Wages: Definition, Types and Other Details

Definitions:

“A wage may be defined as the sum of money paid under contract by an employer to worker for services rendered.” -Benham

“Wages is the payment to labour for its assistance to production.” -A.H. Hansen

‘Wage rate is the price paid for the use of labour.” -Mc Connell

Types of Wages:

In real practice, wages are of many types as follows:

1. Piece Wages:

Piece wages are the wages paid according to the work done by the worker. To calculate the piece wages, the number of units produced by the worker are taken into consideration.

2. Time Wages:

If the labourer is paid for his services according to time, it is called as time wages. For example, if the labour is paid Rs. 35 per day, it will be termed as time wage.

3. Cash Wages:

Cash wages refer to the wages paid to the labour in terms of money. The salary paid to a worker is an instance of cash wages.

4. Wages in Kind:

When the labourer is paid in terms of goods rather than cash, is called the wage in kind. These types of wages are popular in rural areas.

5. Contract Wages:

Under this type, the wages are fixed in the beginning for complete work. For instance, if a contractor is told that he will be paid Rs. 25,000 for the construction of building, it will be termed as contract wages

Concepts of Wages:

The following are the two main concepts of wages:

A. Nominal Wage

B. Real Wage:

A. Money Wages or Nominal Wages:

The total amount of money received by the labourer in the process of production is called the money wages or nominal wages.

B. Real Wages:

Real wages mean translation of money wages into real terms or in terms of commodities and services that money can buy. They refer to the advantages of worker’s occupation, i.e. the amount of the necessaries, comforts and luxuries of life which the worker can command in return for his services.

An example will make the things clear. Suppose ‘A’ receives Rs. 500 p.m. as money wages during the year. Suppose also that midway through the year the prices of commodities and services, that the worker buys, go up, on the average, by 50%.

It means that though the money wages remain the same, the real wages (consumption basket in terms of commodities and services) are reduced by 50%. Real wages also include extra supplementary benefits along with the money wages.

Distinction between Real and Money Wages:

Adam Smith has distinguished the money wages and real wages on the following basis:

1. Relation with Price:

Keeping all other things constant, there exists inverse relation between real wages and price i.e. with the increase in price level real wages tend to decline and vice-versa.

2. Money and Real Wages:

Ceterus paribus, an increase in money wages will lead to an increase in real wages. It is due to the reason that with the increase in money wages, a labourer can purchase more goods and services than before.

3. Basic Difference:

According to Adam Smith, money wages are paid in terms of the quantity of money whereas real w ages are paid in terms of necessaries of life. Therefore money w ages are expressed in terms of money and that of real wages in terms of goods and services.

1. Wages Fund Theory:

This theory was developed by Adam Smith (1723-1790). His theory was based on the basic assumption that workers are paid wages out of a pre-determined fund of wealth. This fund, he called, wages fund created as a result of savings. According to Adam Smith, the demand for labour and rate of wages depend on the size of the wages fund. Accordingly, if the wages fund is large, wages would be high and vice versa.

2. Subsistence Theory:

This theory was propounded by David Recardo (1772-1823). According to this theory, “The labourers are paid to enable them to subsist and perpetuate the race without increase or diminution”. This payment is also called as ‘subsistence wages’. The basic assumption of this theory is that if workers are paid wages more than subsistence level, workers’ number will increase and, as a result wages will come down to the subsistence level.

On the contrary, if workers are paid less than subsistence wages, the number of workers will decrease as a result of starvation death; malnutrition, disease etc. and many would not marry. Then, wage rates would again go up to subsistence level. Since wage rate tends to be at, subsistence level at all cases, that is why this theory is also known as ‘Iron Law of Wages’. The subsistence wages refers to minimum wages.

3. The Surplus Value Theory of Wages:

This theory was developed by Karl Marx (1849-1883). This theory is based on the basic assumption that like other article, labour is also an article which could be purchased on payment of its price i e wages. This payment, according to Karl Marx, is at subsistence level which is less than in proportion to time labour takes to produce items. The surplus, according to him, goes to the owner. Karl Marx is well known for his advocation in the favour of labour.

4. Residual Claimant Theory:

This theory owes its development to Francis A. Walker (1840-1897). According to Walker, there are four factors of production or business activity, viz., land, labour, capital, and entrepreneurship. He views that once all other three factors are rewarded what remains left is paid as wages to workers. Thus, according to this theory, worker is the residual claimant.

5. Marginal Productivity Theory:

This theory was propounded by Phillips Henry Wick-steed (England) and John Bates Clark of U.S.A. According to this theory, wages is determined based on the production contributed by the last worker, i.e. marginal worker. His/her production is called ‘marginal production’.

6. The Bargaining Theory of Wages:

John Davidson was the propounder of this theory. According to this theory, the fixation of wages depends on the bargaining power of workers/trade unions and of employers. If workers are stronger in bargaining process, then wages tends to be high. In case, employer plays a stronger role, then wages tends to be low.

7. Behavioural Theories of Wages:

Based on research studies and action programmes conducted, some behavioural scientists have also developed theories of wages. Their theories are based on elements like employee’s acceptance to a wage level, the prevalent internal wage structure, employee’s consideration on money or’ wages and salaries as motivators.

The Elements of Wage and Salary System: Wage and .salary system should have relationship with the performance, satisfaction and attainment of goals of an individual. Following are the elements of wage and salary system.

1. Identifying the available salary opportunities, their costs, estimating the worth of its members of these salary opportunities and communicating them to employees.

2. Relating salary to needs and goals.

3. Developing quality quantity and time standards relating to work and goals.

4. Determining the effort necessary to achieve standards.

5. Measuring the actual performance. 6. Comparing the performance with the salary received.

7. Measuring the job satisfaction gained by the employees.

8. Evaluating the unsatisfied wants and unreached goals of the employees.

9. Finding out the dissatisfaction arising from unfulfilled needs and unattained goals.

10. Adjusting the salary levels accordingly with a view to enable the employees to reach unreached goals and fulfil the unfulfilled needs

Process of Determinations of wages: Determination of equitable wage and salary structure in one of the most important phase of employer-employee relations. The primary objective of wage and salary administration programme is that each employee should be equitably compensated for the service rendered on the basis of:

(i) The nature of job.

(ii) (ii) The present worth of that type of job in other organisation, and

(iii) (iii) The effectiveness with which the individual performs the job

The first two factors are related to job evaluation and wage survey, while the third to performance appraisal. Comparison of a job to other job in the organisation is done through job evaluation. Comparison of similar job in other organisations is done through wage surveys to determine the going wage for the given job.

Method of wage fixation: In India, several methods of wage fixation are used. These methods include wage boards, job evaluation, collective bargaining and legislation.

1. Wage boards: The government of India, acting upon the recommendations of the First Five-Year Plan, appointed wage boards for fixing wages. The first wage board was set up in 1957 for the cotton textile industry. The wage board are tripartite in nature, with independent members and a chairman. It was actually the Committee on Fair Wages that recommended the setting up of wage boards for fixing wages. Wage board were set up because workers were not satisfied with the method of compulsory adjudication for wage determination not only because it was a lengthy procedure but also because they had no role to play in determining wages.

2. Job evaluation: Job evaluation is another method of wage fixation. Job analysis explains the duties of a job, authority relationships, skills, required, conditions of work, and additional relevant information. Job evaluation, on the other hand, uses the information in job analysis to evaluate each job-valuing its components and ascertaining relative job worth. It involves a format and systematic comparison of jobs in order to determine the worth of one job relative to another, so that a wage or salary hierarchy results. So this process evaluate the jobs in an organization Job evaluation aims to assess the relative worth of a given collection of duties and responsibilities to the organization. It helps the management to maintain high levels of employee productivity and employee satisfaction. In the absence of proper job evaluation, it is very likely that jobs would not be properly priced. Consequently, high valued jobs may receive less pay than low-valued jobs. The employees realizing this may be come dissatisfied, leave the organization, reduce their efforts or may adopt other modes of behaviour detrimental to the organization. Therefore, organizations pay a great deal of attention to the relative worth of jobs so that they are able to determine what a particular job should be paid. A person is paid for what he brings to a job- his education, training and experience

Collective bargaining: Bi-partite union management negotiations determine the wages. It is common in private and public sector enterprises.

Wage legislation: In India workers have always needed state protection against exploitation. As such, the state has enacted a number of legislations to ensure regular, expeditious, equitable and minimum payment of wages and bonus tow workers. There are four main acts that comprise the legal framework relating to wage legislation.

The payment of Wages Act, 1936. The payment of wages act, 1936 regulates the payment of wages to certain classes of persons employed in the industry. It also stipulated the payment for working overtime and deduction of wages. Section 312 of the Act6 makes it obligatory for the employers to make payment of wages, fix the wage period and time of payment. The Act authorizes the employers to make deductions of fines, for absence from duty, damage or loss of goods, money, house accommodation provided by the employer, deductions for such benefits/amenities and services supplied by the employer, for recovery of advances or for adjustment of over payment of wages, income tax at source, subscription to and for repayment of advances from PF, payment to a co-operative society and deduction for written authorization of the employee

The Minimum Wages Act, 1948. The Minimum Wages Act aims to: • Provide minimum (statutory) wages for scheduled employments.

Eliminate chances of exploitation of labour through payment of very low and sweating wages.

The Equal Remuneration Act, 1976. This-act emphasizes on equal payment of wage to men, women wage earners who are engaged in identical employment. The act attracts punishment to employers for violation of the provisions of the Act. It for prevention of discrimination, on grounds of sex against women in matter of employment

The Payment of Bonus Act, 1965. The Payment of Bonus Act, 1965 provides for payment of bonus to workers in all establishments/factories in which 20 or more persons are employed on any day, covered in the related accounting year. The Act lays down a minimum eight and one-third percent and a maximum of twenty per cent of pay. The minimum bonus is payable, even though accompany has not made profits during the related accounting year. Although, the act aims to ensure payment of bonus every year to a factory worker, it became a constraint for many good employers like Tata's, who earlier paid much more than the prescribed limit. In reality many of the then British firms operating in West Bengal paid some kind of bonus in the form of Puja that was more than the provisions under the act.

Definition: Broad Banding

Broad banding is defined as a method for evaluation and construction of job grading structure or typical salary band of an organization that falls between by spot salaries against numerous job grades or bands, Broad banding is to establish what is required to pay for a specific positions and incumbents within the existing positions.

Broad banding is the expression useful when an organization with extremely wide salary bands, much more surrounding compared against the traditional salary structures. While a typical salary band has around 40 percent variation in compensation between its minimum and maximum, for broad banding this would characteristically have about 100 percent difference

The advantages of Broad Banding are as follows:-

1. It Streamlines hierarchy structure within the organization, this helps during a change in the organizational structure

2. It promotes and facilitates Internal Movement within the organization and is considered to put forward other attributes of a position, other than the pay grade which is already disclosed

3. Gives more transparency and added trust in management

The disadvantages of Broad Banding are as follows:-

1. There is absolutely no awareness of external market rates as the traditional salary bands cannot be compare against broad banding

2. Promotions, Broad banding leads to lack of promotions within the organization as there are fewer salary bands leads to fewer opportunities to climb the organizational ladder.

Top Five Trends in Compensation

FLEXIBILITY

Today's technology is enabling more and more professionals to change their mindsets about giving up full-time employment for contract-based opportunities that offer greater control over their time, growth, education, and job security. This trend is largely being driven by those with bulkier resumes and longer tenures especially in STEM (science, technology, engineering and mathematics) industries. The job market is filling up with new and exciting endeavours, but there is a limited number of qualified professionals to fill the need.

Managing contractors – who may only be around for 6-12 months – requires a creative and systematic approach to crafting fair pay and benefits arrangements that can attract, motivate, and protect them. Note that a majority of these employees will be in life stages where time for family and personal growth will take priority. But, the returns to reap can be vast and game-changing for your organisation.

Engaging contingent workers can reduce overhead costs, especially for tax and infrastructure expenses. Their valuable experiences and insights can introduce much-needed diversity, dynamism, and agility to your business, and provide cost-effective learning and innovation initiatives. Moreover, they could become ambassadors for the culture and brand, which can boost your organisation's reputation and staffing objectives.

TECHNOLOGY

The concept of having greater flexibility in the workplace has been brewing for a long time, but the administrative demands for implementing custom arrangements was a minefield. Nowadays, however, with the world changing at a breakneck speed, organisations have to be ever more robust.

A mere ten years ago, digital spreadsheets and automated charts were all it took to enable pay strategies. Now there are powerful compensation software products to help perform this task. These can not only implement flexible arrangements but more importantly, integrate seamlessly between systems and process, thus enabling linkages between job levelling, market benchmarking, and compensation analytics. This gives compensation professionals increased opportunities to strategize further and determine timely solutions that could give more bang for buck, not to mention save countless hours of manual administration

Top Five Trends in Compensation and Benefits for 2017

Here are some of the key themes to look out for in our predicted trends for 2017:

FLEXIBILITY

TECHNOLOGY

PERSONALISATION

Many of the hybrid jobs that now exist weren't even offered five to ten years ago. These roles will continue to evolve as we speed through the 21st century, which will call for an overhaul of the traditional compensation mindset.

Professionals have previously been content to take their salary and expect an across-the-board approach to pay increases and rewards. But as flexibility in the workplace becomes the norm, employees will also want their compensation and benefits packages to become more personalised.

Organisations will see analytics strongly recommending actions to maximise on human capital by adopting skills-based performance evaluation; customising pay and benefits to address the employee's life stage and personal needs; and creating alternative paths of career growth.

It will be worthwhile revisiting your Employee Value Proposition (EVP) and to consider creating customised rewards programmes for the top talent that are vital to your organisation.Supplementing analytics with employee insights could steer your EVP towards a more meaningful goal for both the business and your workforce.

HEALTH AND WELLNESS

While rapid technological advancements of this era have helped to streamline systems and processes, they have also made the global marketplace even more competitive and demanding. According to our 2016 Staying@Work Survey, over 50% of employees say their jobs are a primary source of stress, especially in companies where there is less regard or prioritisation of personal safety, health, and wellbeing. Numerous studies have linked workplace stress with various medical conditions, including cardiovascular disease, obesity, diabetes, hypertension, certain types of cancer, and mental health issues.

However, many employers still view health and wellness as an individual responsibility, preferring to stick with mostly hands-off approaches like providing medical insurance, sick leaves, and occasional off-site activities.

On the other hand, there is evidence that management-led health and wellness programmes, which are thoughtfully planned and coordinated, result in a happier and healthier workplace – with less distress, higher engagement and increased wellbeing. Productivity can be enhanced, and both hard and soft health care costs would decrease."¹ Successful health and productivity strategies have resulted in 6.5 fewer missed work days, twice higher engagement on the job, 25% fewer employees with hypertension, 24% fewer employees with high blood sugar levels, and 50% higher revenue per employee, among many other benefits.

PAY AND TRANSPARENCY

Base salary continues to be the number one driver of attraction and retention for employees in Asia Pacific³. It is as crucial as ever to not only get your compensation right – but to ensure you are communicating openly and honestly to your workforce about pay. People now know that performance evaluation is a two-way street; the question of "How can you contribute to our bottom line?" applies to both the employer's business objectives and the employee's personal needs.

What factors are considered in determining pay? Is compensation benchmarked against similar roles and skillsets in the market? How is the company doing financially? Can the employer afford to offer salary increases in the next year?

Organisations that stick with the old rhetoric – of only equating salary to the job and performance rating – risk causing confusion for their employees and may appear more unfair or untrustworthy. Employees are more likely to trust and engage with employers who openly communicate and explain their compensation and benefits decisions.

Reward Management

Reward Management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization

Objectives of Reward Management

Support the organisation’s strategy

Recruit & retain

Motivate employees

Internal & external equity

Strengthen psychological contract

Financially sustainable

Comply with legislation

Efficiently administered

Basic Types of Reward

· Extrinsic rewards

– satisfy basic needs: survival, security

– Pay, conditions, treatment

· Intrinsic rewards

– satisfy higher needs: esteem,development

Rewards by Individual, Team, Organisation

· Individual: base pay, incentives, benefits

– rewards attendance, performance, competence

· Team

– team bonus, rewards group cooperation

· Organisation

– profit-sharing, shares, gain-sharing

Role of Compensation and Reward in Organization:

Compensation and Reward system plays vital role in a business organization. Since, among four Ms, i.e Men, Material, Machine and Money, Men has been most important factor, it is impossible to imagine a business process without Men.

Land, Labor, Capital and Organization are four major factors of production.

Every factor contributes to the process of production/business. It expects return from the business process such as Rent is the return expected by the Landlord. similarly Capitalist expects Interest and Organizers i.e Entrepreneur expects profits. The labour expects wages from the process.

It is evident that other factors are in-human factors and as such labour plays vital role in bringing about the process of production/business in motion. The other factors being human, has expectations, emotions, ambitions and egos. Labour therefore expects to have fair share in the business/production process.

Advantages of Fair Compensation System:

Therefore a fair compensation system is a must for every business organization. The fair compensation system will help in the following:

If an ideal compensation system is designed, it will have positive impact on the efficiency and results produced by workmen.

Such system will encourage the normal worker to perform better and achieve the standards fixed.

this system will encourage the process of job evaluation. It will also help in setting up an ideal job evaluation, which will have transparency, and the standards fixing would be more realistic and achievable.

Such a system would be well defined and uniform. It will be apply to all the levels of the organization as a general system.

The system would be simple and flexible so that every worker/recipient would be able to compute his own compensation receivable.

Such system would be easy to implement, so that it would not penalize the workers for the reasons beyond their control and would not result in exploitation of workers.

It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers.

Such system would help management in complying with the various labor acts.

Such system would also bring about amicable settlement of disputes between the workmen union and management.

The system would embody itself the principle of equal work equal wages. Encouragement for those who perform better and opportunities for those who wish to exce