Wage Fixation

Learning Objectives:

• Collective Bargaining
• Statutory Wage Fixation
• Wage Boards
• Pay Commissions
• Wage Fixation in Public Sector

Chapter Eight Wage Fixation 1

 Structure:

1. Introduction
2. Collective Bargaining
3. Statutory Wage Fixation
4. Wage Boards
5. Pay Commissions
6. Adjudication
7. Wage Fixation in Public Sector
8. Summary.

Chapter Eight Wage Fixation 2

 1. Introduction:

In India there was no machinery, until

Second World War, for settlement of
disputes related to fixation of wages.
Under Industrial Disputes Act, 1948,
various tribunals have passed several
awards regulating wages in important
industries.
The Industrial Policy Resolution of 1948
addressed fixation of Minimum Wages and
promotion of Fair Wages

Chapter Eight Wage Fixation 3

 1.Introduction:

To achieve the first objective, the

Minimum Wages Act , 1948 was passed to
lay down certain norms and procedures
for the determination and fixation of
wages by the Central and State
Governments in sweated scheduled
employments.
To fulfill the second objective, the
Government appointed a tripartite
Committee on Fair Wages, in 1949, to
determine principles on which fair
wages should be fixed and to suggest
lines on which the principles should be
applied.

Chapter Eight Wage Fixation 4

 1.Introduction:

Wage and salary incomes in India are

determined through several
institutions.
These are collective bargaining,
industrial wage boards, government
appointed pay commissions, and
adjudication by courts and tribunals.
This institutional framework of wage
setting is our next agenda for study.

Chapter Eight Wage Fixation 5

 2. Collective Bargaining:

The term relates to those arrangements

under which wages and conditions of
employment generally are decided by
agreements negotiated between the
parties.
Factors that affect the wage determination
through collective bargaining are
i] alternate choices and demand.
ii] institutional necessities e.g. if
ratification of an agreement requires a
majority vote , then it has to be
acceptable to majority.
iii] the right & capacity to strike.

Chapter Eight Wage Fixation 6

 2. Collective Bargaining:

Through the mechanism of collective

bargaining, workers’ representatives
achieve a voice in the establishment of
wages, hours of work and other
conditions of employment.
The collective agreements actually signed
reflect the play of forces like:
i] variation in regional & local
labour conditions.
ii] methods of wage payments.
iii] establishment size.
iv] technical efficiency of firms.

Chapter Eight Wage Fixation 7

 2. Collective Bargaining:
v] general business conditions.
vi] capacity to pay.
vii] company wage policies.
vii] union wage policy
viii] union power.

In the matter of wage bargaining, unions

are primarily concerned with i] general
level of wage rates; ii] structure of
wage rates i.e. differentials among
occupations; iii] bonus, incentives and
fringe benefits and iv] administration
of wages.

Chapter Eight Wage Fixation 8

 2. Collective Bargaining:

It is quite encouraging to note that the

parties to industrial relationships in
India are coming closer to the idea
that direct negotiations provide a
better approach to resolving key
differences over wages, hours and
conditions of employment instead of
complex adjudication system.
In the process, collective bargaining has
emerged as an important institution of
wage fixation in India.
Plant or company bargaining is more
widespread than industry wide
bargaining.
Chapter Eight Wage Fixation 9
 2. Collective Bargaining:

Some time back collective bargaining has

been substituted by coercive
bargaining, using go slow and violence,
in companies that were performing
extremely well and profitably in
markets.
This resulted in a wide distortion in the
wage structure and ad- hocism in wage
fixation at the cost of well recognized
principles.
Exorbitant wage increases obtained through
this unsocial means, forced responsible
unions, which had shown restraint in
their wage demands, to follow suit.
Chapter Eight Wage Fixation 10
 2. Collective Bargaining:

Bureau of Public Enterprises has issued

certain guidelines on collective
bargaining to the public sector
undertakings.
i] wage grants should not exceed 10% of
the existing level.
ii] dearness allowance neutralization
should be at the rate of one rupee per
point.
iii] there should not be any
retrospective effect to the agreements.
iv] the agreement should be for a
period of three years.

Chapter Eight Wage Fixation 11

 2. Collective Bargaining:

Recently the concept of productivity

bargaining has gained considerable
momentum in addition to conventional
wage bargaining. Productivity agreement
is a systematic attempt at securing
greater efficiency and economy in
utilization of resources, both physical
and human.
Such productivity agreements are based on
i] concept of exchange and self
interest which is beneficial to both
parties.
ii] specific and direct contribution of
labour towards improving productivity.
Chapter Eight Wage Fixation 12
 2. Collective Bargaining:

Such productivity agreements are based on

–contd.
iii] principle of cost benefit analysis
iv] “package deal” between the workers
and management wherein a number of
changes in the work practices are made
in exchange for a variety of rewards.
v] rationalization of the wage and
introduction of more appropriate
effective bonus systems.

Chapter Eight Wage Fixation 13

 2. Collective Bargaining:
Such agreements pose problems of
implementation in the short term and of
adapting to changed climate in the long
term.
Negotiation of comprehensive productivity
agreement gives management an
opportunity to restructure its
industrial relations in a company or
plant. It also provides the basis for
an improved managerial control and can
be the starting point of managerial
policy designed to create positive
motivational framework for management
and employees.

Chapter Eight Wage Fixation 14

 3. Statutory Wage Fixation

The Minimum Wages Act was passed in 1948

to provide a machinery for statutory
fixation and revision of minimum wages
in scheduled employments including
plantations and agriculture.
It is a social legislation to offer
protection to workers in employments
where they were vulnerable to
exploitation.
The Act sought to offer them with minimum
wages, fixed hours of work, weekly off
and overtime payment.

Chapter Eight Wage Fixation 15

 3. Statutory Wage Fixation

The wage fixing authorities in Central and

most of the State Governments have
fixed wages in the form of a single
minimum time rate or an all inclusive
rate.
The Minimum Wages Act does not provide to
the wage fixing authorities, any
guidance in regard to the content of a
minimum wage, factors to be taken into
account while fixing the rates, size of
the family unit, weightage to be given
to cost of living, needs of the
workers, etc.
It is, therefore, left to the Government
to determine their own standards.
Chapter Eight Wage Fixation 16
 3. Statutory Wage Fixation

The Committee, appointed in 1957, laid

down certain norms for fixing /
revising minimum wages –
1] prevailing wage rates in the
employment concerned.
2] prevailing wage rates / statutory
minimum wage rates in other employments
for similar occupations.
3] statutory minimum wage rate of the
same employment in adjacent areas.
4] family budget survey of the workers’
families employed in such employments
in different centers.

Chapter Eight Wage Fixation 17

 3. Statutory Wage Fixation
5] maintenance of information of CPI
and ACPI numbers.
6] general economic conditions
prevailing in the industry, including
the importance of the industry.
7] information on nutritional standards
and balanced diet in various areas and
places.
8] number of persons employed in the
industry over a period & reasons for
variations.
9] categories of employment & amount of
skill required
10] cost of production and labour cost.

Chapter Eight Wage Fixation 18

 3. Statutory Wage Fixation
The operation of the Act suffers from
several weaknesses. Firstly, the
provisions of the Act are not properly
executed, especially in unorganized
sector.
The enforcement of minimum wage in
agriculture is extremely poor in some
cases non-existent.
Implementation of minimum wage in an
agricultural is beset with difficulties
like casual nature of employment,
inaccessibility of some farms, , the
larger number of workers involved and
their scattered location, illiteracy
among employers and workers.

Chapter Eight Wage Fixation 19

 3. Statutory Wage Fixation
Secondly, the flexible minimum wage rate
has remained beyond reach of workers
due to the absence of revision or
delayed revision of the minimum wages
once fixed.
Though the Act provides for review of
minimum wages at intervals not
exceeding five years, there are several
instances where revisions have never
taken place.
Thirdly precise definition of minimum
wages is not provided in the Act & this
gives rise to different interpretations
by the wage fixing authorities.
Chapter Eight Wage Fixation 20
 3. Statutory Wage Fixation

The National Commission on Labour has

recommended that :
1] Once the minimum wages have been
determined under the Act, employer is
obliged to pay the said wages
irrespective of capacity to pay.
2] The appropriate Government should
revise the minimum wages at least once
every three years.
3] The schedule to the Act be updated to
remove employments which cease to
employ sweated labour and add those
which use sweated labour.
Chapter Eight Wage Fixation 21
 3. Statutory Wage Fixation

4] The criteria in regard to minimum wage

fixation will necessarily have to be
flexible. Laying down a rigid, cash
equivalent of the content of a
statutory minimum wage whose coverage
is essentially transitional under the
conditions of development would not
serve any useful purpose.

Chapter Eight Wage Fixation 22

 3. Statutory Wage Fixation
Review & Enforcement of Minimum Wages:
The Central Government advised all the
State Governments and Union Territory
Administrations
a] to strengthen & upgrade their
enforcement machinery.
b] to carry out periodic inspections,
prosecution of defaulters & speedy
settlement of claims
c] to ensure that prescribed minimum
wages are paid to all covered scheduled
employments, including agricultural
workers.

Chapter Eight Wage Fixation 23

 3. Statutory Wage Fixation
Review & Enforcement of Minimum Wages:
In pursuance of persistent demand from
employees’ organizations, the Central
Government has provided for special
allowance as part of the minimum wages
in all the scheduled employments. This
special allowance is linked to the
consumer price index and is to be
revised every six months.
Inspite of several drawbacks , the wage
fixation under the Minimum Wages Act
will continue to be important
instrument of wage policy. Its
implementation machinery needs to be
strengthened in Centre & States.

Chapter Eight Wage Fixation 24

 4. Wage Boards
The term ‘Wage Board’ covers
a] a voluntary negotiating body set up
by discussions between organized
employers and workers to regulate
wages, working hours and related
conditions of employment by collective
bargaining; and
b] a body set up by law or with legal
authority to establish minimum wages
and other standards of employment which
are then legally enforceable in the
particular trade or industry to which
the Board’s decisions relate.

Chapter Eight Wage Fixation 25

 4. Wage Boards
‘Wage Boards’ appointed in India are of
two types
a] Statutory Wage Boards, appointed
under some statute like Bombay
Industrial Relations Act; and
b] Tripartite Wage Boards, not
appointed under any statute but are
appointed in pursuance of
recommendations of the Central
Government. The enforceability of their
decisions depends upon acceptance by
the parties concerned.

Chapter Eight Wage Fixation 26

 4. Wage Boards
‘Wage Boards’ derive their
recommendations based on their terms of
reference. Generally they have
jurisdiction over
a] permanent or semi permanent
reduction in number of persons employed
in any occupation, or processes or
departments.
b] increase in persons as above
c] rationalization or other efficiency
systems of work.
d] wages including period and mode of
payment
e] hours of work and rest intervals.
.

Chapter Eight Wage Fixation 27

 4. Wage Boards
‘Wage Boards’ have been established for
over twenty industries. They have equal
representation from employers and
workers with an independent chairman.
Members are appointed by the Government
after consultations with concerned
organizations.
In evolving wage structure the board
considers fair wage, needs of the
industry, requirements of social
justice and the need of adjusting wage
differentials in such a manner as to
provide incentives to workers for
advancing their skills.

Chapter Eight Wage Fixation 28

 4. Wage Boards
A majority of the ‘Wage Boards’ examined
the question of need-based minimum wage
and concluded that it was not feasible
to implement norms approved at the 15th
session of Indian Labour Conference
because of one or more of the following
reasons.
1] industry does not have capacity to
pay.
2] it would unduly affect the
relativity of wages among industries in
the same region.
3] it would result in excessive and
abrupt increase in wages and
4] it would be unfair to consumers who
have to bear the burden.

Chapter Eight Wage Fixation 29

 4. Wage Boards

Criticisms against wage boards

1] they delay submission of their reports

to the Government.
2] their recommendations are not
implemented with any speed.
3] they interpret their terms of reference
narrowly and make recommendations that
fail to consider possible effects on
economy of the country.
4] recommendations are not implemented as
there is no statutory backing.
5] the result is employee dissatisfaction
and agitation by unions.

Chapter Eight Wage Fixation 30

 4. Wage Boards
NCL’s recommendations for wage boards
1] they need to submit their
recommendations within a year
2] the recommendations should remain in
force for five years
3] unanimous recommendations should be
made legally binding
4] a manual of procedure for wage boards
be prepared.
Tripartite wage boards provided a forum
for collective bargaining and an
important system of wage determination.
They may be revived afresh by removing
the defects in their working.

Chapter Eight Wage Fixation 31

 5. Pay Commissions
The first Pay Commission was appointed in
1946. It recommended that each worker
be paid a living wage.
The Government did not accept the
recommendation in view of inflationary
impact of wage revision for large body
of employees and on others not outside
its purview.
The Commission dismissed pleadings of the
Government stating a] inflation is not
automatically caused by wage increase,
b] decision of determining wages as per
workers’ needs cannot be influenced by
this unproven contention, c] Government
has to control inflation by increasing
production and controlling prices.

Chapter Eight Wage Fixation 32

 5. Pay Commissions
The second Pay Commission was appointed
in 1957. It worked out daily diet
schedule as a base for determining need
based wage and recommended a minimum
wage of Rs. 80 a month which was
rejected by unions as too conservative
and unrealistic. They suggested a wage
of Rs. 110 to 135 depending on the
region and industry in question.
The Government appointed Third Pay
Commission in 1970. In the report
submitted in 1973, it recommended a
minimum wage of Rs. 185.

Chapter Eight Wage Fixation 33

 5. Pay Commissions
It further supported a system where pay
adjustments will occur automatically
upon upward movement of the consumer
price index.
To assuage feelings of employees the
Government increased the minimum wage
to Rs, 196 but the employees were not
satisfied and discontent continued.
The Fourth Pay Commission was appointed in
1983. It recommended
1] reduction in pay scales from 153
to only 36.

Chapter Eight Wage Fixation 34

 5. Pay Commissions
2] minimum pay scale of Rs. 750 – 940
and highest Rs. 8000 per month
3] raise in HRA from 15 & 10 % to a
flat rate ranging from Rs 150 to Rs.
1000 p.m.
4] introduction of special compensatory
allowance for employees in “difficult,
remote and bad climate areas.”
5] increase in leave accumulation from
180 days to 240 days and its encashment
at the time of retirement.
6] increased hours for office staff to
control overtime allowance

Chapter Eight Wage Fixation 35

 5. Pay Commissions
These recommendations were accepted by the
Government and implemented in 1986.

The Fifth Pay Commission (1992 – 96)

recommended
1] raising retirement age to 60 years
2] increase in HRA .
3] a minimum salary of Rs. 2440 and
maximum of Rs. 26000.
4] abolition of OT allowance.
5] reduction in gazetted holidays from
17 to three and a six day week.

Chapter Eight Wage Fixation 36

 5. Pay Commissions
6] raising maximum age for recruitment
of women to 35 years.
7] 15 days’ paternity leave.
8] transport allowance for all
employees
9] an eligibility ceiling of Rs. 4500
for payment of bonus.
10] replacement of ad hoc bonus with
productivity linked bonus scheme.
The Government decided to keep these
recommendations in abeyance.

Chapter Eight Wage Fixation 37

 6. Adjudication
Since independence, adjudication has been
one of the main instruments for
settlement of wage disputes,
improvement in wage scales and for
standardization of wages and
allowances.
The courts and tribunals are primarily
intended for settlement of industrial
disputes, but in practice , wage
fixation has become has become an
important element of their work &
functioning.
Under Industrial Disputes Act, compulsory
adjudication is provided when there is
a failure of conciliation proceedings.

Chapter Eight Wage Fixation 38

 6. Adjudication
The awards issued by the legal
authorities, have formulated a body of
principles for wage fixation and laid
the foundation of the present
industrial wage structure.
The Supreme Court has emphasized the
social philosophy and justice in the
process of wage fixation. Industrial
adjudication must attempt, in stages,
to attain the principal objective of
welfare state.
Its immediate objective is to constitute a
wage structure that would do justice to
interests of labour and capital .
Chapter Eight Wage Fixation 39
 6. Adjudication
It needs to establish harmony between
labour and employers and lead to their
genuine and whole hearted cooperation
in the task of production.
Industrial adjudication takes into
consideration the principle of
comparable wages, productivity of the
trade or industry, cost of living, and
ability of the industry to pay.
No industry , the SC has noted, has a
right to exist unless it is able to pay
its workmen at least the bare minimum
wage.

Chapter Eight Wage Fixation 40

 6. Adjudication
Care has to be taken that the attempt at a
fair distribution does not tend to dry
up the source of the national income
itself. Better living conditions for
workmen can be possible by giving them
a ‘living wage’ and will increase
national wealth and income.
But, at the same time, unreasonable
inroads into profits of the capitalists
might have a tendency to prejudice
capital formation itself.
The effect of increased wages on
competitiveness of the industry in
local and , especially, overseas
markets also has to borne in mind.

Chapter Eight Wage Fixation 41

 6. Adjudication
To sum, the well established legal
position on wage fixation is :
1] wage structure has to be fixed on
industry-cum-region basis having due
regard to the financial capacity of the
unit.
2] attain uniformity to the extent
possible in the wage levels of
different units in the same industry
operating in the same region; though it
may not be always possible due to
differences in capacity of units to
pay.

Chapter Eight Wage Fixation 42

 6. Adjudication

3] proposed wage structure needs to be

comparable with units in the same
industry and region.
4] employees getting same level of
wages should get same amount of
dearness allowance.
5] additional burden imposed upon the
employer and his ability to bear the
same are very material and relevant
factors in determining wages.

Chapter Eight Wage Fixation 43

 7. Wage Fixation in Public Sector.

Initially compensation plans for public

enterprises were mainly borrowed from
the Government.
In case of steel plants in the public
sector, these plans were a mixture of
those of the Government and private
steel plants like TISCO, IISCO etc.
A composite Central Wage Board for
private, public and joint enterprises
in steel industry was set up in 1962
and it submitted its report in 1965.

Chapter Eight Wage Fixation 44

 7. Wage Fixation in Public Sector.
Implementation and working of this Wage
Board like others caused many a
problem. They further struck at the
roots of collective bargaining where
two parties deliberated to protect
their own interests.
This matter was deliberated and it was
decided to choose bilateral system of
bargaining as the best suited method of
evolving a wage structure. This was the
birth of bipartite forum for Joint Wage
Negotiating Committee for the Steel
Industry.

Chapter Eight Wage Fixation 45

 7. Wage Fixation in Public Sector.

This Committee arrived at decisions

through consensus and not by a majority
vote. This experiment of bipartism
started successfully in 1970 in the
Steel industry was emulated throughout
the country.
In most of the central public undertakings
today, bilateral committee of labour
and management determine wages and
allied benefits through process of
collective bargaining.

Chapter Eight Wage Fixation 46

 7. Wage Fixation in Public Sector.

Under the fresh guidelines managements are

free to negotiate new wage settlement
consistent with generation of resources
/ profits by individual enterprises /
units.
Wage increases are to be met from internal
resource generation and the period of
wage settlements is to be normally five
years.
Normally there should be no increase in
labor cost per unit of output because
of the new wage settlement.

Chapter Eight Wage Fixation 47

 8. Summary
The wage fixation policy should ensure
prevention of exploitation of labour
through the payment of unduly low
wages, particularly in those
employments where sweated conditions
exist and where the workers are
vulnerable to exploitation because of
lack of organization.
It is a step in direction of realizing the
objectives of wage policy in a
developing country like India, namely ,
the abolition of malpractices and
abuses in wage payment and fixing of
minimum wages for workers whose
bargaining position is weak as they are
unorganized.

Chapter Eight Wage Fixation 48

 8. Summary

In a developing economy, with severe

unemployment and under employment ,
wages cannot be left to be determined
entirely by the market forces and the
Government has a positive role to play
in ameliorating the conditions of the
low paid workers.

Chapter Eight Wage Fixation 49

 Thus we arrive at the end of
“Wage Fixation ”
Next we move to Chapter Nine –
“ Wage Legislation”

Good Luck!
Chapter Eight Wage Fixation 50