Factors Influencing Employee Remuneration

Human Resource Management By Mahendra Srivastava

FACTORS INFLUENCING EMPLOYEE REMUNERATION
A number of factors influence the remuneration payable to employees.
They can be categorized :
External Factors
Internal

External Factors
To an organization are :
Labour Market
Cost of Living
Labour Unions
Government Legislations
The Society, and
The Economy

Labour Market
Demand for and supply of labour influence wage and salary fixation.
A low wage may be fixed when the supply of labour exceeds the demand for it.
A higher wage will have to be paid when demand exceeds supply, as in the case of skilled labour.

High remuneration to skilled labour is necessary to attract and retain them.
But exploitation of unskilled labour, like, for instance, paying niggardly wages because it is available in plenty, in unjustified.
The Minimum Wages Act, 1948, is precisely meant to prevent this kind of exploitation.

The Going rate system involves fixing wage/salary rates in tune with what is paid by different units of an industry in a locality.
Going rates are generally paid in the initial stages of plant operators.
Productivity of labour also influences wage fixation

Productivity can arise due to increased effort of the worker, or as a results of the factors beyond the control of the management, and the like.
From advance technology and more efficient method of production

Productivity has only a subordinate role in wage fixation.
The argument that productivity would increase if it is linked to remuneration is hardly acceptable.

Cost of Living
A rise in the cost of living is sought to be compensated by payment of dearness allowance, basic pay to remain undisturbed.
Many companies include an escalatory clause in their wage agreement in terms of which dearness allowance increases or decreases depending upon the movement of consumer price index (CPI)

Labour Unions
The presence or absence of labour organizations often determines the quantum of wages paid to employees.
Employers of non-unionized factories enjoy the freedom to fix wages and salaries as they please. Because of large unemployment.

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

The employees of strongly unionized companies too, have no freedom in wage and, salary fixation.
They are forced to yield to pressure of labour representatives in determining and revising pay scales.

Labour Laws
We have plethora of laws at the central as well as at the state levels.
Some of the laws which have bearing on employee remuneration are :

the Payment of Wages Act 1936
for certain classes of persons employed in the industry. Protection against irregularity in payment of wages in a particular form and at regular intervals
the Minimum Wages Act, 1948
enabled central and state Government to fix minimum rates of wages payable to employees

the Payment of Bonus Act 1965
provides payment of a specified rate of bonus to employees in certain establishments.
Equal Remuneration Act, 1976 ,
provides payment of equal remuneration to men and women workers for same or similar work.
the Payment of Gratuity Act 1972
provides payments of gratuity to employees after they attain superannuation.

The Act stipulate stringent action/punishment for contravention of its provisions
In addition to legal enactments, there are wage boards, tribunals and fair wages committees which aim at providing a decent standard of living to workers.

In fact India is the only democratic country in the world which has attempted wage regulation on so large a scale through state-sponsored agencies.
With regard to managerial remuneration, there is Companies Act 1956, which puts a cap on salary and perquisites of managers. Section 198 and 309 of the Act contain provisions relating to managerial remuneration.

Society
Remuneration paid to employees is reflected in the price fixed by an organization for its goods and services.
Remuneration paid to employees has social implications too.
The Supreme Court has been keeping social and ethical considerations in adjudicate wage and salary disputes.

The Economy
The last external factor that has its impact on wage and salary fixation is the state of the economy.
In most cases, the standard of living will rise in an expanding economy.
Since the cost of living is commonly used as a pay standard, the economy’s health exerts a major impact upon pay decisions.
Labour unions, the government, and the society are all less likely to press for pay increases in a depressed economy.

Internal Factors
Among the internal factors which have an impact on pay structure are
Company’s strategy
Job evaluation
Performance appraisal and the
Worker himself or herself

Business strategy
The overall strategy which a company pursues should determine the remuneration to its employees.
Where the strategy of the enterprise is to achieve rapid growth, remuneration should be higher than the competitors pay.
Where the strategy is to maintain and protect current earnings, because of the declining fortune of the company, remuneration level needs to be average or even below average.

Job Evaluation and Performance Appraisal
Job evaluation helps establish satisfactory wage differentials among jobs.
Performance appraisal helps award pay increase to employees who show improved performance.

Pause and Ponder
How far luck does influence pay?
Have you come across any individual who has been lucky enough to be paid more than he or she deserves?

The Employee
Several employee-related factors interact to determine his or her remuneration. These include:
Performance ------Performance is always rewarded with pay increase. Rewarding performance motivates the employee to do better.

Seniority ----- Managements prefer performance to effect pay increases but union new seniority as the most objective criterion for pay increase
Experience ------ makes an employee gain valuable insights and should therefore be rewarded.

Potential -----is useless if it is never realized. Yet organizations do pay some individuals based on their potential. Young managers are paid more because of their potential to perform even if they are short of experience.
Sheer luck-----some people have luck to be at the right place at the right time.

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