wage determination process
Determinants of the wage structure
Before discussing the wage determination process in detail let us first discuss the determinants of wage structure.
1. Economic Determinants
In the labor market there commonly exists, known as Occupational Wage Differentials. The reason for its existence is that in different occupations require different qualifications; different wages of skill and carry different degrees of responsibility, wages are usually fixed on the basis of the differences in occupations and various degrees of skills.
Adam Smith explains occupational wage differentials in terms of:
1. Hardship,
2. Difficulty of learning the job,
3. Stability of employment,
4. Responsibility of the job, and
5. Chance for success or failure in the work. This is a theory of wage structure. But his standards of worth are equally useful in explaining the complexity of wage structure decisions. The market value of an item is the price it brings in a market where demand and supply are equal. Use value is the value an individual buyer or seller anticipates through use of the item. Use value obviously varies among individuals and over time.
2. Job worth
These two concepts of worth and the concept of internal labor markets combine to explain important differences among employers in wage structure decisions. Organizations with relatively open internal labor Markets (organizations in which most jobs are filled from outside) make much use of market value. They also make much use of wage and salary surveys in wage structure decisions. Conversely, organizations with relatively closed internal labor markets (most jobs are filled from inside) emphasize use value. Their analysis of job worth relies more heavily on perceptions of organization members of the relative value of jobs.
3. Training
Some other wage structure determinants derived from economic analysis may be noted. Training requirements of jobs in terms of length, difficulty, and whether the training is provided by society, employers, or individuals constitute a primary factor in human-capital analysis and thus job worth. The interaction of ability requirements with training requirements can yield different job values depending on the scarcity of the ability required and the number of people who try to make it in the occupation and fail.
4. Employee Tastes
Employee tastes and preferences are another economic factor. People differ in the occupations they like and dislike. In like manner, occupations have non-monetary advantages and disadvantages of many kinds.
What is the Wage Determination Process?
Determination of an equitable wage and salary structure is one of the most important phases of employer-employee relations.
For good industrial relations, each employee should
1. Receive sufficient wages and salaries to sustain himself and his dependents.
2. Feel satisfied with a relationship between his wages and wages of other people performing the same type of work in some other organization. The primary objective of wage and salary administration program is that each employee should be equitably compensated for the services rendered by him to the enterprise on the basis of:
Usually, the steps involved in determining wage rates are:
· performing job analysis,
· wage surveys,
· analysis of relevant organizational problems in forming wage structure,
· framing rules of wage administration,
· explaining these to employees,
· assigning grades and
· price to each job and paying the guaranteed wage.
Wage Surveys
Once the relative worth of jobs has been determined by job evaluation, the actual amounts to be paid must be determined. This is done by making wage or salary surveys in the area concerned.
Such surveys seek to answer questions like:
By gathering information about ‘benchmark jobs’, which are usually known as good indicators. There are various ways to make such a survey. Most firms either use the results of “packaged surveys” available from the research bodies, employer’s associations, etc., or they participate in wage surveys and receive copies of results, or else they conduct their own. These surveys may be carried out by Mailed questionnaire, telephone, or personal interviews with other managers and personnel Agencies.
A wage survey to be useful, must satisfy these points
a. Frequency
Affected by rapidity of changes, current and contemplated. Once per year is common.
b.Scope (number of firms)
Influenced by the geographic area from which people are drawn, the number of units competing for this labor, accuracy requirements, and willingness of organizations to share information.
c. Accuracy
The diversity in job titles and specific job duties is staggering. The greater the accuracy and detail needed, the greater the requirements for careful description and specification and surveyor’s reliance on person-to-person ‘interviewing rather than mailed questionnaires. Such wage surveys provide many kinds of useful information about differences in wage levels for particular kinds of occupations. This can have a great influence on an organization’s compensation policy.
Before discussing the wage determination process in detail let us first discuss the determinants of wage structure.
1. Economic Determinants
In the labor market there commonly exists, known as Occupational Wage Differentials. The reason for its existence is that in different occupations require different qualifications; different wages of skill and carry different degrees of responsibility, wages are usually fixed on the basis of the differences in occupations and various degrees of skills.
Adam Smith explains occupational wage differentials in terms of:
1. Hardship,
2. Difficulty of learning the job,
3. Stability of employment,
4. Responsibility of the job, and
5. Chance for success or failure in the work. This is a theory of wage structure. But his standards of worth are equally useful in explaining the complexity of wage structure decisions. The market value of an item is the price it brings in a market where demand and supply are equal. Use value is the value an individual buyer or seller anticipates through use of the item. Use value obviously varies among individuals and over time.
2. Job worth
These two concepts of worth and the concept of internal labor markets combine to explain important differences among employers in wage structure decisions. Organizations with relatively open internal labor Markets (organizations in which most jobs are filled from outside) make much use of market value. They also make much use of wage and salary surveys in wage structure decisions. Conversely, organizations with relatively closed internal labor markets (most jobs are filled from inside) emphasize use value. Their analysis of job worth relies more heavily on perceptions of organization members of the relative value of jobs.
3. Training
Some other wage structure determinants derived from economic analysis may be noted. Training requirements of jobs in terms of length, difficulty, and whether the training is provided by society, employers, or individuals constitute a primary factor in human-capital analysis and thus job worth. The interaction of ability requirements with training requirements can yield different job values depending on the scarcity of the ability required and the number of people who try to make it in the occupation and fail.
4. Employee Tastes
Employee tastes and preferences are another economic factor. People differ in the occupations they like and dislike. In like manner, occupations have non-monetary advantages and disadvantages of many kinds.
What is the Wage Determination Process?
Determination of an equitable wage and salary structure is one of the most important phases of employer-employee relations.
For good industrial relations, each employee should
1. Receive sufficient wages and salaries to sustain himself and his dependents.
2. Feel satisfied with a relationship between his wages and wages of other people performing the same type of work in some other organization. The primary objective of wage and salary administration program is that each employee should be equitably compensated for the services rendered by him to the enterprise on the basis of:
- The nature of the job.
- The present worth of that type of job.
- The effectiveness with which the individual performs the job.
Usually, the steps involved in determining wage rates are:
· performing job analysis,
· wage surveys,
· analysis of relevant organizational problems in forming wage structure,
· framing rules of wage administration,
· explaining these to employees,
· assigning grades and
· price to each job and paying the guaranteed wage.
Wage Surveys
Once the relative worth of jobs has been determined by job evaluation, the actual amounts to be paid must be determined. This is done by making wage or salary surveys in the area concerned.
Such surveys seek to answer questions like:
- What are other firms paying?
- What are they doing by way of social insurance?
- What is the level of pay offered by other firms for similar occupations?
By gathering information about ‘benchmark jobs’, which are usually known as good indicators. There are various ways to make such a survey. Most firms either use the results of “packaged surveys” available from the research bodies, employer’s associations, etc., or they participate in wage surveys and receive copies of results, or else they conduct their own. These surveys may be carried out by Mailed questionnaire, telephone, or personal interviews with other managers and personnel Agencies.
A wage survey to be useful, must satisfy these points
a. Frequency
Affected by rapidity of changes, current and contemplated. Once per year is common.
b.Scope (number of firms)
Influenced by the geographic area from which people are drawn, the number of units competing for this labor, accuracy requirements, and willingness of organizations to share information.
c. Accuracy
The diversity in job titles and specific job duties is staggering. The greater the accuracy and detail needed, the greater the requirements for careful description and specification and surveyor’s reliance on person-to-person ‘interviewing rather than mailed questionnaires. Such wage surveys provide many kinds of useful information about differences in wage levels for particular kinds of occupations. This can have a great influence on an organization’s compensation policy.