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ECONOMIC & BEHAVIOURAL

THEORIES OF WAGES


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Wage Determination Theorie

A!!" To #ro$" %" Dn'o( the hitor) o$ *agetheor) ma) +e ,i-i,e, in to . (erio, /

0" U( to 0123 4 Whi!h *a ,ominate, +)WAGE FUND THEOR5

6" 012370809 / THEOR5 OF MARGINAL#RODUCTIVIT5

." 08097 ti'' ,ate / #ro!e o$ Co''e!ti-e+argaining & :e)neian E;it) & theGenera' Wage Le-e' & Em('o)ment"


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S+iten!e Theor) +) Da-i,

Ri!ar,o


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S+iten!e Theor) +) Da-i,

Ri!ar,o The 'a+orer are

(ai, to ena+'e them to +it &

(er(etate the ra!e *ithot in!reae or

,imintion?


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#ROCESS OF a!ta' *age 'e-e'

a,ting to S+iten!e 'e-e'

#ro(ero

Wor@er


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Wage Fn, Theor) +) A,am

Smith


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Smith


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Smith


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Sr(' Va'e Theor) +) :ar'

Mar


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Sr(' Va'e Theor) +) :ar'

Mar


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MARGINAL #RODUCTIVIT5 THEOR5 +) # H Wi!@tee,


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Residual Clainmant Theory by Francis A Walker(1840-

189!

9 $a!tor o$ (ro,!tion7'an, 4'a+or4 !a(ita' &

entre(renerhi("

Wage -a'e o$ (ro,!tion J


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In-etment Theor) +) H M Gite'man

A!! to thi theor) *or@er are (ai, in term o$

their in-etment in e,!ation4 e(erien!e &

training"

Wor@er mt +e ha-ing attri+te"Higher attri+te higher (a)ment"


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Bargaining Theor) o$ Wage +)

%ohn Da-i,on

A!!" To thi theor) Wage are ,etermine,

+) re'ati-e +argaining (o*er o$ *or@er

or tra,e nion an, o$ the em('o)er"

A(('i!a+'e in organie, e!tor"

I$ nion i trong *or@er *i'' +e (ai,

more" & -i!a -ira"


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The Contingen!) Theor)

No ing'e +et *a) to e-o'-e the

(a)ment )tem

A!! to L(in & Bo*e)? eentia'')4 a

!ontingen!) a((roa!h i that in ome

in,tr) & in ome en-t !on,ition one

manageria' (ra!ti!e *i'' !ontri+te to

ome ,eire, o+e!ti-e *hi'e the ame*i'' not ha((en in other in,tr)"


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Demand & Supply Theory

Alfred Marshall, the chief exponent to this theory, explained thecomplexity of the economic world tried to provide a less rigid &deterministic theory. According to him, the determination of wages isaffected by the whole set of actors which govern demand for & supplyof labour. The demand price of labour, however, determined by themarginal productivity of the individual worker

The term supply & laborcan be expressed in a number of senses.First, it refers to the number of workers seeking employment; these arethe workers who have no alternative livelihood & oin the labor marketseeking employment for wages. !econdly, supply & labormay referto the number of hours each worker is available for work. The supply oflabour in this sense increases with any increase in the number ofworking hours.


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Behavioral Theories of Motivation

Equity Theory

"#uity can be external or external.Internalequityrefers to the paydifferential between & among the various skills & levels ofresponsibility. "xternal e#uity refers to concerns regarding how wagelevels for similar skill levels in one firm compare with those in other

firms in similar or the same industry & location.

Epe!tan!y theory

$t suggests that motivation depends on individuals% expectations abouttheir ability to perform tasks & receive the desired rewards. An

employer%s responsibility is to help employees meet their needs &, atthe same time, attain organiational goals. "mployers must try to findout match between employees% skills & abilities & the ob demands.


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Agen!) Theor)

Fo!e on the goa' & o+e!ti-e o$ta@eho',er & the *a) the em('o)eeremneration !an +e e, to a'ign theeinteret & goa'"

Em('o)er & em('o)ee are 6 ta@eho',er

Em('o)er J (rin!i(a' & em('o)ee J agent"The agen!) theor) a) the (rin!i(a' mt

!hooe a !ontra!ting !heme that he'( ina'igning the interet o$ agent *ith the(rin!i(a' o*n interet


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So +eha-iora' Theorie are +ae, on

Em('o)er !on!ern $or *or@er

Em('o)ee a!!e(tan!e o$ *age 'e-e'

Interna' *age tr!treWage & other moti-ator


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Wa"e di##erential re#ers to di##erences in $a"e

rates due to the location o# com%any& hours o# $ork&

$orkin" conditions& ty%e o# %roduct manu#actured& orother #actors'

t may be the di##erence in $a"es bet$een $orkers

$ith di##erent skills $orkin" in the same industry or

$orkers $ith similar skills $orkin" in di##erent industriesor re"ions'

"a#es Differential

Em('o)ee in MNC are (ai, higher"

Di$$erent in,trie ha-e ,i$$erent *age tr!tre re'ting in

,i(aritie in remneration $or i,enti!a' *or@"

Wi,e ga( eit +et*een *age o$ em('o)ee o$ organie,


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$!!upational Differentials

)i##erent occu%ations re*uire di##erent *uali#ications&

skills and di##erent de"ree o# res%onsibility

0" To in,!e *or@er to n,erta@e >more ,eman,ing?4

>more ri@)? o+"

6" En!orage *or@er to ,e-e'o( @i'' in anti!i(ation o$higher earning in $tre"

." To (er$orm o!ia' $n!tion +) *a) o$ ,etermining the

o!ia' tat o$ *or@er"


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Inter%Industry Differentials

0" Etent o$ nioniation

6" Em('o)er a+i'it) to (a) (ro,!t ,eman, in mar@et

." #ro-i,e o((ortnit) $or *or@er to *it!h to higher *age

in,trie"

Arise $hen the $orkers in the same occu%ation and in the

same area but in di##erent industries are %aid di##erent $a"es'

Stor) a+ot a $on,r) Sha@ti In,trieinHaora4 Wet Benga' that ma@e Ne* 5or@

Cit) manho'e !o-er"

'ovember () (**+
http://www.nytimes.com/interactive/2007/11/21/nyregion/20071126_MANHOLE_FEATURE.html


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,ersonal "a#e Differentials

Arise because o# di##erences in %ersonal characteristics (a"e

or se+! o# $orkers $ho $ork in the same %lant and the sameoccu%ation'

In o!!(ation *hi!h in-o'-e m!'ar *or@4 *omen *or@er

are em('o)e, +t (ai, 'e than men *or@er

>E;a' (a) $or e;a' *or@?

I"L"O" !on-ention


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Wh) a'' the 'a+or i not ,one+) har,ene, han,


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Se!tor Differentials

)e%ends u%on nature o# $orkers "rou% (or"ani,ed

unor"ani,ed! and le.el o# economic de.elo%ment o# the

sector'

A"ricultural $orkers are not able to better their li.in"conditions& $hereas $orkers in industrial sectors ha.e

their o$n unions to #i"ht #or them'


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-e#ional .Inter%Area/ Differentials

Workers in same industry and the same occu%ational

"rou%& but li.in" in di##erent "eo"ra%hical areas& are%aid di##erent $a"es'

Irritating !'imateIo'ation

Di(aritie in !ot o$ 'i-ing


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Summary

The conce%ts o# trade unions& $a"es and $a"e di##erentialsare o.er a century old in ndia'

ndia/s economic de.elo%ment still needs a bi" %ush and

the #actors unions& $a"es and $a"e di##erentials can %lay

a .ital role'

et/s try to see the issues #rom labour/s .ie$%oint

"


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2ayment #or labor or ser.ices to $orkers& es%ecially

remuneration on an hourly& daily& or $eekly basis'

"a#es

The demand #or $a"es has ne.er been #ully met'

Wa"e raise in one com%any $ill ins%ire unions in other

com%any to %itch tents demandin" similar rise in $a"es'

3alary3alary is a #i+ed %eriodical

%ayment %aid to a %erson

#or re"ular $ork or

ser.ices'

Wa"eWa"e is usually %aid by the

day or $eek #or $ork or

ser.ices $hich are o# a

more irre"ular nature'


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WAGE #OLIC5

" , li


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"a#e ,oli!y

Wage (o'i!) re$er to )temati! e$$ort o$ the go-ernment in

re'ation to nationa' *age an, a'ar) )tem"

#r(oe/ To reg'ate the tr!tre o$ *age an, a'arie *ith

-ie* to a!hie-e e!onomi! an, o!ia' o+e!ti-e o$ the

go-ernment"

To gi-e to *or@er a hare in $rit o$ e!onomi! ,e-e'o(ment"

To et minimm *age $or *or@er *hoe +argaining (o*er

i *ea@"

To +ring a+ot more e$$i!ient a''o!ation an, ti'iation o$

hman reor!e throgh *age an, a'ar) ,i$$erentia'"

To a+o'ih ma'(ra!ti!e an, a+e in *age an, a'ar)

(a)ment"To %ro.ide #or a uni#orm& stable and reasonably com%etiti.e


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Wage #o'i!)

Organiation mt ,e-e'o( (o'i!ie a

genera' gi,e'ine to (ro-i,e $or

!oor,ination4 !oniten!)4 an, $airne

in !om(enating em('o)ee"

For eam('e4 $o''o*ing a (a)7$or7

(er$orman!e (hi'oo(h) re;ire

in!or(orating (er$orman!e a((raia're't into the (a) a,tment (ro!e"


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Pay Policies Considerations

T)(e o$ %o+ E-a'ation

S)temMar@et #oitioning

#a) E(en,itre Gi,e'ine

A$$or,a+i'it) ContraintLin@ing o$ #er$orman!e A((raia' an, #a) A,tment

Figring o$ #a) Str!tre a,tment

A,minitrati-e A((ea'

#ro!e $or Reo'-ing In,i-i,a' #a) #ro+'emWi,th o$ #a) Range an, Broa,+an,ing

Nm+er o$ #a) Gra,e


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roadbandin"

#ra!ti!e o$ ing $e*er (a) gra,e ha-ing

+roa,er range than tra,itiona'

!om(enation )tem"


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STE#S

)etermine your %lace in the market

3elect the ty%es o# com%ensation

Re.ie$ your %rocess'


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#a)ment o$ Wage A!t4 08.2

In,tria' Di(te A!t4 0892

Minimm Wage A!t4 0891

E;a' Remneration A!t4 082

To (rohi+it an) ,e'a) or

*ithho',ing o$ *age

Athoriing a'' tate go-ernmentto et ( in,tria' tri+na' *hi!h

*o', 'oo@ into ,i(te re'ating

to remneration

Fiation o$ minimm rate o$

*age to *or@er

#rohi+it ,i!rimination in matter

re'ating to remneration on the+ai o$ re'igion4 e et!"

With a'' thee A!t in ('a!e4 are there no ,i(aritie in *age


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Minimm Wage4 Li-ing Wage an,

Fair Wage

Minimm *age7 It mt (ro-i,e not on') $or the +aretenan!e o$ 'i$e +t $or the (reer-ation o$ thee$$i!ien!) o$ the *or@er +) (ro-i,ing ome meareo$ e,!ation4 me,i!a' !are4 et!"

Criteria/ It mt +e !a'!'ate, $or a $ami') o$ 9 nit


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Minimm Wage4 Li-ing Wage an,

Fair Wage

Li-ing *age7 It i not on') $or the +are

eentia' $or the *or@er an, hi $ami')4

+t a'o $or !om$ort4 (rote!tion againt

i''7hea'th4 ,e!en!)4 o!ia' nee, an,inran!e $or o', age

Fair *age7 It i in7+et*een minimm

*age an, 'i-ing *age4 +t +e'o* the'i-ing *age


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Lega' $rame*or@ on *age

The Go-ernment ha ena!te, -ario'a* to reg'ate an, go-ern the *age"

The) are/

0" The (a)ment o$ Wage A!t 08.

6" The (a)ment o$ Bon A!t 08

." The E;a' Remneration A!t

9" The Minimm Wage A!t

" The Com(anie A!t 08


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STRATEGIC #ERS#ECTIVE OF

COM#ENSATION

Th # M , '


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usiness 5oalsusiness 5oals

usiness3trate"y

usiness3trate"yC

67

C

67

Com%ensation

2hiloso%hy a!ti-itie

er-e BineO+e!ti-e

Com%ensation

2hiloso%hy a!ti-itie

er-e Bine

O+e!ti-e

The #a) Mo,e'

Business Strategy This defines the direction in

which organization is going in relation to itsenvironment in order to achieve its objectives.

Compensation Philosophy Consists of a set of

beliefs which underpin the rewardcompensationstrategy of the organization and govern the rewardpolicies that determine how reward processesoperate

The #a) Mo,e'


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usiness3trate"y

usiness3trate"y

Com%ensation2lan

Com%ensation2lan

Com%ensation

3trate"y

Com%ensation

3trate"y

on-Financial

Re$ards

on-Financial

Re$ards7r"'3tructure7r"'3tructure

C

67

C

67

9R9ead

9R9ead

Com(enation

a!ti-itie er-e

Bine O+e!ti-e

Com(enation

a!ti-itie er-e

Bine O+e!ti-e

Com(enation trateg)

i (erio,i!a'')

ree-a'ate, an, the

Com(enation ('an

(erio,i!a'') ,e-e'o(e,

Com(enation trateg)

i (erio,i!a'')

ree-a'ate, an, the

Com(enation ('an


The #a) Mo,e'

Compensation Strategy defines the intentions ofthe organization on reward policies! processes andpractices re"uired to ensure that it has the s#illed!competent and well$motivated wor#force it needs

to achieve its business goals

The #a) Mo,e'


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usiness3trate"y

usiness3trate"y

Com%ensation2lan

Com%ensation2lan

Com%ensation

3trate"y

Com%ensation

3trate"y

on-Financial

Re$ards

on-Financial

Re$ards

7r"'3tructure7r"'3tructure

C

67

C

67

9R9ead

9R9ead

Com(enation

a!ti-itie er-e

Bine O+e!ti-e

Com(enation

a!ti-itie er-e

Bine O+e!ti-e

Com(enation trateg)

i (erio,i!a'')

ree-a'ate, an, the

Com(enation ('an


Com(enation trateg)

i (erio,i!a'')

ree-a'ate, an, the

Com(enation ('an


The #a) Mo,e'

A trategi! (er(e!ti-e on !om(enation

ta@e the (oition that ho* em('o)ee are

!om(enate, !an +e a or!e o$ taina+'e

!om(etiti-e a,-antage

The #a) Mo,e'


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usiness3trate"y

usiness3trate"y

Com%ensation2lan

Com%ensation2lan

:arket 3ur.eys:arket 3ur.eys

Com%ensation

3trate"y

Com%ensation

3trate"y

;ob 6.aluation;ob 6.aluation


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Strategi! #a)

#a) tr!tre ha trategi! -a'e that

aign ,i$$erent (a) rate $or the o+

*ith ,i$$erent -a'e *hi!h ,i$$erentiate

in,i-i,a' em('o)ee !ontri+tion


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Strategi! !om(enation

J Uing the !om(enation ('an to ((ort the

!om(an) trategi! aim"

J Fo!e em('o)ee attention on the -a'e

o$ *inning4 ee!tion4 an, (ee,4 an, on

+eing +etter4 $ater4 an, more !om(etiti-e""

IBM


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Strategi! Com(enation

#'anning

3trate"ic Com%ensation 2lannin"J Lin@ the !om(enation o$ em('o)ee to the miion4 o+e!ti-e4 (hi'oo(hie4 an, !'tre o$ the organiation"

J Ser-e to i,enti$) the net monetar) (a)ment ma,e to em('o)ee *ith (e!i$i! $n!tion o$ the HR (rogram in eta+'ihing a (a)7$or(er$orman!e

tan,ar,"J See@ to moti-ate em('o)ee throgh !om(enation"

C


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Com(enation #o'i!) Ie

#a) $or (er$orman!e

#a) $or eniorit)

Sa'ar) in!reae an, (romotion

O-ertime an, hi$t (a)

#ro+ationar) (a) #ai, an, n(ai, 'ea-e

#ai, ho'i,a)

Sa'ar) !om(reion


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Strategi! !om(enation Choi!e

Fie, - -aria+'e (a)

Interna' & eterna' e;it)

%o+ - in,i-i,a' (a)

A+o-e the mar@et - +e'o* the mar@et (a)

Com(eten!) +ae (a) or +roa, +an,ing

G'o+a' !om(enation

#ro!e - me!hani!#a)ing the o+ - 'a)ing the (eron


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Strategi! !om(enation theor)

Contingen!) theor)

> ty%es o# business le.el strate"ies

1'Cost leadershi%

?' )i##erentiation

>' inno.ation


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A(e!t o$ !om(enation theor)

0" Com(enation (hi'oo(h)

6" Eterna' !om(etiti-ene

."A,minitrati-e & im('ementation ie

6 it


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6*uity

The (er!ei-e, $airne o$

the re'ation +et*een *hat

a (eron ,oe


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2rocedural ustice

The (er!ei-e, $airne o$

the (ro!e an, (ro!e,re

e, to ma@e ,e!iiona+ot em('o)ee"

)istributi.e ustice

The (er!ei-e, $airne in the ,itri+tiono$ ot!ome"

E it C id ti i


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Equity Considerations in

Compensation

6BT6RA A7R :ARD6T3

#a) r-e) ,ata

Com(eting em('o)er (o'i!ie

7R5AEAT7A ;


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Equity Considerations in

Compensation

ndi.idual#er!e(tion o$ in(t an, ot!ome

PAY OPENNESS

Another e;it) ie !on!ern the ,egree o$o(enne or e!re!) that organiation a''o*regar,ing their (a) )tem"

#a) in$ormation @e(t e!ret in >!'oe,? )tem

in!',e ho* m!h other ma@e4 *hat raieother ha-e re!ei-e, & e-en *hat (a) gra,ean, range eit in the organiation"


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6BT6RA 6


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m%ortance o# 6*uity and

Com%ensation Acti.ities

!one;en!e o$ an e;ita+'e !om(enation(rogram i that in,i-i,a' are more 'i@e') to+e attra!te, to an, ta@e o+ in organiation*hereem('o)ee ,o not -oi!e *i,e(rea,

!on!ern a+ot e;it)"Greater 'o)a't) 'e trno-erHigher !ommitment to a!hie-e organiationa'

(er$orman!e o+e!ti-eRe,!e, $a-oritim or (erona'it) (re$eren!e

o$ manager an, (er-ior

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