This document provides an overview of wage and salary administration. It defines key terms like wage, salary, and compensation. It discusses factors that influence compensation levels such as cost of living and prevailing wage rates. It also outlines different wage payment methods including time wage systems, piece wage systems, and balance or debt methods. Executive compensation is discussed, including how it is determined by compensation committees and boards of directors. Highest paid CEO salaries from 1990-2000 are listed for various companies in India and globally. The document aims to establish a scientific and balanced wage structure for organizations.

1. By,
Faisal Ahmed Khan
MBA- 2nd Sem
HKBK-CE

2. Contents:
 Wage and Salary Administration,
 Factors Influencing Compensation Levels,
 Wage Payment Methods,
 Executive Compensation.
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3. Definitions:
 Wage:
A regular payment, usually on an hourly, daily, or weekly basis made
by an employer to an employee, especially for manual
or unskilled work.
 Salary:
A fixed regular payment, typically paid on a monthly basis but often
expressed as an annual sum, made by an employer to an employee,
especially a professional or white-collar worker.
 Compensation:
Something given or received as an equivalent for services, debt, loss,
injury, suffering, lack, etc.; Example: The insurance company paid
him $2000 as compensation for the loss of his car.
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4. Wage and Salary Administration:
 A group of activities involved in the development,
implementation, and maintenance of a pay system.
 An ongoing process of managing a wage and salary structure.
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5. Why do we need to study Wage and Salary
Administration?
 To have a scientific, rational, and balanced wage and salary
structure.
 In a salary administration, the employer should not feel that
the employees are paid more than they deserve and the
employees should not feel that they are underpaid.
 The ultimate goal of wage determination process is to
establish & maintain an equitable wage structure that
enhances the employee commitment to the organization.
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6. Wage determination process:
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Job analysis Job evaluation Wage survey
Preparation of
wage
structure
Designing pay
ranges

7. Theories of Wages:
1. Classical Wage Theory: This theory is based upon the fundamental
concept that labor is a commodity and we have to pay the price
according to supply and demand.
2. The Just Wage Theory of St. Thomas Aquinas: A just wage is
described as wage which permits the recipient worker to live in a
manner in keeping with his position in the society.
3. The Wage Fund Theory: This theory is expounded by John Stuart
Mill and his followers based on the Malthusian theory of population
and the law of diminishing returns.
4. Bargaining Theory of John Davidson: This theory proposes that the
labor is a commodity like anything that could be bought at a price by
the user.
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8. 6. The Purchasing Power Theory: This theory tries to establish the
relationship between wages and the level of economic activity.
7. Labor Theory of Value: It emphasizes that labor is the source of all the
products and that without this important component, there could be no
goods for human consumption.
8. The Standard of Living Theory of Wages: A recent development in the
labor market is the theory of living wages that means that wages should be
based on the cost of living.
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9. Wage and Salary Surveys:
 Once the worth of a job has been established, using one of the
job ratings systems, the actual salary to be paid for each job
must be determined.
 A major factor in making the determination is the wage survey.
 Since salaries paid by other companies have an effect on
employment, morale and turnover rate, close attention is paid
to the salary that is prevailing in the community and industry
for specific jobs.
 A survey of employers in the same industry and the same area
showing the wages and salaries they pay to their employees.
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10.  Wage and salary surveys are useful because they show the
prevailing compensation in a given city or other place, which
may result in employers making upward or downward
adjustments.
The Types of Surveys are:
 Formal surveys use questionnaires based on benchmarks jobs.
The Human Resource Department can prepare sets of
questionnaires for their respondents.
 Informal surveys may be conducted through telephones or
informal interviews.
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11. Steps in Conducting The Surveys:
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Defining the Labor Market
List of Key Job Position
Detailed Description of Jobs
Collection of Salary Data
Compilation of Salary Data
Results Survey

12.  Defining the Labor Market: Establishing the boundaries of the
pertinent labor market is the most critical step in in the survey
procedures. It involves the selection of the industry, the region
or area, or the firm to be included in the survey.
 List of Key Job Position: Selected as universal for a particular
wage or salary survey. This will ensure a representatives
sampling of the jobs.
 Detailed Description of Jobs: Key jobs are the labor grades
that are comparatively stable in duties and responsibilities.
These are occupations that are common in most industries
and scattered through the ladder of labor classification and
commonly familiar to most people in the industry.
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13.  Collection of Salary Data: This may be done through a set of
questionnaires and supplemented by interviews to get the
accurate information. The Information must be able to
pinpoint the problem areas.
 Compilation of Salary Data: The data gathered will provide
management with the opportunity of arriving at the
arithmetical average, the median, and the rage rate paid and
the supplementary wage data.
 Results Surveys: From Here the results are properly evaluated
and the HRD prepares the corresponding recommendations to
the management of the most appropriate action to take
relative to the revision of the current wage structure.
Participating companies are also provided with the summary
of the findings to foster continuous cooperation.
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14. Wage Structure in India:
 Basic Pay
 Overtime Payment
 Annual Bonus
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15. Factors affecting compensation levels:
 Ability to pay.
 Cost of living.
 Prevailing wage rates.
 Unions.
 Productivity.
 State regulation.
 Job needs.
 Demand and supply of labor.
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16. Executive Compensation:
 Executives are the key employees of the company.
 E.g. CEO, CXO, CFO, COO, CTO, CIO, CBO, CHRO, CCO, CMO,
MD, VP, GM, President and The Director.
Executive Compensation Includes:
 Core Compensation: Base Pay+Bonus.
 Incentives.
 Stock Options.
 Fringe Compensation.
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17. Highest Paid CEO’s:
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Year CEO, Company Compensation
1990 Steven Ross, Time
Warner
$75,000,000
1991 Roberto Goizueta,
Coca-Cola
$61,000,000
1992 Alan Greenberg, Bear
Stearns
$16,000,000
1993 George Fisher,
Eastman Kodak
$29,000,000
1994 Lawrence Coss, Allied
Signal
$34,000,000
1995 Lawrence Coss,
Green Tree Financial
$66,000,000
1996 Michael Eisner, Walt
Disney
$194,000,000
1997 Henry Silverman,
Cedant
$194,000,000
1998 Michael Dell, Dell
Compter
$94,000,000
1999 Charles Wang,
Computer Associates
$507,000,000
2000 Steven Jobs, Apple
Computer
$381,000,000

18. Highest Paid Indian CEO’s:
Name: Company: Designation:
Renumeration:
(Crores p.a.)
Kalanithi Maran Spicejet Director 56.25
Balu Ganesh Ayyar
MphasiS
Executive Chairman
& CEO
7.45
Ashok Vemuri
iGate CEO 8.17
N Chandrasekaran TCS MD & CEO 11.6
Vineet Nayar HCL
Vice Chairman &
Joint MD
8.42
Vishal Sikka Infosys CEO 30
T K Kurien
Wipro CEO 6.13
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19. Who Sets Executive Compensation?
 Compensation Consultants ,
 Compensation Committees,
 Board of Directors,
 Shareholders.
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20. Methods of Wage Payment:
 Time Wage System: Laborers get wage on the basis of time
which is utilized in organization irrespective of the quality of
work done. These wages may be charged on per hour, per day,
per month or per year basis. It is also called as day wages
system or time work system where the laborer/ employee is
paid on the basis of production hours.
 W=T*R.
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21. Suitability of Time Rate System: The system may prove to be quite ideal is the
following cases:
 Where quality of production is relatively more important than quantity,
e.g., tool room, testing and inspection, etc.
 Where it is difficult to measure the performance precisely, e.g., the
performance of indirect workers, night watchman, gate-keepers,
maintenance and repair work, etc.
 Where output of the worker is beyond his control, e.g., where his speed of
work is restricted by the speed of machines or conveyor belts, or where his
work is dependent upon the work done by other workers.
 Where close supervision of work is possible.
 Where the nature of work is such that there is no basis for incentive plan,
e.g., night watchman.
 Where production is intermittent on account of delays, power shut-down,
etc.
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22. Advantages Of Time Rate System: The following are some of the
important advantages of time rate system of wage payment:
* Time rate system is simple to understand and easy to
calculate.
* Time rate system is quite useful for organizations that use
costly inputs for quality outputs.
* Time rate system is beneficial for average and
unskilled workers.
* Time rate system assures regular income and creates the
feeling of economic security among the workers.
* Time rate system does not discriminate the workers and is
preferred by trade unions.
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23. Disadvantages Of Time Rate System: The following are some notable
disadvantages of time rate system of wage payment:
* Time rate system does not help in increasing output and improving
efficiency as there is no correlation between effort and reward.
* Time rate system is not justifiable between efficient and
inefficient workers and skilled and unskilled workers.
* Time rate system pays for idle time, which increases the cost of
production.
*Time rate system encourages a slow tendency among workers
during working hours and encourages them to work overtime.
* It is difficult to estimate exact labor cost in advance.
* It requires strict supervision to get the required quantity of output.
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24.  Piece Wage System: Laborers get the wages on the basis of
their work done. No time element will be used for calculation
of wages. Under this method, laborer tries his best for
producing the products faster for getting more wages. This
method is also called payment by result. In simple words the
the employee is paid on the basis of the work done.
 W=U*R.
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25. Piece rate system is suitable under following situations:
 Where production quantity is more important than the quality
of the product.
 When the work is of repetitive nature.
 When the mass manufacturing system of production is
followed and the work is standardized suitable for continuous
manufacturing.
 When it is possible to measure the production output of
worker separately.
 When strict supervision is not required and difficult.
 When the production is dependent on human efforts.
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26. Advantages Of Piece Rate System: The following are some
important advantages of piece rate system of wage payment:
* Piece rate system pays wages according to the output
produced by the workers. It encourages efficient workers.
* Piece rate system helps to reduce idle time.
* Piece rate system gives incentives to the workers to adopt a
better method of production for increasing their production
and earning.
* Piece rate system helps the management to determine the
exact labor cost per unit for submitting quotation.
* Piece rate system reduces per unit cost of production due to
increased volume of production.
* Piece rate system requires less supervision cost.
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27. Disadvantages Of Piece Rate System: The following are the
notable disadvantages of piece rate system:
* Piece rate system does not help in producing quality output
as the workers are concentrated more on quantity instead of
quality.
* Piece rate system does not help for a uniform flow of
production and makes difficult to regulate the production
schedule.
* It is very difficult to fix an acceptable and reasonable piece
rate for each item of output or job.
* Piece rate system adversely affect the workers' health as
well.
* It requires extra supervision cost for quality output and
effective use of materials, tools and equipment.
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28. Types of Piece Wage Systems:
 Straight piece rate: In this system, the piece rate forms the basis of payment i.e.
payment for whole production is made on the basis of piece rate fixed. If the piece
rate of Rs. 1.5 per .unit is fixed, then the wages will be calculated by multiplying the
output by the rate fixed.
E.g.: A worker producing 200 units will get Rs. 3000 (i.e. 200 x 15). If the production
output is raised to 210 the wages will be Rs. 3150 (210 x 15). Thus a worker will
have to increase the output in order to get higher wages. The rate of payment
remains same irrespective of production level or level of output.
 Increasing piece rate: In this system different rates are fixed for different levels of
production. A certain production level is decided and if the production goes beyond
that level, higher rates are given. For example, a piece rate of Rs. 21- per unit may
be fixed for production up to 100 units, Rs 2.10 per unit for output between 101 to
150 units and Rs. 2.25 per unit for a production beyond 150 units and so no. There
is an incentive to get higher rate for production beyond a certain level.
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29.  Balance or Debt Method: This method is a combination of
time and piece wage systems. The worker is guaranteed a time
rate with an alternative piece rate. The employee is paid for
completing the tasks in deadlines.
 In this method, a worker is paid a fixed wage based on the
time rate with a provision of piece wage method. How? This is
just like minimum rent with a provision of short working
recoupment in case of royalty. If a worker produces less
quantity in a period, he is given wages as per time rate and
excess payment over piece rate is treated as credit.
 This credit is compensated in the period when he/she
produces more than time rate wages. Thus, he is given time
wage whether he produces more or less than it.
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30.  Suppose, the time wage is Rs. 500 per week and the piece
wage rate is Rs. 10 per unit…..
 This method ensures the worker the receipt of a fixed amount
as wage in all cases. From workers point of view, this method
has relevance in work situation where work flow is flexible
/irregular such as docks. This method is also known as “debt
method”.
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Thank you 