Factors that influence the wage structure of an organisation are discussed below:
Factors
1. The Organisations Ability to Pay:
Organisations that have high profits tend to pay higher wages. During the time of prosperity, employers pay high wages to carry on profitable operations because of their increased ability to pay.
But during a period of depression, wages are cut because funds are not available. Small and marginal firms pay relatively low wages because of low profits.
Image Source: tmanagement.fr
2. Supply and Demand for Labour:
When the demand for workers is high and the supply is low, the result is a rise in the wages to be paid to these workers. Lower wages are paid if there is excessive supply of workers.
According to Mescon – “the supply and demand compensation criterion is very closely related to the prevailing pay, comparable wage and on-going wage concepts since, in essence, all of these remuneration standards are determined by immediate market forces and factors”
3. Prevailing Market Rate:
An organisation’s compensation policies generally tend to conform to the wage-rates payable by the industry and the community. This method of fixing the wages is known as “going wage rate” and is used by most organisations for fixing the wages. This method is used for several reasons:
(a) If we do not pay the wages our competitor pays, we will not attract efficient workers.
ADVERTISEMENTS:
(b) Trade unions encourage this practice so that their members will have equal pay for equal work.
(c) Government laws make it obligatory for organisations to pay uniform wages.
(d) As the firms in the same industry require the same quality of employees, they have to pay the same wages.
4. Cost of Living:
This criterion calls for pay adjustment based on increase in the cost of living index. When the cost of living increases, workers and trade unions demand higher wages to offset the increase.
5. Productivity:
Productivity is measured in terms of output per man hour. Although, theoretically it is a sound compensation criterion, operationally many complications arise.
ADVERTISEMENTS:
This is so because productivity measures the contribution of all the resource factors – men, machines, methods etc. No productivity index can be devised which will measure only the productivity of labour.
6. Job Requirements:
Jobs are graded according to the relative skill, effort, responsibility and job conditions required for the purpose of fixing the wages. Generally, the more difficult a job, the higher are the wages.
7. Managerial Attitudes:
Top management’s desire to attract high-caliber employees, to reduce labour turnover, to maintain high morale and to provide a high standard of living for employees have a decisive influence on the wage structure.
8. Trade Union’s Bargaining Power:
The stronger and more powerful the trade union is, the higher will be the wages. Strike or threat of strike is the most powerful weapon used by trade unions to increase wages.
Trade unions force wages up faster than the increase in productivity. Thus, a trade union with a strong bargaining power influences the amount of wages.