INTRODUCTION TO

WAGE AND SALARY ADMINISTRATION

 FOUR KINDS OF EMPLOYEE
COMPENSATION
1. Salary or Wage the basic compensation.
2. Incentive Pay designed to encourage the
employee to render extra effort over normal
production.
3. Allowances are given to meet employee
needs during temporary situations.
4. Benefits- are rewards for belonging to an
organization.

Introduction to Wage and Salary Administration 2

 IMPORTANCE OF PAY
Many problems about salaries and wages arise because
several groups have interests in employee
compensation, such as the following:
1. The employees who work primarily to earn a living for
themselves and their families.
2. The company that pays its employees attractive
salaries and wages in order to retain them but at the
same time concerned with the cost of production and
its competitive position in marketing its products in
order to make profits for its inventors.

Introduction to Wage and Salary Administration 3

 IMPORTANCE OF PAY
3. The community that is concerned with the
cost of commodities and services in relation to
the income level of the people in the
community.
4. The state whose economy will be adversely
affected by inflationary wage levels.

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 IMPORTANCE OF PAY
1. The pay that an employee receives from his employer
is the primary reason for his being on his job. He
works to earn a living.
2. The persons pay provides him with a strong
incentive to do his job well.
3. The employees rate of pay often indicates his status
in the company.
4. A persons way determines his standing in the
community. It also determines what he can contribute
to community development and social welfare.
5. A persons pay determines his purchasing power.
Introduction to Wage and Salary Administration 5
 IMPORTANCE OF PAY
An employees pay must be commensurate with his
efforts.
It must be equitable in relation to what the other
employees get for what they do, otherwise, he or the
other employees will feel that they are being cheated.
One way to retain competent employees and keep their
morale high is to plan salary levels so as to establish
uniformity in relation to the jobs in the company and to
those in the other business establishments in the
community.

Introduction to Wage and Salary Administration 6

IMPORTANCE OF PAY
A business executive says,
I cannot dispute that we all work for
money. You just give a guy whats due
him. Next to money, you must give a
man a chance for self-development. You
must assure him that with the company
he has a chance to grow as a
professional, as a human being.

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 Workers Compare their Work
and their Pay
Workers have a practice of comparing
jobs and their wages with those of other
workers, and judge the equity or inequity
of their pay.
There is no single factor that has a
greater impact on employees morale
than the pay they receive from their work.

Introduction to Wage and Salary Administration 8

 WORKERS COMPARE THEIR
WORK AND THEIR PAY
How employees feel about the equitableness
of their pay can influence to a large extent their
level of performance.
Management should therefore adhere to the
rules of strict equity in its pay scale, so that the
employees will feel that their pay is fair in
relation to the work they do and in comparison
with the pay that others get.

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 PAY AS A FACTOR IN
PRODUCTION
In most industrial firms, wages and
salaries constitute the largest single cost
of operation.
The control of costs is therefore a
primary concern of management, as it
affects the prices of the products or
services of the enterprise.

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 PAY AS A FACTOR IN
PRODUCTION
Employers constantly strive to reduce
production costs to keep the company in the
competitive market and earn enough profits.
Wage raises are generally passed to the
consumer in the form of higher prices, unless
the increased costs are offset by greater
efficiency in production or are absorbed by the
company.

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 TERMS DEFINED
REMUNERATION refers to the compensation and
benefits plan made by the firm.
COMPENSATION is the tangible equivalent of any work or
task performed in the organization. It can be either direct or
indirect.
DIRECT COMPENSATION refers to monetary rewards
such as salaries, wages, commissions, bonuses, allowance,
and other forms of monetary payments.
INDIRECT COMPENSATION includes the benefits offered
by companies to employees such as hospitalization,
insurance, days-off, summer outings, sports fests, among
others.
Introduction to Wage and Salary Administration 12
 TERMS DEFINED
SALARY commonly refers to the
compensation covering weekly, monthly,
or yearly periods for services rendered.
Based on a stated minimum number of days
per week or hours per day or week
Applies to the pay of higher levels of
personnel such as white-collar employees
or persons in positions of responsibility and
authority in the firm.
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 TERMS DEFINED
WAGES usually refers to compensation for
manual labor-skilled or unskilled for work
done by so called blue-collar workers.
Wages are measured by the hour, day, or week,
unlike salaries which are paid at stated intervals,
such as every week or every fifteen days.
Wages also refers to payment for a specified
volume of production, i.e., on piece rate.

Introduction to Wage and Salary Administration 14

 TERMS DEFINED
BASE PAY. It is the fixed and usually the
largest component of the total compensation
package. Compensation professionals use the
following factors in determining the base pay:
a. Job-based pay
b. Skill or competency-based pay
c. Market-based pay
d. Combination of the three

Introduction to Wage and Salary Administration 15

 TERMS DEFINED
Incentive Compensation. Incentives or bonuses are given
to employees who achieve certain objectives set by the
organization.
Allowances. These are temporary add-ons to the basic pay
such as rice ration, transportation, and meal allowances,
etc.
Overtime Pay. This is provided for work rendered beyond
the normal work hours.
Risk Benefits. These are payments for medical, death, or
disability cases that are provided to employees depending
on the risks involved in the type of jobs they perform.

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 TERMS DEFINED
Retirement Benefits. These are benefits provided to
employees who have reached the compulsory
retirement age after serving a company for a certain
number of years.
Equity Compensation. Usually given to senior
executives, this compensation comes in the form of
stock options.
Perquisites. These are extended to members of the
senior management (e.g., first-class travel, lodgings,
accommodations, lunch/dinner meetings, country club
memberships at companys expense.
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 TERMS DEFINED
SALARY AND WAGE
ADMINISTRATION - Systematic
procedures that provide adequate and
equal pay for equal work in any
organization.
It is intended to provide all employees with
wages or salaries that are fair in proportion
to the effort or contribution they give to the
company.
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 TERMS DEFINED
REWARDS MANAGEMENT- involves the process of
rewarding people, it is concerned with the design,
implementation, and maintenance of a rewards system
containing compensation and benefits with the
intention of improving the organizational and individual
performance.
Includes financial and non-financial rewards

Also involves formulating policies and implementing

strategies to reward employees fairly and equitable
according to their contribution to the organization.

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 TERMS DEFINED
MERIT INCREASE is a raise in the
salary or wage of an employee on the
basis of performance or merit.
It is granted after a review of his
performance and service in accordance with
company policy or the firms performance
appraisal program.

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 TERMS DEFINED
UNION RATE refers to an hourly or daily rate
of pay, usually a single rate for an occupation
or trade, set up by an agreement reached
through collective bargaining.
It is generally the base rate that can be paid to
qualified workers on the job. There is usually
no rule barring the employer from paying
higher rates.

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 TERMS DEFINED
ACROSS-THE-BOARD INCREASE a
general wage raise affecting all employees
within a plant, company, or industry, usually as
a result of collective bargaining.

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 BASIC DETERMINANTS OF
SALARY
The relationship between jobs and wage rates
The recognition of individual differences
The level of pay existing in the community
The companys ability to pay
The type of industry
Labor costs
Cost of living
Collective bargaining
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 RELATIONSHIP BETWEEN
JOBS AND WAGE RATES
Three Considerations;
1. The qualifications required for the job.

2. Worker supply and demand

3. The duties and responsibilities of the job.

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RELATIONSHIP BETWEEN
JOBS AND WAGE RATES
A direct relationship between the duties and
responsibilities of a job and the rate of pay for
that job should be set and maintained. The
base salary should reflect the nature of the job,
duties and responsibilities and its worth to the
company. This relationship is arrived by a
means of job analysis and job evaluation.

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 RECOGNITION OF INDIVIDUAL
DIFFERENCES
Individuals doing the same job differ in
ability, experience, skill and efficiency.
These differences should be recognized
through a merit rating system and
provided for in a salary structure
embodying a pay scale for each job.

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 LEVEL OF PAY IN THE
COMMUNITY
One way to attract and retain competent
and highly qualified workers is to
maintain salaries at a level reasonably
equal to the prevailing rates for similar
jobs in the industry or with other firms in
the community. This is best
accomplished through wage surveys.

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COMPANYS ABILITY TO PAY
Employees generally pay their
employees according to their financial
ability. Firms that are marginal cannot
pay as much wages as companies with
bigger earning power, without
endangering their continued existence.

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TYPE OF INDUSTRY
Certain types of industry or business
have a greater earning power than
others. In a highly competitive industry, a
company with a bigger capital and
greater volume of production and sales is
in a better position to pay higher wages.

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 COST OF LIVING
During inflation when the prices of goods
and commodities go up, the purchasing
power becomes very low thus making it
necessary to adjust salaries and wages
in the form of either direct salary
increases or cost of living allowances to
enable the employees to provide for their
essential necessities.
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 LABOR COSTS
The significance of labor costs to an industry
depends on whether it is labor intensive or
capital intensive.
If the industry utilizes more manpower than
machines, labor supply, wage rates, and labor
efficiency become critical factors in
determining the costs of production, thus
affecting the cost of commodity which is
generally passed on the consumer.

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 LABOR COSTS
The advantages of using machines for mass
production to effect lower cost of production
have encouraged industries to introduce
technological improvements.

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 COLLECTIVE BARGAINING
In unionized firms, wages and salaries are
largely determined through collective
bargaining negotiations.
Although bargaining positions are usually
based on prevailing wage rate, the cost of
living and other relevant factors, the salary
rates that are finally agreed upon is often the
result of the skill which the parties are able to
employ in their bargaining strategies to get a
satisfactory settlement.
Introduction to Wage and Salary Administration 33
END