Human Resource ManagementHuman Resource Management

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Mahendra SrivastavaMahendra Srivastava

FACTORS INFLUENCING EMPLOYEE FACTORS INFLUENCING EMPLOYEE REMUNERATIONREMUNERATION

A number of factors influence the A number of factors influence the remuneration payable to employees.remuneration payable to employees.

They can be categorized :They can be categorized :

External FactorsExternal Factors InternalInternal

External FactorsExternal Factors

To an organization are :To an organization are : Labour MarketLabour Market Cost of LivingCost of Living Labour UnionsLabour Unions Government LegislationsGovernment Legislations The Society, and The Society, and The EconomyThe Economy

Labour MarketLabour Market

Demand for and supply of labour Demand for and supply of labour influence wage and salary fixation.influence wage and salary fixation.

A low wage may be fixed when the A low wage may be fixed when the supply of labour exceeds the demand supply of labour exceeds the demand for it.for it.

A higher wage will have to be paid A higher wage will have to be paid when demand exceeds supply, as in when demand exceeds supply, as in the case of skilled labour.the case of skilled labour.

High remuneration to skilled labour is High remuneration to skilled labour is necessary to attract and retain them.necessary to attract and retain them.

But exploitation of unskilled labour, But exploitation of unskilled labour, like, for instance, paying niggardly like, for instance, paying niggardly wages because it is available in wages because it is available in plenty, in unjustified. plenty, in unjustified.

The Minimum Wages Act, 1948, is The Minimum Wages Act, 1948, is precisely meant to prevent this kind precisely meant to prevent this kind of exploitation.of exploitation.

The Going rate system involves fixing The Going rate system involves fixing wage/salary rates in tune with what wage/salary rates in tune with what is paid by different units of an is paid by different units of an industry in a locality. industry in a locality.

Going rates are generally paid in the Going rates are generally paid in the initial stages of plant operators.initial stages of plant operators.

Productivity of labour also influences Productivity of labour also influences wage fixationwage fixation

Productivity can arise due to increased Productivity can arise due to increased effort of the worker, or as a results of effort of the worker, or as a results of the factors beyond the control of the the factors beyond the control of the management, and the like.management, and the like.

From advance technology and more From advance technology and more efficient method of productionefficient method of production

Productivity has only a subordinate Productivity has only a subordinate role in wage fixation.role in wage fixation.

The argument that productivity The argument that productivity would increase if it is linked to would increase if it is linked to remuneration is hardly acceptable.remuneration is hardly acceptable.

Cost of LivingCost of Living

A rise in the cost of living is sought to A rise in the cost of living is sought to be compensated by payment of be compensated by payment of dearness allowance, basic pay to dearness allowance, basic pay to remain undisturbed.remain undisturbed.

Many companies include an Many companies include an escalatory clause in their wage escalatory clause in their wage agreement in terms of which dearness agreement in terms of which dearness allowance increases or decreases allowance increases or decreases depending upon the movement of depending upon the movement of consumer price index (CPI)consumer price index (CPI)

Labour UnionsLabour Unions

The presence or absence of labour The presence or absence of labour organizations often determines the organizations often determines the quantum of wages paid to quantum of wages paid to employees. employees.

Employers of non-unionized factories Employers of non-unionized factories enjoy the freedom to fix wages and enjoy the freedom to fix wages and salaries as they please. Because of salaries as they please. Because of large unemployment.large unemployment.

An individual non-unionised company An individual non-unionised company may be willing to pay more to its may be willing to pay more to its employees if only to discourage them employees if only to discourage them from forming union, but will buckle from forming union, but will buckle under the combine pressure from the under the combine pressure from the other non-unionised organizations.other non-unionised organizations.

The employees of strongly unionized The employees of strongly unionized companies too, have no freedom in companies too, have no freedom in wage and, salary fixation. wage and, salary fixation.

They are forced to yield to pressure They are forced to yield to pressure of labour representatives in of labour representatives in determining and revising pay scales.determining and revising pay scales.

Labour LawsLabour Laws

We have plethora of laws at the We have plethora of laws at the central as well as at the state levels.central as well as at the state levels.

Some of the laws which have bearing Some of the laws which have bearing on employee remuneration are :on employee remuneration are :

the Payment of Wages Act 1936the Payment of Wages Act 1936

for certain classes of persons for certain classes of persons employed in the industry. Protection employed in the industry. Protection against irregularity in payment of against irregularity in payment of wages in a particular form and at wages in a particular form and at regular intervalsregular intervals

the Minimum Wages Act, 1948the Minimum Wages Act, 1948

enabled central and state Government enabled central and state Government to fix minimum rates of wages payable to fix minimum rates of wages payable to employeesto employees

the Payment of Bonus Act 1965 the Payment of Bonus Act 1965 provides payment of a specified rate of provides payment of a specified rate of bonus to employees in certain bonus to employees in certain establishments.establishments.

Equal Remuneration Act, 1976Equal Remuneration Act, 1976, , provides payment of equal provides payment of equal remuneration to men and women remuneration to men and women workers for same or similar work.workers for same or similar work.

the Payment of Gratuity Act 1972the Payment of Gratuity Act 1972provides payments of gratuity to provides payments of gratuity to employees after they attain employees after they attain superannuation.superannuation.

The Act stipulate stringent The Act stipulate stringent action/punishment for contravention action/punishment for contravention of its provisionsof its provisions

In addition to legal enactments, there In addition to legal enactments, there are wage boards, tribunals and fair are wage boards, tribunals and fair wages committees which aim at wages committees which aim at providing a decent standard of living providing a decent standard of living to workers.to workers.

In fact India is the only democratic country In fact India is the only democratic country in the world which has attempted wage in the world which has attempted wage regulation on so large a scale through regulation on so large a scale through state-sponsored agencies.state-sponsored agencies.

With regard to managerial remuneration, With regard to managerial remuneration, there is Companies Act 1956, which puts a there is Companies Act 1956, which puts a cap on salary and perquisites of managers. cap on salary and perquisites of managers. Section 198 and 309 of the Act contain Section 198 and 309 of the Act contain provisions relating to managerial provisions relating to managerial remuneration. remuneration.

SocietySociety

Remuneration paid to employees is Remuneration paid to employees is reflected in the price fixed by an reflected in the price fixed by an organization for its goods and services.organization for its goods and services.

Remuneration paid to employees has Remuneration paid to employees has social implications too. social implications too.

The Supreme Court has been keeping The Supreme Court has been keeping social and ethical considerations in social and ethical considerations in adjudicate wage and salary disputes.adjudicate wage and salary disputes.

The EconomyThe Economy The last external factor that has its The last external factor that has its

impact on wage and salary fixation is the impact on wage and salary fixation is the state of the economy. state of the economy.

In most cases, the standard of living will In most cases, the standard of living will rise in an expanding economy.rise in an expanding economy.

Since the cost of living is commonly used Since the cost of living is commonly used as a pay standard, the economy’s health as a pay standard, the economy’s health exerts a major impact upon pay decisions.exerts a major impact upon pay decisions.

Labour unions, the government, and the Labour unions, the government, and the society are all less likely to press for pay society are all less likely to press for pay increases in a depressed economy.increases in a depressed economy.

Internal FactorsInternal Factors

Among the internal factors which Among the internal factors which have an impact on pay structure arehave an impact on pay structure are

Company’s strategyCompany’s strategy Job evaluationJob evaluation Performance appraisal and the Performance appraisal and the Worker himself or herself Worker himself or herself

Business strategyBusiness strategy

The overall strategy which a company The overall strategy which a company pursues should determine the pursues should determine the remuneration to its employees.remuneration to its employees.

Where the strategy of the enterprise is to Where the strategy of the enterprise is to achieve rapid growth, remuneration should achieve rapid growth, remuneration should be higher than the competitors pay.be higher than the competitors pay.

Where the strategy is to maintain and Where the strategy is to maintain and protect current earnings, because of the protect current earnings, because of the declining fortune of the company, declining fortune of the company, remuneration level needs to be average or remuneration level needs to be average or even below average.even below average.

Job Evaluation and Performance Job Evaluation and Performance Appraisal Appraisal

Job evaluation helps establish Job evaluation helps establish satisfactory wage differentials among satisfactory wage differentials among jobs.jobs.

Performance appraisal helps award Performance appraisal helps award pay increase to employees who show pay increase to employees who show improved performance.improved performance.

Pause and PonderPause and Ponder

How far luck does influence pay?How far luck does influence pay?

Have you come across any individual Have you come across any individual who has been lucky enough to be who has been lucky enough to be paid more than he or she deserves?paid more than he or she deserves?

The EmployeeThe Employee

Several employee-related factors Several employee-related factors interact to determine his or her interact to determine his or her remuneration. These include:remuneration. These include:

Performance ------Performance is Performance ------Performance is always rewarded with pay increase. always rewarded with pay increase. Rewarding performance motivates Rewarding performance motivates the employee to do better. the employee to do better.

Seniority ----- Managements prefer Seniority ----- Managements prefer performance to effect pay increases performance to effect pay increases but union new seniority as the most but union new seniority as the most objective criterion for pay increaseobjective criterion for pay increase

Experience ------ makes an employee Experience ------ makes an employee gain valuable insights and should gain valuable insights and should therefore be rewarded. therefore be rewarded.

Potential -----is useless if it is never Potential -----is useless if it is never realized. Yet organizations do pay some realized. Yet organizations do pay some individuals based on their potential. individuals based on their potential. Young managers are paid more Young managers are paid more because of their potential to perform because of their potential to perform even if they are short of experience. even if they are short of experience.

Sheer luck-----some people have luck to Sheer luck-----some people have luck to be at the right place at the right time.be at the right place at the right time.