WAGES AND SALARY

ADMINISTRATION

INTRODUCTION
Wage and Salary Administration refers to the establishment and
implementation of sound policies and practices of employee
compensation.
It includes
- job evaluation
- surveys of wage and salaries
- analysis or relevant organisational problems
- development and maintenance of wage structure
- establishing rules for administering wages
- supplementary payments
- control of compensation costs &
- other related items.

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.

WAGES AND SALARIES

DEFINED
Wages paid to blue-collar employees; paid daily, weekly or
monthly; paid to jobs which can be measured in terms of
moneys worth.
Salary paid to white-collar employees; paid in monthly
basis; paid to employees whose contribution cannot be
measured easily.
Compensation a comparative term; includes wages and all
other allowances and benefits. (e.g. allowances, leave
facilities, housing, travel, and non-cost such as recognition,
privileges, and symbols of status)

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.

OBJECTIVES
A sound plan of wage and salary administration seeks to achieve the following
objectives :
To establish a fair and equitable compensation offering similar pay for similar work.
To attract competent and qualified personnel.
To retain the present employees by keeping wage levels in tune with competitive
units.
To keep labor and administrative costs in line with the ability of the organization to
pay.
To improve motivation and morale of employees and to improve union management
relations.
To project a good image of the company and to comply with legal needs relating to
wages and salaries.
To establish job sequences and lines of promotion wherever applicable.
To minimize the chances of favoritism while assigning the wage rates.

Medical
Reimburseme
nt

Special
Allowances

Basic Salary

DIRECT
COMPENSATION

Bonus

House Rent
Allowance
Leave Travel
Allowance
Conveyance

Overtime
Allowance

Hospitalizatio
n

Leave Policy

Insurance
INDIRECT
COMPENSATION

Flexible
Timings

Leave Travel
Holiday
Homes

Retirement
Benefits

FACTORS INFLUENCING WAGE AND

SALARY STRUCTURE AND
ADMINISTRATION :
1. PRODUCTIVITY :
Productivity of a candidate or an employee is very important
factor which affects the wage or salary rate. High wages and
low costs are possible only when productivity increases
considerably.
Productivity differs from organistation to organisation, industry
to industry, region to region etc. However, productivity is
considered as one of the important factors which affects the
wage and salary structure.

2. Capacity of an organisation to pay :

Capacity or ability of an organisation to pay also affects the salary
and wage levels and wage structures. The capacity to pay much depends
upon the progress of an organisation and the profits it earns.
Naturally those organisation which earn huge profits also can afford
to pay much better wage rates to their employees than the organisation
which earns comparatively less profit or earns merely marginal profits.

3. Managerial Attitudes :
Managerial attitude also influence on the wage and salary structure
and wage and salary levels. R. A. Lester, the expert in this field observed
that the desire of the top management to maintain or enhance the prestige
of its organisation is major factor in the wage policy of many organisation.

4. Going Wage and Salaries :

The wages and salaries paid to the employees for comparable jobs
by other organisation in the industry have an impact on the wage and
salary policies, An oraganisations wage and salary usually tend to conform
to the wage and salaries paid by other oraganisation's in the industry.

5. Demand and Supply of Labour :

A price of any commodity is determined by its demand and supply.
The wage and salary rates are also determined by the demand and supply
position of the labour in the labour market.

6. Cost of Living :
The employees must get sufficient amount of pay in order to satisfy
their wants and maintain a certain standard of living. The cost of living pay
criterian is usually regarded as an automatic minimum equity pay criterian.
This criterian calls for adjustments in payment of wages and salaries based
increases or decreased in an acceptable cost of living index.

Also other factors influencing wage and salary

Labour Cost
Job requirements and the skill levels available in the labour market
Trade Unions Pressure, strategies and bargaining capacity
Desire of an organisation to build their goodwill
Government Policy and Legislations

PRINCIPLES OF WAGE &

SALARY ADMINISTRATION
There should be definite plan to ensure that differences in pay for jobs are
based upon variations in job requirements.
The general level of wages & salaries should be reasonably in line with
that prevailing in labour market.
The plan should carefully distinguish between jobs & employees.
Equal pay for equal work.
An equitable practice should be adopted for the recognition of individual
differences in ability & contribution.

 There should be a clearly established procedure for hearing & adjusting

wage complaints.
The employees & the trade union should be informed about the
procedure used to establish wage rates.
The wage should be sufficient to ensure for the worker & his family
reasonable standard of living.
The wage & salary structure should be flexible.
The wage & salary payments must fulfill a wide variety of human needs
including the need for self actualization.

THE ROLE OF HUMAN

RESOURCES IN THE PAYMENT OF
SALARIES
One of the most important functions of Human Resources is the payment
of the proper salaries and the wages to all company employees. The pay
that the employees receive from their employer is the very reason for
their being in the job.

The function of the payroll in a company is usually the wage and salary
administration and it is carried out by the Human Resources Department.

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.

THEORIES OF WAGES
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

THEORIES OF WAGES
5. The Marginal Productivity Theory
This theory offers the best explanation of wages in modern industry
6. The purchasing Power Theory
This theory tries to establish the relationship between wages and
the level of economic activity.

THEORIES OF WAGES
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.

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.

WAGES AND SALARY

SURVEYS
A survey ofemployersin the sameindustryand the same
area showing thewagesandsalariesthey pay to their
employees.
Wage and salary surveys are useful because they show
the prevailingcompensationin a given city or other place,
which may result in employers making upward or
downward adjustments.

WAGES AND SALARY

SURVEYS
The actual salary to be paid for each job must be
determined.
Wage survey is a major factor.
Informal surveys may be conducted through telephones or
informal interviews.
Formal surveys use questionnaires based on benchmarks
jobs.
The Human Resource Department are preparing sets of
questionnaires.

PROCEDURE IN CONDUCTING
WAGE AND SALARY SURVEYS
1.
2.
3.
4.
5.
6.

Defining the Labor Market

List of key Job Position
Detailed Description of Jobs
Collection of Salary Data
Compilation of Salary Data
Results of Survey

CONSIDERATIONS IN MAKING
DECISIONS
Whether the salaries will be above, below, or the same
level.
Whether pay in a single rate for each job.
How many pay grades or salary ranges to use, and how
wide each pay grade should be.
The range of the amount in terms of money value.

DATA TREND GRAPH

One tool that is often used to simplify the process in
decision making is the use of two-dimensional graphs.
Horizontal line, where the points for key jobs are plotted.
Vertical line, where the range of pay is plotted.

1.

TECHNIQUES IN INDICATING
THE TREND OF THE DATA
PLOTTED.
Eye Inspection- This technique is the least scientific
and reliable as
this does
judgmental

not require scientific computations. It is more of a

analysis.

2. The Least Squares- This uses the statistical formula. It presents more
accurately the relationships between the money value
and the
key jobs.
3. The Second Degree Curve- The trend Line will normally take the form
of a
curve, and may more accurately indicate the trend of
the data.

THE DEVELOPMENT OF WAGE

AND SALARY STRUCTURE
Wage and Salary Structure

The hierarchy of jobs to where the pay rates are attached.

The Advantages:
1. Affects the workers and standard of living.
2. Eases the recruitment and maintenance of an effective labor force.
3. Develops employee morale and increases work efficiency.
4. Represents cost and competitive advantage in the industry
5. Helps in preparing budgetary allocations.
6. Eliminates pay distortions and inequities in employee compensation.
7. Establishes an equitable salary range for various jobs.

WAGE STRUCTURE DESIGN

The design of the wage and salary structure is the
establishment of job classes and rate ranges. All jobs
within a class are treated in the same way for
purposes of economical administration.

GREEN CIRCLE RATE

When employees salaries fall below the minimum of the
pay grade for the job.
The decision to bring salaries to the minimum of the
grade should be based on the employees performance.

RED CIRCLE RATE

Situation whereby the employee with high seniority is either
so competent or has received so many increases that his
salary is above the maximum of the pay grade.
This can be handled in two-ways:
1. Review the performance of the employee.
2. If the performance review reveals the employee is not worthy
to be promoted and such salary increase was discreetly earned
some obvious reasons, then the employee will not get the
normal merit increase.

METHODS OF WAGE
PAYMENT
What is Wage Payment?
It is the way of giving financial compensation to the
workers for the time and effort invested by them in
converting materials into finished products.
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.

TWO METHODS OF PAYING

SALARIES
By the time worked
By the Amount of Work Produced

FIRST METHOD OF PAYING

SALARIES

By the time worked- wages are computed in terms of unit of time.

Day-Work methods of pay - include weekly, biweekly, or on a monthly basis.

- It is common to pay workers by the day and the
term day work was adopted.
Non-incentive Wage Plan paying by the time worked.
No matter how hard an employee works during an hour, the pay will be computed
by the hourly rate and no more.
Wages under this plan are computed by multiplying the number of hours worked
by the rate hour:

HxR=W
H- Hours actually worked
R- Rate per hour in pesos
W- Total Wages earned

FIRST METHOD OF PAYING

SALARIES
Payment on the basis of time 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 employees
control.
4. Quality of work is very important.
5. Units of work produced cannot be distinguished and cannot
be measured.

SECOND METHOD OF PAYING

SALARIES
By Amount of Work Produced
Incentive Wage Plan- a method of paying wages where earnings depend
on how much work the employee completes or on a related factor, such as
the quality of work.
Piecework most common incentive plan.
- piecework salaries are determined by the number of pieces
produced or completed, and each piece is assigned a piece
value that is called a piece rate.
The formula for computing salaries under piecework is as follows:
N x U = W
N- Number of units produced
U- Rate per unit in pesos
W- Wages earned per day or per week

SECOND METHOD OF PAYING

SALARIES

Payment by piecework is satisfactory under the following

conditions:
1. When a unit of completed work can be measured easily;
2. When there is 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 few interruptions.

WAGE AND SALARY POLICIES

These policy guidelines that will help the organization
have better relationships with employees and develop
a more comprehensive employee financial planning
program.

CHARACTERISTICS OF THE WAGE

AND SALARY POLICY
1. The wage and salary plan must be easily understood.
2. Salaries in the wage plan should be easily computed.
3. Salaries should be made relevant with effort.
4. Incentive wage plans should provide payment for incentive
earnings to employees soon after they have been earned by efforts
exerted to reach standards.
5. The method of payment should be stable and unvarying.

MORAL RENEWAL IN THE

WORKPLACE

1.Know that leaders have limitations.

2. Choose character
3. Walk the talk
4. Avoid compromising
5. Use the same measures on yourself.
6. Face the mirror.
7. Show the mirror to your leaders.
8. Dont just admit mistakes; correct them.
9. Have an improvement plan
10. Rebuild and dont slide back.

LABORS AND WAGES

In the past, the terms used to classify/describe the type of
vocations are:
Blue Collar: Manual Laborers
White Collar: Office workers
Pink Collar: jobs associated with women (e.g. nursing,
secretarial, etc.)

LABOR AND WAGES

In the present time, work roles are classified into 3 categories:
Skilled Labor: workers who received specialized training to do
their jobs; developed & improved a special skill; may or may not
need to be licensed or certified by the state. This may be
blue/white collars workers.
Unskilled Labor: workers who received no special training; have
few specific skills. These are blue collar workers.
Professionals: Perhaps the elite of the labor grades. Workers who
need to do an advanced degree to do their jobs. These are white
collar workers.
These are non-competing labor grades

THEORY OF WAGES AND

SALARIES
Traditional Theory of Wage Determination:
the law of supply and demand dictates salary.
Theory of Negotiated Wages:
Employees who work in unions where the unions negotiates
salary on behalf of all workers fit into this theory.

OVERTIME PAY
All employees required to work beyond eight hours in one workday is
entitled to overtime pay. The basis of overtime pay is found in Article 87 of
the Labor Code.
Article 87. Overtime work. Work may be performed beyond 8 hours a day
provided that the employee is paid for the overtime work an additional
compensation equivalent to his regular wage plus at least 25% thereof. Work
performed beyond 8 hours on a holiday or rest day shall be paid an additional
compensation equivalent to the rate for the first 8 hours on a holiday or rest
day plus at least 30% thereof.

OVERTIME PAY | OVERTIME WORK |

WORKDAY
Overtime Pay is the additional compensation payable to employee for
services or work rendered beyond the normal eight hours of work.

OT Pay = OT rate x No. of hours in excess of the regular 8 hours of work

Overtime Work. Any work performed beyond the normal 8 hours of

work in one workday is considered as overtime work.
Workday is the consecutive 24-hour period which commences from the
time the employee starts to work and ends at the same time the
following day.

To illustrate, if the employee regularly works from 8AM to 4PM, his regular
workday is the 24-hour period from 8AM to 8AM of the following day.
Workdays do not necessarily corresponds to calendar days.

OVERTIME PAY RATES

Overtime pay rates depend upon the day the work is
performed, whether it is ordinary working day, special day,
holiday or rest day.

COMPUTATION FOR
OVERTIME PAY
For ordinary working day:
a. 25% of the hourly rate x the number of hours
b. 10% more on 125% (based on letter (a) above) if OT is
rendered between 10pm-6am
For holiday, special day and rest day:
a. 100% additional if work is done on 10 legal regular
holidays (marked color red in the calendar) and 5 legal
Muslim holidays (as declared by OMA)
b. 30% more if work is done on special holidays and Sundays

ADDITIONAL INFORMATION
TYPES OF EMPLOYEE REWARDS
Service Awards
Employee of the Month
Attendance Awards
Safety Awards
Company Advancement

COLLECTIVE BARGAINING
A process of negotiating an agreement regarding the
terms and conditions of employment through system
of shared responsibility and decision making between
labor and management.

WHY IS COLLECTIVE
BARGAINING AN IMPORTANT
ASPECT
OF
LABOR Collective bargaining is important because it
promotes the rights MANAGEMENT
and ideals of labor. RELATIONS?
A means of improving workers standard of living through
just compensation and humane working conditions
It guarantees security of tenure and employees promotion
on the basis of seniority
It defines the right and responsibilities of labor and
management
It affords participation to labor in running an enterprise
through shared decision making, control, management,
and ownership of the means of production.
It includes machinery for settling grievance or labordisputes on employment-related issues.

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CONCLUSION
Compensation is a hot potato for the Human Resource
Department. The motivation level of the employees to great
extent lies in monetary rewards.
Hot Potato - A problem that is so controversial or sensitive that
those handling it risk unpleasant consequences.

The major challenge that managers face today is retention of

manpower and its major cause is that they are paid better in
other organizations.