by results may generally be relied upon to yield increased output, lower the cost of production & bring a higher income to the workers.

(ii)   A work study associated with payment by results is a direct stimulus to workers to improve the organisation of work & to eliminate lost time & other waste.

(iii)  Labour & total costs per unit of output can be estimated more accurately in advance.

(iv)  Less direct supervision is needed to keep output up to a reasonable level.

(v)    The conflicting interests of employers & employees are unified. Increased efficiency & smooth working can therefore be promoted & sustained.

The plan suffers from the following defects:

(i)  Quality lends to deteriorate unless there is a stricter system of checking & inspection.

(ii)  Payment by results may lead to opposition or restriction on output when new machines & methods are proposed or introduced. This is because of the fear that the job may be restudied & earning reduced.

(iii)  When paid by results, workers tend to regard their highest earnings as norms, and, therefore, press for a considerable higher minimum wages.

(iv)  The amount & cost of clerical work increases, if done manually.

(v)  There is a danger of disregarding safety regulation & thereby increasing rate of accidents.

(vi)   Jealousies may arise among workers because some are able to earn more than others or because fast workers are dissatisfied with the slower or older workers in the group.

(vii)  It is difficult to set piece or bonus rate accurately. If they are too low, workers may be under pressure to work too hard & become dissatisfied; and if too high, they may slacken their efforts to avoid a revision of rates.

Some Important Wage Incentive Plans:

The chief incentive plans are:-

(i)  Halsey Premium Plan

(ii)  Halsey Weir Premium Plan

(iii)  Rowan Premium Plan

(iv)  The 100 percent Premium Plan

(v)  The Bedeaux Point Plan

(vi)  Taylor’s Differential Piece Rate Plan

(vii)    Merric’s  Multiple  Piece  Rate Plan

(viii)  Gnatt Task Plan

(ix)  Emerson Efficiency Plan

(x)  Co-Partnership system

(xi)  Accelerating Premium systems

(xii)  Profit Sharing

23.5.1.1.(i) Halsey Premium Plan: This is a time-saved bonus plan which is ordinary used when accurate performance standards have not been established. Under this plan, it is optional for a workman to work on the premium plan or not. His day’s wage is assured to him whether he earns a premium or not, provided that he is not so incompetent as to be useless. A standard output within a standard time is fixed on the basis of previous experience. The bonus is based on the amount of time saved by the worker.

Formula:- Bonus = ½ of Time saved / Time taken * Daily wage

Example: If 8 hours is the standard time of a job, and Re 8.50 is the guaranteed wage per hour, the worker, if he takes 8 hours to perform the work receive to Rs 4.00. If performs the task in less 8 hours he receives an extra premium on the time saved (i.e; 2 hours)

	Table 23.3
	Premium	Total Wages
	(Half of the Time Saved)	(Rs)
If the work is completed	in 6 hours 0.66	4.66
-do-	in 4 hours 2.00	6.00
-do-	in 2 hours 6.00	10.00
-do-	in 1 hours 14.00	18.00

The merit of this plan are:

(a)    It guarantees a fixed time wage to slow worker & at the same time, offer extra pay to efficient workers.

(b)    The cost of labour is reduced because of the percentage premium system; the piece rate of pay gradually decreases with increased production.

(c)  The plan is simple in design & easy to introduce.

(d)  As the wages are guaranteed, it does not create any heart burning among such workers as are unable to reach the standard.

The disadvantages of the plan are:

(a)  It depends upon past performance instead of making new standards.

(b)  The workers can beat the game by spurting on certain jobs to capture a premium & soldiering on the other jobs to rest under the protection of the guarantee of day wages.

(c)   From the point of view of the administration, the policy is one of drift, for, in this plan, the worker is left alone to decide whether or not to produce more after the standard has been reached.

23.5.1.1. (ii) Halsey- weir Premium Plan: This plan is similar to Halsey Premium Plan except that 50 percent of the time saved is given as premium to worker.

Bonus = ½ x time saved x hourly rate

23.5.1.1. (iii) Rowan Premium Plan: This plan differs from the Halsey Plan only in regard to the determination of the bonus. In all other respects, the two are the same. In the Rowan Plan, the time saved is expressed as a percentage of the time allowed, & the hourly rate of pay is increased by that percentage so that total earnings of the worker are the total number of hours multiplied by the increased hourly wages. The plan aims at ensuring the permanence of the premium rate, which is often cut by the employer when the worker’s efficiency increase beyond a certain limit. The premium calculated on the basis of the proportion which the time saved bears to standard time.

Example: If 8 hours are the standard time for doing a job & Rs 4.00 per day wage, the premium & total wages would be as follows:

Hs = the hour allowed or standard time; Ha = the actual time taken on a job; Rh = the worker rate per hour

23.5.1.1. (iv) The 100 Percent Premium Plan: Under this plan, task standard are set by time study or work sampling, & rates are expressed in time rates rather than in money (eg. 0.20 hour per piece). A definite hourly rate is paid for each task-hour of work performed. The plan is identical with the straight piece-rate plan except for its higher guaranteed hourly rate & the use of task time as a unit of payment instead of a price per piece. The worker is paid the full value of the time saved. If the completes the task of 10 hours &  if the hourly rates is Rs 0.50, his total earnings will be Rs 8 x .50 + (10 – 8 ) x .50 = Rs 4.00 + 1.00 =Rs 5.00

23.5.1.1. (v) The Bedeaux Point Plan: This plan is used when careful assessed performance standards have been established. It differs from the 100 percent plan in that the basic unit of the time is the minute termed as B. Every job is expressed in terms of B’s (after Bedeaux), which means that a job should be completed in so many minutes. If a particular work is rated at 60 B’s (or one B hour), the worker is allowed one hour for its completion & receives a bonus of 75 percent for the number of B’s i.e; time saved.

23.5.1.1. (vi) Taylor’s Differential Piece Rate Plan: This system was introduced by Taylor with two objects: 1st to give sufficient incentives to workmen to induce them to produce up to their full capacity & second, to remove the fear of wage cut. There is one rate for those who reach the standard; they are given a higher rate to enable them to get the bonus. The other is the lower rate for those who are below the standard, so that the hope of receiving a higher rate (that is, a bonus) may serve as an incentive to come up to the standard.

23.5.1.1. (vii) Merrie’s Multiple Piece Rate system: This system too is based on the principle of a low piece rate for a slow worker & higher piece rate for higher production; but the plan differs from Taylor’s Plan in that it offer three graded piece rates instead of two.

(i)   Upto say 83% of standard output a piece rate +10% of time rate as bonus; (ii) Above 83% & upto 100% of standard output same piece rate + 20% of time rate; and (iii) Above 100% of standard output-same piece rate but no bonus.

23.5.1.1. (viii) The Gnatt Task & Bonus Plan: This plan has been devised by H.L.Gnatt & is the only one that pays a bonus percentage multiplied by the value of standard time. Under this system, fixed time rates are guaranteed. Output standards & time standards are established for the performance of each job. Workers completing the job within the standard time or in less time receive wages for standard time plus a bonus which ranges from 20% to 50% of the time allowed & not time saved.

Example: If the standard task for a day is 8 units & the day wage is Rs 4, the bonus at 50% & the total wages would be:

Table 23.6

Unit of work	Task Wages	Bonus	Total Wages
	Rs	Rs	Rs
If 6 units in a day	4.00	NIL	4.00
If 8 units in a day	4.00	2.00	6.00
If 10 units in a day	4.00	3.50	7.50
If 12 units in a day	4.00	5.00	9.00

23.5.1.1. (ix) Emersion Efficiency Plan: Under this system, a standard time is established for a standard task. The day wage is assured. There is no sudden rise in wages on achieving the standard of performance. The remuneration based on efficiency rises gradually. Efficiency is determined by the ratio between the standard time fixed for a performance & the time actually taken by a worker. Thus, if the period of 8 hours is the standard time for a task & if a worker performs it in 16 hours, his efficiency is 50 percent. He who finishes the task in 8 hours has 100 percent efficiency, at which stage he receives a nominal bonus. This bonus goes on increasing till, when he achieves 100 percent efficiency, the bonus come to 20 percent of the guaranteed wage. At 120 percent efficiency, a worker receives a bonus of 40 percent & at the 140 percent efficiency the bonus is 60 percent of the day wage.

23.5.1.1. (x) Co-Partnership System: This system tries to eliminate friction between capital & labour. Under this system, not only does a worker share in the profits of the undertaking but he also takes part in its control & therefore, shares responsibilities. There are different cases, but in a complete co-partnership system, the following factors are present:

(a)  The payment of the existing standard wages of labour;

(b)  The payment of a fixed rate of interest on capital;

(c)  The division of the surplus profit between capital & labour in an agreed proportion.

(d)  The payment for a part of the worker’s labour by the allotment of a share in the capital;

(e)  The sharing in the control of the business by the representatives of labour.

23.5.1.1 (xi) Accelerating Premium system: There are the system which provide for a guaranteed minimum wage for output below standard. For low & average increases in output above the standard, small increment in earnings are allowed. Increasingly large earnings are conceded for above average output, the increment being different for each 1% increase in output. Very significant increases in earnings are given for really high output.

23.5.1.2. Long- term Wage Incentive Plans:

Under such plans, each member of the group receives a ‘bonus’ based on the output of the group as a whole. There are several reasons for adopting such a plan. Sometimes (as on assembly lines) several jobs are inter-related. Here one workers performance reflects not only his own effort but that of his co-workers too. In such cases, group incentive plans are advantageous:

(i)    Such plans also encourage co-operation among group-members. There tends to be less bickering among group members so to who has ‘tight’ production standards & who has ‘loose’ ones.

(ii)   The groups can bring pressure to bear on their member (through badgering, ostracism, etc) & help keep shrinkers in line.

(iii)  Group production levels tend to be more stable than individual ones & group incentive payments vary less than individual ones.

(iv)   Group incentives plans also facilitate on-the-job training, since each member of the group has a vested interest in getting a new group member trained as well as quickly as possible.

The group incentive Plans are usually:

(i)  The Profit-sharing schemes; and

(ii)  The Scanlon Plan

23.5.1.2. (i) Profit sharing: It is regarded as a stepping stone to industry democracy. Prof seager observes: “Profit sharing is an arrangement by which employees receives a share, fixed in advance of the profits.” The International Co-operative Congress held in Paris in 1889 considered the issue & defined profit sharing as “an agreement (formal or informal) freely entered into, by which an employee receives a share fixed in advance of the profits.

23.5.1.2. (ii) The Scanlon Plan: This plan was developed in 1937 by Joseph Scanlon a Lecturer at the Massachuoetto Institute of technology & trade union leader in a steel mill. The plan was designed to involve the workers in making suggestions for reducing the cost of operation & improving working methods & sharing in the gains of increased productivity. The plan has two basic features: One financial incentive aimed at cutting cost of operation & thereby increasing efficiency are installed. Two, a network of departmental & plan screening committees are at up to evaluate employee & management cost-cutting suggestions. The plan is essentially a suggestion system & assumes that efficiency requires company-wise/plant-wise co-operation.

23.5.2. Incentive Plans for White Collar Workers/Salesman:

This is due to 3 factors: (i) the unsupervised nature of most sales work; (ii) tradition in the market & (iii) the assumption the incentives are needed to motivate salesman.

There are several incentive plans, each appropriate for different markets products, etc, but all plans are basically variations of three types of plans: straight salary, straight commission & combination plans.

23.5.2.1. Straight salary Method: Is not an incentive plan; the salesman is simply paid on weekly, monthly or on yearly basis. The advantages of this method are that: (i) the salesman know in advance what their income will be; and; (ii) the expenditure on salesman is known beforehand. The disadvantages are: (i) This method tends to shift salesman’s emphasis to just making the sale rather than prospecting & cultivating long term customer & (ii) pay is not related to results. This lack of relationship reduced salesmen’s performance.

23.5.2.2. Straight Commission basis:- Under this method the salesman are paid on the basis of sales effected, i.e; they are paid for results & only for results. Therefore, high performance salesman are generally attracted. But the disadvantages are: (i) salesman focuses on making on sale on high volume items. Cultivating dedicated customers & working to “push” hard to sell items are often neglected, (ii) salesman tend to be less company-oriented & more money-oriented, and the company has less control over them; (iii) salesman’s income generally fluctuates widely.

23.5.2.3. Combination Method of Salary & Commission Basis: Under this, salesman not only get a fixed salary but also a commission in proportion to the sales effected. The advantages of this method are: (i) Since salesman are assured of minimum earnings, they are relieved from financial worries, (ii) The company has more control over its salesman, as there is sizable salary component in most combination plans. But the main disadvantages is that salary is not related to performance; only incentive value of money is being traded off for its security value. such plans also tend to become very complicated & misunderstanding often results in frustration.

23.5.2.4. Salary Plus Commission: Commission Plus drawing account where not only commission is paid but the salesman is also allowed to draw on future earnings to get him through low sales period; commission plus bonus, where salesman are paid primarily on the basis of commission but they are also given a bonus for activities like “slow moving” items & salary plus bonus, wherein salesman are paid a basic salary and also given a bonus for carrying out specified activities.

23.5.3. Incentives for Management Employees:

In many organisations, the managers are paid bonus. There are two types of bonus plans: one determined by formula (i.e. some criteria like increased sales) & two, determined by some discretion used in allocation of bonus (i.e., paid on more or less permanent basis). The bonus plans are generally reviewed annually to make them more effective.

For top level management, bonuses are generally tied to overall corporate results. The size of bonus is much higher for the top level executives, & lower for the lower level executives.

23.6. The Wage Determination Process:

Fig 23.1. Steps Involved in Determination of Wage Rate

23.6.1. The Process of Job Analysis:

Results in job descriptions leads to job specifications. A job analysis describes the duties, responsibilities, working conditions & inter-relationships between the job as it is & the other jobs with which it is associated. It attempts to record & analyse details concerning the training, skills required efforts, qualifications, abilities, experiences & responsibilities expected of an employee. After determining the job specification, the actual process of grading, rating or evaluating the job occurs.

23.6.2. Wage surveys:

Once the relative worth of jobs has been determined by job evaluation, the actual amounts to be paid must be determined. This is done by making wage or salary surveys in the area concerned. Such surveys seek to answer question like what are other firms paying? What are they doing by way of social insurance? What is the level of pay offered by other firms for similar occupations? etc. by gathering information about ‘benchmark jobs’, which are usually known as good indications.

23.6.3. Relevant Organisational Problems:

In addition to the results of job analysis & wage surveys, several other variables have to be given due consideration in establishing wage structure.

23.6.4. Preparation of Wage structure:

The next step is to determine the wage structure. For this, several decisions need be taken, such as (a) whether the organisation wishes, or is able, to pay amounts above, below or equal to the average in the community or industry; (b) whether wage ranges should provide for merit increases or whether there should be single rates; (c) the number & width of the ‘pay grade’ & the extent of overlap; (d) which jobs are to be placed in each of pay grade; (e) the actual money value to be signed to various pay grades; (f) differentials between pay plans; and (g) what to do with salaries that are out of lines once these decision have been made.

23.6.5 Wage Administration Rules:

The development of the rules of wage administration has to be done, after the rate ranges have been determined. Rules have to be developed to determined to what degree advancement will be based on the length of service rather than merit, with what frequency pay increases will be awarded; how controls over wage & salary costs can be maintained; what rules will govern promotion from one pay grade to another, etc

23.7. Wage Policy in India:-

Wage policy is a sensitive & complex area of public policy because wages exercise a significant influence on income distribution, prices & industrial relations. But a sound & rational wage policy is necessary of reinsuring reasonable living standards to the working class & for full utilisation of the country’s human resources. such a policy should aim at the following:

(i)  for optimum allocation of resources & full employment

(ii)   to secure optimum rate of economic

(iii)  to provide maximum economic security to all sections of society;

(iv) to establish wage levels at the highest possible levels, which the economic condition of the country permit

(v)  to ensure the wage earner a fair share of the increased prosperity resulting from economic development.

progress with stability; Source: https://www.slideshare.net/manumelwin/wage-policy-in-india-compensation-management-manu-melwin-joy

A sound wage policy helps to prevent labour exploitation by prescribing statutory minimum wages, by ensuring equal pay for equal work, by providing for logical wage differentials, by protecting real wages through compensation for rise in the cost of living & by linking wages to productivity.

As a welfare state, India is committed to secure for its working population economic & social justice. Our constitution provides that the state must endeavour to secure for all workers a living wage & conditions of work which ensure a decent standard of life as well as full employment, leisure & social & cultural opportunities. The constitution of India also lays down the principle of equal pay for equal work. At present no natural wage policy exist in India. However, some norms have been laid down by the following:

23.7.1. Committee on Fair Wages (1948): This committee introduced the concepts of minimum wages, fair wages & living wages. These concepts have been explained above. The committee pointed out that “any attempt to evolve principles for governing the fixation of wages must be made against the background of the general economic conditions of the country & the level of the national income”.

23.7.2. National Commission on Labour(1969): The commission suggested “The wage policy has to be framed taking into account such factors as the price level which can be sustained, the employment level to be aimed at, requirement of social justice & capital formation need for growth”.

23.7.3. Chakraborty Committee (1974): The committee stressed the need for uniformity in wage payments across regions, industries, & occupations. It suggested that a National Wages Commission & a National Board should be set up. These authorities will evaluate all jobs, workout a grade structure on the basis of skill differential & fix wages for each grade.

23.7.4. Bhoothalingam study group (1978): The group recognised widespread disparities & anomalies in a wages in the country. It suggested that appropriate guidelines should be evolved to reduce such disparities & to raise gradually the area of unduly depressed wages.

23.7.5. Fifth pay Commission (1996): The commission prescribed the minimum & maximum salary. The recommendations of the commission helped to widen disparities between A grade & B, C & D grade service group.

23.7.6. National Commission on labour (2002): The commission recommended that a national minimum wages may be notified by the central government. Every employee must pay each worker his one-month’s pay as bonus before an appropriate festival.

Despite practical difficulties there is need for a rational wage policy. A sound wage policy must have the following essentials:

(i) Wage levels in different occupations & regions should be equitable.

(ii) The system of wage payment should be such that the advantages of both time wage & piece wage systems are available.

(iii) A maximum wage should be guaranteed to every employee in the form of social security or unemployment insurance.

(iv) The policy should be flexible enough to admit necessary changes. It should be flexible enough to admit necessary changes.

(v) An ideal wage policy should fit well into the wider consumption, investment & other economic policies of the country.

Summary:

Demand and supply of labour, ability to pay, labour union, cost of living, prevailing wage rates, job requirements, productivity, state control etc are the main factors affecting wages. Time wage system and piece wage system are the two basic methods of wage payment. The process of wage determination involves job analysis, job evaluation, wage survey, developing wage structure, determining rules for wage administration and employee appraisal.