Chapter 7 Wage And Salary Administration.docx

Chapter 7 Wage and Salary Administration (Human Resource Management) Wage and Salary Administration Objectives: After this lesson, you should be able to: 1. Enumerate the different theories of wages; 2. Explain the significance of wage to the workers, labor and labor relations, to the national economy and society; 3. Discuss the procedures of a wage and salary survey; 4. Compare the procedures of a wage and salary survey; and 5. Deduce the advantage of wage and salary structure. The role of HR in the Payment of salaries One of the most important function of HR is the payment of proper salaries and wages to all employees. The pay that the employee s receive from the employer is the very reason for their being in the job. The pay provides them with strong incentive to do their jobs well and the rate of pay indicates their status in the company. Theories of Wages The wage theories deal with the payment of labor employed in competitive enterprise. Wage represents the payment of one factor of production that is manpower. 1. Classic Wage theory – it is based upon the fundamental concept that labor is a commodity and we have to pay the price according to

supply and demand. The greater the supply, the lower the price. And the greater the demand the higher the price. 2. The just wage theory of St. Thomas Aquinas – a just wage is described as a wage which permits the recipient worker to live in a manner in keeping with his position to society. This doctrine is related to social organization based on the status of the individual in the social organization. Minimum wage law – The just wage theory of St. Thomas Aquinas is the basis in the implementation of this law. While it could not be consistent with the minimum requirements of decent living in the social organization, it responds to the basic requirements for subsistence living. 3. The Wage fund theory – this theory holds the idea that the working capital of the nation provides a fund from which wages can be paid. The fund is to be divided by all the workers proportionately. This theory was expounded by John Stuart Mill and his followers is based on the Malthusian theory of population and the law or diminishing marginal returns. 4. Bargaining theory of John Davidson – it proposes that labor is a commodity like anything that could be bought at a price by the user. 5. The marginal productivity theory – it offers the best explanation of the wages in modern industry. The supply labor in any given economy on the whole depends upon the total number of individuals who want to work and are available for work. 6. The purchasing power theory – it tries to establish the relationship between wages and the level of economic activities. The level of economic growth is dependent upon the savings generated because the increase in wage creates a surplus that propels growth. 7. Labor theory of Value – Karl Marx propounds this theory of labor. This gives credence to the value of labor. It emphasizes that labor is

the source of all products and that without this important component, there could be no goods for human consumption. Every good that is produced could be track back to the participation of the worker and therefore, labor must get greater share of the profit. This is the philosophy of some organized labor groups who are more active in the greater share of the profits of company operations. These labor unions have the notion that profits are the surpluses of the other factors of production, and are pocketed by capitalist businessman making them amass wealth. 8. The standard of living Theory of wage- a recent development in the labor market is the said theory that means that the wages should be based on the cost of living. The cost of living is dependent upon the economic needs of the family for basic necessities of life for food, clothing and shelter. Wage and Salary Survey Once the worth of a job has been established, using one of the job rating 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 the 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. The Development of wage salary structure Wage and salary structure is the Hierarchy of jobs to where the pay rates are attached. The positions are allocated in pay grades according to the job evaluation results and its relations with the pay system derived from the result of the salary survey. The following are the advantage of the wage salary structure: 1. it affects the workers’ earning and standard of living.

2. It eases the recruitment and maintenance of an effective labor force. 3. It develops employee morale and increases work efficiency. 4. It represents cost and competitive advantage in the industry. 5. It helps in preparing budgetary allocations and ease computation of salary adjustments and as an aid in short term and long range plans. 6. It eliminates pay distortions and inequities in employee compensation. 7. It establishes an equitable salary range for various jobs. Methods of Wage Payment The main purpose of a formal wage and salary management plan is to have a systematic method of payment to ensure that employees receive a fair wage and salary for the work they perform. There are two methods of paying salaries: 1. By the time worked – in this method, wages are computed in terms of unit of time, it is common to pay workers by the day and the term day-work was adopted. HxR=W In which: H = Hours Actually Worked R = Rate per hour in Pesos W = Total Wage earned

Payment on the basis of timed worked is more satisfactory under the following conditions: 1. Employees have little or no control over how much work they produce. 2. There is no clear cut relationship between the effort made to produce the work and the amount of work produced. 3. Work delays occur often and are beyond the employee’s control. 4. Quality of work is very important 5. Units of work produced cannot be distinguished and cannot be measured. 2. By the amount of work produced – earning depends on how much work the employee completes or on a related factor, such as the quality of work. This method of paying wages is called an incentive wage plan. The most common incentive plan is called piecework. Piecework salaries are determined by the number of piece value that is called piece rate. NxU=W In which N = Number of units produced U = Rate per unit in Pesos W = Wages earned per day or per week Payment by Piecework is satisfactory under the following conditions: 1. When a unit of completed work can be measured easily;

2. When there is a clear relationship between a workers’ effort and the result of his effort; 3. When the quality of work is less important than quantity, or when quality standards are uniform and measurable; 4. When the flow of work is regular, breakdowns are few, and jobs follow a standard procedure with interruptions. Other Information Related to Wages Labor and Wages Blue Collar – Manual Laborers White Collar – Office Workers Pink Collar – Jobs associated with women like nursing, secretarial, etc. Labor Grades Skilled Labor – these are workers who have received specialized training to do their jobs. The have developed and honed a special skill and may or may not need licensed or certified by the state. Unskilled Labor – these are workers who received no special training and have few specific skills. Professionals – arguably the elite of the labor grades, these are those workers who need an advance degree to do their jobs.