Wage and Salary Administration (Employee Compensation)

Wage

Wage: Indian Labour Organisation (ILO) defined the term wage as the remuneration paid by the employer for the services of hourly, daily, weekly and fortnightly employees.
Remuneration paid to production and maintenance or blue collar employees.

Salary

The term salary is defined as the remuneration paid to the clerical and managerial personnel employed on monthly or annual basis.

Earnings

 Earnings are the total amount of remuneration received by an employee during a given period. These include basic pay, dearness allowance, city compensatory allowance, other allowances, overtime payments, etc.

Nominal Wage

It is the wage paid or received in monetary terms. Also known as money wage.

Real Wage

Real wage is the amount of wage arrived after discounting nominal wage by the living cost. It represents the purchasing power of money wage.

Take-home Salary

It is the amount of salary left to the employee after making authorised deductions like contribution to provident fund, life insurance premium, income tax and other charges.

Minimum Wage

It is the amount of remuneration which could meet the normal needs of the average employee regarded as a human being living in a civilised society.

Statutory Minimum Wage

It is the amount of remuneration fixed according to the provisions of the Minimum Wages Act, 1948.

The living wage

The living wage is the highest amount of remuneration and naturally it would include the amenities which a citizen living in a modern civilised society is entitled to expect, when the economy of the country is sufficiently advanced and the employer is able to meet the expanding aspirations of his workers.

Fair wage

Fair wages are equal to that received by workers performing work of equal skill, difficulty or unpleasantness.

Incentive wage

This is the amount of remuneration paid to a worker over and above the normal wage as an incentive for employees contribution to the increased production or saving in time or material.

Wage rate

It is the amount of remuneration for a unit of time excluding incentives, overtime pay, etc.

Standard Wage

It is the amount of wage fixed for a unit of time fixed on the basis of job evaluation standards.

Objectives of wage and salary administration:

To acquire qualified and competent personnel To retain the present employees To secure internal and external equity To ensure desired behaviour To pay for contribution and not time

To simplify collective bargaining procedures and negotiations. To maintain satisfactory public image To labour and administrative costs in line with the ability of the organisation to pay.

Factors affecting wage and salary administration:

Remuneration in comparable industries Firms ability to pay Cost of living Productivity of workers Trade union pressure and strategies Government legislations

Methods of wage payment

There are two principal systems of wage payments. They are1) Time wage system 2) Piece Rate System

Time wage system:

Under this system, the worker is paid for the amount of time spent on the job . Wages are based on a certain period of time during the course of work.

The period may be an hour, a day, a week, a fortnight, or a month and the wage rate will depend upon the period of time.

Here the wages are paid after the fixed time is completed irrespective of output or completion of work. It is a non-variable method of wage payment under which wages are paid on the basis of time worked.

Under this system, the workers are paid on the basis of time spent in the factory. No consideration is given to number of units produced. Wages=Time spent (in hours/days/weeks/months) *Rate per hour /day/week/month. Suppose a worker is paid @Rs.80 per day & he has worked for22 days during a particular month, his wages for the month will be Rs.1,760(i.e.22 days * Rs.80)

Time wage system is suitable in the following situationWhen it is difficult to fix the standard time for doing a job.
When quality of work is of utmost importance. Where mental work is involved, such as policy making and administration Where production process is complicate and demands higher degree of skills.

Advantages of Time Wage System:

Simplicity Feeling of security Equality of wages Better quality Less wastage Acceptable to trade unions

Disadvantages of Time Wage System:

Inefficiency Lack of motivation Increased supervision Fixed wage bill

Piece Rate System

 The piece rate system is that system of wage payment in which the workers are paid on the basis of the units of output produced. Piece rate system does not consider the time spent by the workers. Piece rate system is the method of remunerating the workers according to the number of unit produced or job completed. It is also known as payment by result or output. Piece rate system pays wages at a fixed piece rate for each unit of output produced.

The total wages earned by a worker is calculated by using the following formula.

Total Wages Earned= Total units of outputs produced x Wage rate per unit of output. OR, Total Wages Earned= Output x Piece Rate

The piece rate method is applicable where1) quality of work is not important 2) work is of a repetitive nature, 3) joint rate can be fixed satisfactorily 4) there is sufficient demand for output to guarantee continuous work and 5)the job is a standardized one.

Advantages of Piece-wage System: Incentive for higher production Fairness Reduces unit cost Recognizes efficiency Less supervision Minimum idle time Motivates workers

Disadvantages of Piece-wage system: Low quality Difficulty in rate fixation Increases wastage Insecurity to workers Rigid supervision is necessary More administrative work Opposition by trade unions

Incentive wage plans:

incentive wages links earnings to productivity and may use premiums, bonuses or a variety of rates to compensate for superior performance.

Objectives of incentive wage plans: To motivate the workers to increase their productivity. To provide additional wage for their efficiency To raise the morale and loyalty of the employees. To minimize labour turnover. To reduce the cost of production.

Some important wage incentive plans areTaylors differential piece rate plan Merricks differential piece rate plan Gantt task and bonus plan Halsey premium plan Halsey weir plan Rowan plan Emerson efficiency plan Bedauxe point scheme Group bonus schemes

Requirements of sound wage-incentive system: Sound policies Scientific system for fixing standard workload Workers participation Guarantee of minimum wage payment Simplicity Definiteness Wide coverage No upper limit Follow up

Taylors differential piece rate plan Introduced by F.W. Taylor, the father of Scientific Management. No minimum time rate is guaranteed. Standard output per unit of time is fixed. Two wage rates- low piece rate and high piece rate- are suggested. low piece rate is 83% and high piece rate is 175% of the piece rate.

Efficiency

Rate applicable

Below standard

Low piece rate

At/ above standard

High piece rate

Merricks differential piece rate plan

Merrick amended Taylor's plan. He introduced three piece rates in the place of two rates suggested by Taylor. This is an improvement over Taylors plan since it takes into consideration less efficient workers.

Efficiency Up to 83% 83% to 100% Over 100%

Rate applicable Ordinary piece rate 110% of ordinary piece rate 120% of ordinary piece rate

Gantt task and bonus plan This is another modification of Taylors differential piece rate plan. Introduced by Mr. N.L Gantt. Combines time rate, piece rate and bonus. Minimum guaranteed time rate to the workers below the standard. An incentive of 20% is paid to the workers who reach the standard. High piece rate is paid to the workers above the standard.

Halsey premium plan

Formulated by F.A y, an American Mechanical Engineer, in1891. Time rate is guaranteed. Standard time is fixed to complete the job. Bonus is paid to the workers who complete the work before the standard time. 50% of the wage of the time saved is paid as bonus.

Total wage= time wage + bonus for time saved

= (hours worked*rate saved*rate per hour) =(HW*RH) + (HS*RH) per hour)+ (hours

Halsey weir plan

Messers G & J Weir modified Halseys plan in respect of bonus. The bonus payable is fixed to be 1/3 of the time wage for time saved.

Total wage= (time wage) + (bonus for time saved)

= (hours worked*rate per hour) + 1/3 (hours saved*rate per hour) =(HW*RH) + 1/3 (HS*RH)

Rowan plan
Introduced by David J. Rowan of Glasgow in 1901. Time wage is guaranteed. Bonus is paid for the time saved. Bonus hours are calculated as a proportion of the time taken which the time saved bears to the time allowed.

Total wage= (time wage) + (bonus for time saved)

= (hours worked*rate per hour) + hours saved std. time *hours worked * rate per hour =(HW*RH) + HS *HW * RH ST

Emerson efficiency plan A standard time is established for a standard task. The day wage is assured. The remuneration based on efficiency rises gradually. Efficiency is the difference between the standard time fixed for a performance and the time actually taken by a worker.

Bedauxe point scheme This plan is introduced by Mr. C.E. Bedauxe. Standard time is expressed in minutes. Each minute is called a Bedauxe point or B. For each job , number of B are fixed. A guaranteed hourly rate is paid until standard production is achieved and additional wage is paid for units in excess of standard. 75% of Bs saved is paid to the workers as bonus or premium.
=[ HW x RH] + [75/100 x Bs saved x RH/60]

Group Bonus Scheme: Individual bonus schemes can not be adopted where a group of workers work collectively. Where individual efforts are not measurable for determining the payment of bonus, group bonus schemes are employed. The total production of the group as a whole is measured and the total bonus is determined by applying one of the individual incentive schemes. The bonus thus calculated is shared equally or in different proportions between workers .

Objectives: encouraging team spirit among workers, creating interest among supervisors to work together , eliminating waste, reducing idle time , achieving maximum production at minimum cost.