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.
Table of Contents
Basic Concept related to Wages
- Wages: Wages refer 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 a worker receives wage on the basis of the unit, time or production. It does not include overtime payment, incentives, bonuses etc.
- Nominal Wage: Wages measured in monetary terms are nominal wages.
- Real Wage: Goods and Services that could be bought through money wages are real wages.
- Fringe Benefits: Consideration provided to employees in the form of monetary benefits or facilities, apart from wages, is fringe benefits. It is not outrightly associated with the output, performance, or time worked.
Must Read: Absenteeism
Objectives of Wage and Salary Administration
- Acquiring qualified and competent personnel.
- Retaining present employees
- Securing internal and external equity
- Ensuring desired behaviour
- Keeping the costs in the pocket, i.e. as per the organisation’s ability to pay.
- Projecting a positive image of the company
- Complying with wage legislation
- Paying as per the responsibilities and difficulty of the job and the pay has to be according to the effort and merit of the employee
- Simplifying the process of collective bargaining and negotiations.
Must Read: Voluntary Retirement Scheme
- At the time of the creation of the wage policy, the management must consider the interest of all the concerned parties, like employer, employees, consumers and society.
- The plans must be flexible enough to modify as per the internal and external changes in the environment.
- Differences in the salary scale for jobs depend on the difference in the job requirements like skills, responsibility, efforts and mental and physical requirements.
- Wage and salary plans must be in line with the ultimate goals of the organisation
- It must comply with the socio-economic objectives of the country, i.e. equality in income distribution, etc.
- It should speed up and simplify the administrative process
- Workers must also participate in wage policy formulation and implementation.
- The basic level of wages must be in accordance with the prevailing rates in the market.
- A sufficient database and proper organisational set-up should be there for ascertaining and administering the compensation.
- Properly established procedure for hearing and adjusting wage complaints. It must be incorporated into the employee grievance procedures.
- Ensuring a guaranteed minimum wage for all workers to safeguard their interests.
Process of Wage Determination
The process of wage determination is quite complex. It may include the following steps:
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.
Thereafter, once the job specification is complete, the process of grading, rating and job evaluation takes place. In this, the job is rated so as to ascertain the value of the job in relation to other jobs in the organization. Thereafter, the job is associated with the price, which encompasses the translation of the relative job values into terms of money.
This step involves a survey of the wages which other organizations pay to their employees, for the same job, in a particular industry. Depending upon 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:
- Qualified and skilled personnel will not be available.
- If competent employees are available, then they will shift to another enterprise after some time.
Hence, the wage survey takes place, considering the following factors:
- Term of the survey
- Wage-payment knowledge of daily working hours and monthly payments.
- Job Definition
- Proper technique and tools for gathering information.
Group Similar Jobs into Pay Grades
On the receipt of the necessary data relating to job analysis and wage surveys, 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 determination of a job of almost equal strain or importance takes place through job evaluation.
Moreover, 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 grades in relation to the ranks assigned to each job. The wage curve shows:
- Value of the job
- Current average pay rate for the grades or job.
Fine Tune Pay Rates
As the name suggests, it involves:
- 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. Further, if the pay is below the line, then there is a need for raise. Whereas if the pay is above the wage line, then the management can go for a pay cut or a pay.
- Establishing Rate Ranges: In general, employer organizations 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 must be clear to the staff concerned. This is because secrecy in this matter may lead to dissatisfaction. Also, it may impair the probable motivating impact of disclosure. Hence, the appraisal of employees takes place. Along with that, the wage is determined by the grade in which he/she is perfectly fit.
Must Read: Employee Orientation
All in all, wage and salary administration is a challenging task for management, which involves decisions relating to the appropriate wage structure for human resources. It is the set of practices employed in the planning and disbursing of payments to the employees.