Factor affecting pay rates

  1. The organisation’s ability to pay
  2. Supply and demand of labour
  3. The prevailing market rates
  4. The cost of living
  5. Living wage
  6. Productivity
  7. Trade union Bargaining power
  8. Job requirements
  9. Management attitudes

Higher wages are given by those organisation which can afford them. Companies that have good sales and therefore, high profits tend to pay higher wages than those which are running at loss or earning low profits because of high cost of production or low sales.

The labour market condition or supply and element forces operate at the national, regional and local levels and determine wage structure and level. If the demand for certain skills is high and the supply is low, the result is a rise in the price to be paid for these skills.

Most of the companies adopt prevailing market safe or going wage safe criterion for compensating its employees. This is done for several reasons. First, competition demands that competitors adhere to same relative wage rate. Second, various government laws and judicial decisions make the adoption of uniform wage rate an attractive proposition. Third, trade unions encourage this practice so that their members can have equal pay for equal work. Fourth, functionally related firms in the same industry require essentially the same quality of employees, with the same skills and experience. This result in a considerably uniformity in wages and salary rates, finally if the same or about the same general rates of wages are not paid to the employees as are paid by the organisational competitors, it will not be able to attract and maintain a sufficient quantity and quality of manpower.

The cost of living pay criterion is usually regarded as an automatic minimum equity pay criterion. This criterion calls for pay adjustments based on increases or decreases in an acceptable cost living index.

The living wage criterion means that wages paid should be adequate to enable an employee to maintain himself and his family at a reasonable level of existence.

Trade unions do effect rate of wages. Generally, the stronger and more powerful the trade union; the higher the wages. A trade unions bargaining power is often measured in terms of its membership, its financial strength and the nature of its leadership.

Generally, the more difficult a job, the higher are the wages. Measures of job difficulty are frequently used when the relative value of one job to another in an organisation is to be as curtained. Job are graded according to the relative skill, effort, responsibility and job conditions required.

Managerial attitudes have decisive influence on the wage structure and wage level since judgment is exercised in many areas of wage and salary administration including whether the firm should pay below average or above average rates, what job factors should be used to reflect job worth, the weight to be given below the structure and level of wages are bound to be affected accordingly. These matters require the approval of top executives.