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IGNOU MBA Solved Assignment MS-27 WAGE AND SALARY ADMINISTRATION
COURSE NAME :WAGE AND SALARY ADMINISTRATION
ASSIGNMENT CODE : MS-27/SEM-2/2008
1. Explain the role of compensation in an organization. Why an effective compensation policy and programme are important function of management? Discuss the process of determination of pay in your organization or any other organization acquainted with. Describe the organization you are referring to.
Ans. role of compensation in an organization
Employee compensation is a vital part of human resource management. Wages, salaries and other forms of employee compensation constitute a very large component of operating costs. "One of the biggest factors affecting industrial relations is the salary or wage-the compensation an employee receives for a fair day's work" I. Majority of union management disputes relate to remuneration. No organisation can expect to attract and retain qualified and motivated employees unless it pays them fair compensation. Employee compensation, therefore, influences vitally the growth and profitability of the company. For employees, pay is more than a means of satisfying their physical needs. It provides them a sense of recognition and determines their social status. Remuneration is directly or indirectly one of the mainsprings of motivation in our society. Wages and salaries have significant influence our distribution of income, consumption, savings, employment and prices. This is all the more significant in an under-developed country like India suffering from problems of concentration of income, inflation and unemployment. Thus, employee compensation is a very significant issue from the viewpoint of employers, employees and the nation as a whole.
Employee compensation may be classified into two categories:
(i) Base or primary compensation, and
(ii) Supplementary compensation
Base or primary campensation refers to basic pay in the form of wages and salaries. It is a fixed and non-incentive payment on the basis of time expended on the job. Supplementary compensation consists of incent ive and variable payments, based on either individual output or output of the group as a whole. In this chapter we are concerned with base compensation.
Administration of employee compensation is called compensation n(nr anagement 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 rules for administration of wages, profit sharing and other incent ives and control of payroll costs. The basic purpose of wage and salary administration is to establish and maintain an equitable wage and salary structure and an equitable labour cost structure.
Comensation structure / framework
Pay structure in a company depends upon several factors e.g. wage settlements, labour market situation, company's nature and size, etc. Pay structure consists of certain grades, scale and range of pay in each scale. Each scale has a minimum and a maximum limit. Jobs placed within a particular grade carry the same value though the actual pay in a grade depends upon length of service and or performance of the employee.
Pay structure in India generally consists of the following components.
(i) Basic wage /salary
(ii) Dearness allowance (D.A.)
(iii) Bonus and other incentives
(iv) Fringe benefits or perquisities
The basic wage provides the foundation of pay pocket. It is a price for services rendered. It varies according to mental and physical requirements of the job as measured through job evaluation. In India, basic wage has been influenced by statutory minimum wage, wage settlements, and awards of wage boards tribunals, pay commissions, etc. According to the Fair Wages Committee any attempt to evolve principles for governing the fixation of wages must be made against the background of general economic conditions of the country and the level of national income. The committee gave three concepts, relating to basic wages. Minimum Wage.
Minimum wage is that wage which is sufficient to cover the bare physical needs of a worker and his family. But the committee felt that the minimum wage should provide not merely for the base subsistence or sustenance of life but for the preservation of the health, efficiency and wellbeing of the worker by providing some measure of education, medical
facilit ies and other amenit ies. Statutory minimum wage is fixed from this point o. view. Minimum wage has got to be paid to every worker irrespective of the capacity of the industry to pay. If an enterprise is unable to pay its workers atleast a bare minimum, it has no right to exist.
The Fair Wages Committee defined the components of minimum wage but did not quantify them. The Indian Labour Conference at its 15th Session held in July 1957 formally quant ified the minimum wage. The Conference laid down the following criterion for the calculation of minimum wage or
Need Based Wage
(a) The standard working class family should be taken to consist of 3 consumption units for the one earner, disregarding the earnings of women, childern and adolescent.
(b) Minimum food requirements should be calculated on the basis of a net intake of 2700 calories, as recommended by Dr. Aykroyed for an average Indain adult of moderate activity.
(c) Cloth requirements should be 18 yards per consumption unit per annum.
(d) Rent is to be calculated as per the minimum rent charged by the Government under the subsidised Industrial Housing Scheme for low income groups.
(e) Fuel, lighting and other miscellaneous expenditure is to constitute 20 per cent of the minimum wage.
The above norms were revised by the 41 st Labour Ministers Conference in 1992 as under.
(i) The standard working class family should be taken to comprise 5 consumption units instead of 3
(ii)Minimum food requirements should be calculated on the basis of 2700 calories per consumption unit in conformity with the food habits of the region.
(iii) Clothing requirements should be estimated at 80 yards per family per year.
(iv) House rent should be the same as under the subsidised industiral housing scheme.
(v) Fuel, lighting and other miscellaneous expenditure should constitute 20 % of he total minimum wage.
(vi) 25% of the total of earlier components should be provided for children education, medical and social needs as per the Supreme Court judgement given in the case of the Workmen vs. Management of Raptakos Brett & Co. Ltd
Fair Wage. A fair wage is something more than the minimum wage providing the bare necessities of life. While the lower limit of the fair wage is set by the minimum wage. the upper limit should be the capacity of the industry to pay. Between these two limits, fair wage should depend on several factors like: (a) the productivity of labour, (b) the prevailing rates of wages in the same or similar occupations in the same region or neighbouring regions, (c) level of national income and its distribution. (d) the place of the industry in the economy of the country, and (e) the employer's capacity to pay. Thus, the fair wage should be determined on industry-cum-region basis. Fair wage is a step toward the ideal of living wage. The objective should be not merely to determine wages which are fair in abstract but also to ensure that employment and efficiency of the industry is maintained and if possible increased.
Living Wage. it is the wage that provides, in addit ion to the necessities of life, certain amenit ies considered necessary for the well-being of the worker in a particular society. It should ensure a normal standard of life to the average employee regarded as human beings living in a civilised community. According to the Fair Wages Committee, "the living wage should enable the male earner to provide for himself and his family not merely the bare essentials of food, clothing and shelter but also a measure of frugal comfort including education for children, protection against ill-health, requirements of essential social needs and measure of insurance against the more important misfortunes including old age.
The concept of living wage is dynamic related with the level of economic development in a country. There should be progressive improvement in the wage with improvements in the economic life of the nation. In an under-developed country like India, living wage is the ideal or target that is to be achieved through higher productivity.
State Regulation of Wages