Everything you need to know about the principles of wage and salary administration.
Wage and salary administration is one of the vital areas of personnel administration, for sound wage and salary policies and programmes are essential to procure, maintain, develop, promote and transfer employees and to get effective results from them.
Administration of employee compensation is called compensation management or wage and salary administration.
It involves formulation and implementation of policies and programmes relating to wages, salaries and other forms of employee compensation. It includes job evaluation, wage/salary survey, development and maintenance of wage structure, which is considered fair and equitable.
The important principles or guidelines of a sound wage and salary administration are as follows:-
1. Protection of Interests 2. Uniform and Consistent 3. Consistency in Planning 4. Flexible and Adaptable 5. Employee Participation 6. Close Security 7. Simple and Quick Expeditious 8. Proper Organisational Set Up and 9. Periodical Review and Revision.
Wage and Salary Administration: Protection of Interests, Employee Participation, Close Security and a Few Others
Wage and Salary Administration – Generally Accepted Principles
The generally accepted principles governing the fixation of wage and salary are:
(i) There should be a definite plan to ensure that the difference in pay are on the basis of job requirements, such as level of skill required, the kind of responsibility one has to undertake, working conditions and the mental and physical requirements of the job.
(ii) The general level of wage and salary should be reasonably in line with that prevailing in the labour market. Labour market criterion is most commonly used.
(iii) The plan should carefully distinguish between jobs and employees. A job carries a certain wage rate, and a person is assigned to fill it at that rate. Exceptions sometimes occur in very high-level jobs in which the job holder may make the job large or small, depending upon his ability and contributions.
(iv) Equal pay for equal work, i.e., if two jobs have equal difficulty requirements, the pay should be the same, regardless of who fills them.
(v) An equitable practice should be adopted for the recognition of individual differences in ability and contribution. For some units, this may take the form of rate ranges, with in-grade increases, in others, it may be a wage incentive plan; in still others, it may take the form of closely integrated sequences of job promotion.
(vi) There should be a clearly established procedure for hearing and adjusting wage complaints. This may be integrated with the regular grievance procedure, if it exists.
(vii) The employees and the trade union, if there is one, should be informed about the procedure used to establish wage rates. Every employee should be informed of his own position, and of the wage and salary structure.
(viii) The wage should be sufficient to ensure for the worker and his family reasonable standard of living. Workers should receive a guaranteed minimum wage to protect them against conditions beyond their control.
(ix) The wage and salary structure should be flexible so that changing conditions can be easily met.
(x) Prompt and correct payments of the dues to the employees must be ensured and arrears of payment should not accumulate.
(xi) For revision of wages, a Wage Committee should always be preferred than the individual judgement of a manager no matter however unbiased he is in his judgement.
(xii) The wage and salary payments must fulfil a wide variety of human needs, including the need for self-actualization.
Principles of Wage and Salary Administration
Wage and salary administration is one of the vital areas of personnel administration, for sound wage and salary policies and programmes are essential to procure, maintain, develop, promote and transfer employees and to get effective results from them.
Wages are perhaps the most important single element in the conditions of employment. Organisational morale cannot be maintained at high level without a fair, equitable and sound remuneration programme. Modern wage and salary administration is very complex and sophisticated requiring expertise and specialist know-how.
i. The enterprise should have a clear-cut plan to determine differential pay levels in terms of divergent job requirements involving varied skills, effort, and responsibility and working conditions.
ii. An attempt should be made to keep the general level of wages and salaries of the enterprise in line with that obtained in the labour market or industry.
iii. Adequate care should be taken to distinguish people from the jobs. Although people are paid in terms of rates embodied in specific jobs, some exceptions should be allowed in the cases of professional and executive personnel by paying them in terms of their abilities and contributions.
iv. Irrespective of individual considerations, care should be taken to ensure equal pay for equal work depending upon flexibility of jobs-of course, variations may be permitted within a pay-range.
v. There should be a plan to adapt an equitable measure for recognising individual differences in ability and contribution in the form of rate ranges with in-grade increments, wage incentive schemes, and a system of job promotion.
vi. An attempt should be made to provide some procedure for handling wage grievances. This can be effectively embodied in the normal grievance procedure ordained in the enterprise.
vii. Adequate care should be taken to inform the employees and the union, if any, about the procedure followed in determining wage rates. There should be no confidential issue in respect of wages, and every employee should have a clear understanding of his/her wage or salary structure on an individual basis. This will enhance employee satisfaction with wages.
Principles of Wage and Salary Administration – 9 Main Principles
The management can offer as compensation depends upon factors that are inherent in the type of business it operates. The labour cost of production in the total cost of an end product and market factors influencing sales, necessarily limit the amount of compensation that can be offered. The nature of the work that is required will influence the choice of compensation system such as time, piece wage of added incentive payment.
The cost of administration of wage system may be decisive factor in the management choice. The competitive standing of business, the seasonal or permanent nature of its operations, its plans for the future, competition for labour, the available supply of labour, compensation practices prevailing to the place of an enterprise.
The generally accepted principles governing the fixation of wages and salary are:
(i) There should be a definite plan to ensure the differences in pay for jobs are based upon variations in job requirements, such as skill efforts, responsibility or job of working conditions, and mental and physical requirements.
(ii) The general label of wages and salaries should be reasonably in line with that prevailing in the labour market. The labour market criterion is most commonly used.
(iii) The plan should carefully distinguish between jobs and employees.
(iv) Equal pay for equal work, i.e. if two jobs have equal difficulty, requirements, the pay should be the same, regardless of who fills them.
(v) An equitable practice should be adopted for the recognition of individual differences in ability and contribution.
(vi) There should be a clearly established procedure for hearing and adjusting wage complaints. This may be integrated with the regular grievance, procedure, it exists.
(vii) The employees and the trade union, if there is one, should be informed about the procedure used to establish wage rates.
(viii) The wage should be sufficient to ensure for the worker and his family a reasonable standard of living.
(ix) The wage and salary structure should b& flexible so that changing conditions can be easily met.
Principles of Wages and Salary Administration – Generally Accepted Principles
Money is one of the basic needs of an individual. Whatever an individual does for his living, one of the basic motives behind it is money.
When an employee works in an organization, he provides his service to the employer and in return he wants his remuneration. In other words the employer compensates the employee for the contribution he is giving to the organization.
For an employee, pay is more than a means of satisfying his physical needs. It provides them a sense of recognition and determines their social status. No organization can expect to attract and retain qualified and motivated employee unless it pays them fair compensation.
Pay refers to the base wages and salaries employees normally receive. Apart from basic wages and salary, compensation also constitutes incentives and fringe benefits.
Compensation management is the process of deciding how much as employee should be paid. The important goals of compensation management are to design a low- cost pay plan that will attract, motivate and retain competent employees – which is also perceived to be fair by these employees.
Administration of employee compensation is called compensation management or wage and salary administration. It involves formulation and implementation of policies and programmes relating to wages, salaries and other forms of employee compensation. It includes job evaluation, wage/salary survey, development and maintenance of wage structure, which is considered fair and equitable.
The generally accepted principles governing the fixation of wages and salary are:
(i) There should be definite plan to ensure that differences in pay for jobs are based upon variations in job requirements, such as skill effort, responsibility or job or working conditions, and mental and physical requirements.
(ii) The general level of wages and salaries should be reasonably in line with that prevailing in the labour market. The labour market criterion is most commonly used.
(iii) The plan should carefully distinguish between jobs and employees. A job carries a certain wage rate, and a person is assigned to fill it at that rate. Exceptions sometimes occur in very high-level jobs in which the job-holder may make the job large or small, depending upon his ability and contributions.
(iv) Equal pay for equal work, i.e., if two jobs have equal difficulty requirements, the pay should be the same, regardless of who fills them.
(v) An equitable practice should be adopted for the recognition of individual differences in ability and contribution. For some units, this may take the form of rate ranges, with in-grade increases; in others, it may be a wage incentive plan; in still others, it may take the form of closely integrated sequences of job promotion.
(vi) There should be a clearly established procedure for hearing and adjusting wage complaints. This may be integrated with the regular grievance procedure, if it exists.
(vii) The employees and the trade union, if there is one, should be informed about the procedure used to establish wage rates. Every employee should be informed of his own position, and of the wage and salary structure. Secrecy in wage matters should not be used as a cover-up for haphazard and unreasonable wage programme.
(viii) The wage should be sufficient to ensure for the worker and his family reasonable standard of living. Workers should receive a guaranteed minimum wage to protect them against conditions beyond their control.
(ix) The wage and salary structure should be flexible so that changing conditions can be easily met.
(x) Prompt and correct payments of the dues of the employees must be ensured and arrears of payment should not accumulate.
(xi) For revision of wages, a Wage Committee should always be preferred to the individual judgement, however unbiased, or a manager.
(xii) The wage and salary payments must fulfil a wide variety of human needs, including the need for self-actualisation. It has been recognised that “money is the only form of incentive which is wholly negotiable, appealing to the widest possible range of seekers…. Monetary payments often act as motivators and satisfiers interdependent of other job factors.”
Principles of Wages and Salary Administration – Basic Principles Enumerated by Mr. Herbert S. Fuhrman
A Wage and salary administration programme must follow certain basic principles. Otherwise they are not sound there more emphasis is often placed on the techniques and processes rather than on the objectives and principles of wage and salary administration.
Mr. Herbert S. Fuhrman enumerates the following basic principles that any wage plan must follow:
(a) Job evolution plan and compensation plan must be separate and distinct and so understood by all.
(b) Evaluation must be scientifically sound and easily comprehensible.
(c) Wage administration plan must all times be consistent with management policies or programmes.
(d) The job rating and compensation plans should be understood by and acceptable to the employees affected.
(e) The wage administration plan must be flexible and responsive to changing circumstances growing out of locality conditions.
(f) The wage administration plan must be consistent with nature and objectives of the organisation.
(g) The wage administrations plan must simplify and expedite, rather than impede the other administrative processes.
Principles of Wages and Salary Administration – 12 Principles to be Followed in Designing a Sound Wage and Salary Structure
The compensation plan must be framed carefully. Compensation recognises the employee’s worth. Designing a compensation policy is a complex task as the firm has to reconcile employees’ career aspirations with respect to earnings and control the firm’s costs related to wages and salaries.
The principles to be followed in designing a sound wage and salary structure are as follows:
1. The wage and salary should be equitable, logical and fair.
2. The wage and salary structure should be such that it will be able to handle changes in market rates or organizational change.
3. Compensation plan should appraise performance, duty, and loyalty.
4. Compensation plan should be in conformity with legal requirements like minimum wages, overtime wages and so on.
5. The compensation should be paid to each employee on the basis of their abilities, knowledge and training.
6. The compensation package should be such that the employees are motivated to increase productivity and the organisation is successful in retaining its best workforce. It should also be able to attract best talents. Wage plan should be linked to productivity.
7. Compensation plan should take care of employee’s social needs, safety and security needs.
8. Wage and salary should be clear and flexible.
9. The remuneration should not be excessive. It should be at par with the prevailing market rate.
10. Compensation policy should be decided by the management as per the norms fixed by the legislations in consultation with the union so as to avoid disputes demanding wage and salary hike.
11. The compensation policy should strike a balance between the high aspiration of the employees regarding their wage and salary structure and the organization’s objective of wage and salary reduction and cost control.
12. The compensation plan should be continuously reviewed and controlled.
Principles of Wage and Salary Administration – Top 12 Principles
The main purpose or primary objectives of wage and salary administration is to establish and maintain a fair and equitable wage structure. The second objective is to establish and maintain an equitable labour-cost structure. Third objective is utilization of wages and salaries as an incentive to greater employee productivity. Fourthly, maintenance of a satisfactory public relations image.
To achieve these objectives, the responsibility for wage and salary administration usually lies with top management (i.e. Board of Directors in case of a company) or the Chief Executive Officer who in turn is expected to develop policies and procedures. In many organizations the task is entrusted to Wage and Salary Committee composed of line and staff executives.
Wage and Salary Administration should be guided by the following generally accepted principles:
(i) Wage policies should be carefully developed keeping in view the interests of employers, employees, consumers and the community.
(ii) Wage policies should be clearly expressed in writing to ensure uniformity and stability.
(iii) Wage decisions should be checked against the carefully formed policies.
(iv) Wage policies should be evaluated from time to time to ensure their adequacy for current needs.
(v) Job descriptions and performance ratings should be checked periodically to keep them up-to-date.
(vi) Differences in pay for jobs should be based upon variation in job requirements such as skill, effort, responsibility and working conditions.
(vii) Wage and salary levels should be matching with those that prevail in the labour market
(viii) ‘Equal pay for equal work’ should be given for the same job regardless of any gender differences
(ix) Adequate information about the procedure used to establish wage rates should be given to the employees and their unions
(x) The wage should be adequate to make certain that the worker and his family can get reasonable standard of living.
(xi) Clearly established procedure should exist for minimizing and reducing wage disputes.
(xii) Wage and salary structure should be flexible so that changing conditions can be easily met.
Principles of Wage and Salary Administration – 9 Important Guidelines
The important principles or guidelines of a sound wage and salary administration are as follows:
Principle # 1. Protection of Interests:
The wage policy should be developed by keeping in view the interests of all concerned viz. the employer, the employees, the consumers and the community as a whole. This is necessary to protect the interests of all these people.
Principle # 2. Uniform and Consistent:
The wage policy should be reduced to writing with a view to ensure uniformity and consistency in its application.
Principle # 3. Consistency in Planning:
The wage and salary plans should be consistent with the overall plans of the organisation. The wage and salary planning should be an integral part of the financial planning.
Principle # 4. Flexible and Adaptable:
The wage and salary plans should be flexible and adaptable to the changes in internal and external conditions of the organisation.
Principle # 5. Employee Participation:
The management should ensure that all the employees have come to know and have understood clearly the wage policy of the organisation. The representatives of the employees should be associated in the formulation and implementation the wage policy.
Principle # 6. Close Security:
The wage and salary decisions should be checked closely against the pre-determined standards.
Principle # 7. Simple and Quick Expeditious:
All the wage and salary plans should simplify and expedite administrative process quickly.
Principle # 8. Proper Organisational Set Up:
Proper organisational setup with complete satisfied information about all the employees should be developed for competition determination and administration.
Principle # 9. Periodical Review and Revision:
The wage policy and programme should be periodically reviewed and revised so that it can confirm to the changing needs of the organisation.