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Factors affecting Wage Determination Part 2

Equity in Pay
Equity in pay means a fair days wage for a fair days work. Individual perception: - Living wage : more than subsistence wage, will be sufficient to meet persons regular and indiscriminate expenditure. - Standard of living: relative to rate of inflation and changes in cost of living, pay increase equal to, higher than or lower than the past rate of inflation generally regarded as maintaining, increasing or reducing individuals standard of living, irrespective of income or pattern of expenditure.

External: - rate for the job: equal work for equal. The type of work performed rather than abilities, quantity/quality of work. - Wages paid in other organizations: implies existence of common labour market. Payment of the going rate for labour. - Relative value placed on jor or occupation by society: job/occupation considered unimportant by incumbents if rewards to all employers lower than warranted by tasks/ responsibilities.

Internal: -The individuals pay should correspond to the complexity of the job, level of authority. - Differentials in pay between different kinds of work within the organization and the value and importance to the organizations objectives.

Wage related concepts


Wages compensation paid to hourly workers (including those on incentive pay) for services rendered. Wage level the average of all wage rates paid to workers in an occupation, industry or group of industries. Wage rate the money rate expressed in dollars and paid to the employee hourly. Wage differentials differences that exist in wage rates for similar jobs, because of location of company, hours of work, working conditions, type of product manufactured, etc.

Factors Determining Pay in Negotiations


Cost of living unions and employees base their arguments for increases in pay on the grounds that it should be capable of maintaining the individuals purchasing power. Therefore past inflation levels are taken into account when bargaining for wages. N.B. nonunion employees less likely to get wage increases with changes in cost of living.

Profitability is the most usual method of determining the organizations ability to pay in the private sector. Yardstick of profitability pre-tax, post-tax, relationship of profits to assets, sales returns on capital costs, wage costs on current basis and over a period of time. Constraints access by unions/employees to information; whether company is autonomous or part of a group.

Comparability: refers to the relationship in pay between different groups of employees. - comparisons are made in respect of internal and external factors. Internal factors are the more important basis for leap-frogging bargaining , in other words, the reasons one group would use to close a gap in pay while the other seeks to restore it. External factors: many organizations use data from pay surveys to make comparisons between their own wages/salaries and those of their competitors. Also important to compare earnings, hours, holidays and other fringe benefits.

Productivity: important criteria are measure of quantity or value of output per employee. - assumption is that if overall productivity has improved the labour element would have made some contribution to it and should be suitably rewarded. - Payment schemes: profit-related pay in which part of individuals pay directly linked to organizations profits, (private rather than public sector). Performancerelated pay any pay arrangement that explicitly links at least some part of the employees pay to the performance of the individual, group or organization, e.g. merit-pay, bonuses, gain-sharing plans.

Labour supply: organizations ability to obtain and keep adequate workforce is an important consideration in determining its wage level. Wage level must be sufficient to perform this function. Serious shortages of certain skills may force the organization to raise wages to attract the needed skills. - Wage leaders are organizations that seek to maintain a quality workforce. Wage leadership permits skimming the cream of the present labour force as well as ensuring a continuing supply of high quality new entrants.

Reasons for differences in pay and compensation package


Kinds and levels of required knowledge and skills Kind of business Union, non-union status Capital intensive or labour intentive Philosophy of management Total compensation package Geographical location Supply and demand of labour Profitability of firm Employment stability Employer tenure and perfromance

Wage determination models


1. Competitive model: many buyers and sellers acting independently such as the market for unskilled workers. 2.Monopoly power models: a. Monopsony model: one buyer, many sellers such as one-factory towns in rural America b. Union models: one seller of labour - Exclusive craft model electrical workers - Inclusive industrial model auto workers c. Bilateral monopoly: one buyer and one seller which occurs when unionized workers such as cricketers negotiate with one buyer such as the West Indies Cricket Board. N.B. Handout to be given with more detailed information

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