Wage and Salary Administration

What is Wage and Salary Administration?

Wage and Salary Administration implies setting up and enacting sound policies and practices, concerning employee compensation. It aims at defining and maintaining a just and fair, wage and salary structure.

It amounts to one of the primary components of the cost of production, which considerably influences the growth and profit potential of the enterprise. Besides this, it is the main source of the worker’s income.

Basic Concept related to Wages

  • Wages: Wages refers to a definite consistent remuneration earned by a blue-collar worker, generally on a daily basis.
  • Salary: Salary implies the compensation paid to the employee by the employer, on a monthly basis for the services rendered.
  • Wage Rate: The rate at which wage received by a worker, on the basis of the unit, time or production. It does not include overtime payment, incentives, bonus etc.
  • Nominal Wage: Wages measured in monetary terms, is called nominal wages.
  • Real Wage: Goods and Services that could be bought through money wages, is termed as real wages.
  • Fringe Benefits: Consideration provided to employees, in the form of monetary benefits or facilities, apart from the wages, is called fringe benefits. It is not outrightly associated with the output, performance or time worked.

Process of Wage Determination

The process of wage determination is quite complex. It may include the following steps:wage-determination-process

Job Analysis: Job Analysis tends to report the duties, responsibilities, rights and authorities, working conditions and inter-relationship amidst the jobs. It seeks to track and study the particulars related to the training, skills, competencies, efforts, qualifications, capabilities, experience and responsibilities, expected from the incumbent.

Once the job specification is complete, the process of grading, rating and job evaluation takes place, in which the job is rated, so as to ascertain the value of the job in relation to other jobs in the organization. Thereafter job is associated with the price, which encompasses the translation of the relative job values into terms of money.

Wage Survey: This step involves a survey of the wages being paid by the other organizations, for the same job, in a particular industry. Based on the utility, if the wages for the concerned job are lower in comparison to the wages for the same job in another firm, then the following disadvantages will occur:

  1. Qualified and skilled personnel will not be available.
  2. If competent employees are available, then they will shift to another enterprise after some time.
    Hence, the wage survey must be performed, considering the following factors:

    • Term of the survey
    • Wage-payment knowledge of daily working hours and monthly payment.
    • Job Definition
    • Proper technique and tools for gathering information.

Group Similar Jobs into Pay Grades: On the receipt of necessary data relating to job analysis and wage survey, it is now the time to assign pay rates to each and every job, however, there is a precondition to group the jobs into pay grades. In a pay grade system, the job of almost equal strain or importance is ascertained by job evaluation.

It states the amount of pay received by an employee, often on the basis of the responsibilities undertaken.

Price Each Pay Grade: The assignment of pay rate to each pay grade is attained with the help of the wage curve. A wage curve reflects on a graph, the existing pay rate, which is paid for jobs in various pay grade, in relation to the ranks assigned to each job. The wage curve shows:

  1. Value of the job
  2. Current average pay rate for the grades or job.

Fine Tune Pay Rates: As the name suggests, it involves:

  1. Making corrections to out of line rates: The average existing pay for a job may not be equitable, i.e. too high or low, in relation to other jobs. If the pay is below the line, then a raise is required, whereas if the pay is above the wage line, then pay cut or pay freeze is preferred.
  2. Establishing Rate Ranges: In general, employer organization do not prefer a single rate for all the jobs in a specific pay grade, rather they establish rate ranges for different grades so that there exist different levels and equivalent pay rates within each pay grade.

Wage Administration Rules: The information with respect to average salaries and ranges in the salaries of the group should be made clear to the staff concerned because secrecy in this matter may lead to dissatisfaction and it may also impair the probable motivating impact of disclosure. At last, the employee is appraised and the wage is determined for the grade in which he/she is perfectly fit.


In a nutshell, wage and salary administration is a challenging task for the management which involves decisions relating to the appropriate wage structure for the human resources. It is the set of practices employed in the planning and disbursing payment to the employees.

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