Key Principles In Wages Formulation

The Best assets of an organization are a committed force with adequate and who keep developing themselves in their respective fields. When there is an existence of a sound relationship between the employer and employee, it ensures greater effecinecy and higher productivity how ever, an individual may be efficient, if he is not supported by a suitable compensation, his level, of performance may not be at an appreciable level, wages, Salaries and incentives from the greatest (monetary) motivating force and hence care should be taken to device the wage structure.

Principles in wage formulation

Compensation generally comprises of cash payments which addition to wage include pension, bonus and other shared profits. Sometimes, compensations are in the form of a word praise an subsequently in the nature of promotions. Any compensation package should encompass factors like adequacy of wages (both internal and external), Social balances supply and demand, fair comparison, equal pay for equal work and work measurement.


In a country like India, it is possible to find employees willing to accept jobs at lower rates of pay. The employer has to have ethical obligation to pay fair wages, taking in to account, the industry rates and the standard of work done by the employee, if not his contribution to the job, should be accounted for.


While designing and implementing a compensation system, care should be taken to compare jobs across same type of industries in relation to their fairness, complexity of task, skill requirements, job differentials and objective system of job measurement. Care should e taken to install a sample compensation plan with minimum grades that do not overlap.


Although there are many legislations that do exist, those that apply to the particular employees terms and conditions of employment should alone be taken in to account. The performance of the employee will be better at given level if he is made to believe of the fact that a list of conditions prevail and all these conditions have been taken into account.


Need – Based Minimum Wages : As the indicated the minimum wage should be need based and its has to ensure that the minimum human need of the industrial worker should be considered irrespective of any other considerations. The following are the basis for calculating this need – base minimum wages.

(a) The standard working class family is to be taken as consisting of three consumption’s units, disregarding the earnings of other family members:
(b) Clothing requirement at par with the per capital consumption
(c) Minimum rent charged by the government in the subsidized industrial Housing scheme, in respect of housing
(d) Fuel, lighting and other miscellaneous items of expenditure should constitute 20% of the total minimum wages.


Wages Legislations: The managerial obligations are not emphasized . Negotiations take place through collective bargaining process, when the managerial obligations falls short demand of the working class.

Compensation Issues : The payment of a fair and equitable wage is the only problem that is facing any organization . Although the objective may appear simple, yet the process is complex , since the term “fair wages” attracts more differences. Belcher D.W. in his “wages and salary “ Administration has classified compensation issues in to seven categories and are detailed below:


1.Wages and Salary levels: The wages and salary levels are dependent on Three major factors, and they are:

- Wages rates in the community and in similar industries
- The influence of the workers union on the wages rates
- Corporate Philosophy on the wages

Corporate management will have to work out the details of the wages scale and refine the wages system. The criteria that have a bearing are. (1)Cost of living (2) Productivity (3) Prevailing wages rates (4) Ability to pay and (5) Attraction and Retention of employees


2. Wages Salary Structure: In an organization , jobs are placed in a grade or a rate per job and these grades are arranged in a hierarchical order with those earning higher wages on top. This is known as job evolution. Qualitative and Quantitative method are used in evaluating a job. While evaluating the job skill, effort, responsibility , and working conditions have to be given due weightoges depending upon the organization . some methods for evaluating the jobs are (1) Ranking Method (2) Job classification method (3) Point Rating Method and (4) Factors comparison method . The complexity of skills have to established, and then it has to be translated in to pay structures.


3. Individual wages Determination: Individual wages rates and increments have to be given the primary consideration; This is mainly due to the fact that the compensation has to be paid equally for similar type of jobs with out much of variations. The Nature of the job / or the work performance will be the sole criteria in determining the wages structure . If there are no disparities in this issue, the union may not object to this, at the same time same time, periodic wages hikes and other factors like competition in the labour marked .


4. Company Philosophy: While taking in to account many alternatives in working out a corporate policy for wages and compensation package, one important consideration that has to be borne in mind is the “Prevailing wages rate “ in that area . The values it hold, the style and attitude of management in view , also play an important part in deciding the wages structure. To summaries the company compensation policies, it is worth recaptualating the following:

- Attraction and Retention
- Internal Consistency
- External Consistency
- Ability to pay
- Pay and Performance
- Labour costs and Productivity
- Cost of Living
- Motivation


To , Conclude , whether the rewards intrinsic or extrinsic, they have to be equitable , valuable, distinctive and contingent.


FREE Subscription

Stay Current With the Latest Trends & Developments Realted to Management. Signup for Our Newsletter and Receive New Articles Through Email

Note: We never rent, trade, or sell our email lists to anyone. We assure that your privacy is respected and protected.