Human Resource Management Unit-2

Human Resource Management : Unit-2

Concept of Wage and Salary:-


Wages represent a form of compensation remunerated to an employee in accordance with the hours worked. It is typically calculated on an hourly basis, and employees receive a specific rate of pay for each hour they work. Wages are common for jobs where the number of hours worked may vary from week to week, and employees are typically eligible for overtime pay if they work more than a certain number of hours within a defined time frame.


A salary is a fixed and regular compensation paid to an employee, typically on a weekly, bi-weekly, or monthly basis. It is not based on the number of hours worked but is instead a predetermined, consistent amount. Salary-based compensation is often associated with exempt employees who are not eligible for overtime pay and is common in positions that require a fixed commitment of time or responsibility, such as salaried managers, professionals, or office workers.

Objectives  of Wage and Salary Administration:-

Wage and salary administration is a crucial aspect of human resource management in an organization. Its primary objectives are to ensure fair and equitable compensation for employees while also aligning with the organization’s overall goals and financial capabilities. Here are the main objectives of wage and salary administration:

1. Attract and Retain Talent:

To attract skilled and qualified employees to the organization, the wage and salary structure must be competitive with the labor market. It should also be designed to retain valuable employees by offering compensation packages that meet or exceed industry standards.

2. Motivation and Morale:

Effective wage and salary administration can boost employee motivation and morale. When employees believe they are fairly compensated for their work, they tend to be more motivated, satisfied, and engaged in their jobs.

3. Equity and Fairness:

One of the central objectives is to establish equity and fairness in compensation. This involves ensuring that employees in similar roles with similar qualifications and performance levels receive comparable pay. Avoiding discrimination in pay based on gender, race, or other factors is also crucial.

4. Cost Control:

Organizations need to manage labor costs effectively. This includes budgeting for wage and salary expenses, controlling labor costs to meet financial objectives, and ensuring that compensation levels are sustainable for the organization.

5. Productivity and Performance:

Proper wage and salary administration can influence employee performance and productivity. By linking compensation to performance through merit-based pay or incentives, organizations can encourage employees to work more efficiently and effectively.

6. Legal Compliance:

Complying with labor laws and regulations is a fundamental objective. Organizations must adhere to minimum wage laws, overtime pay requirements, and other legal provisions to avoid legal issues and penalties.

7. Internal and External Equity:

Internal equity focuses on ensuring that pay rates within the organization are fair and consistent. External equity aims to keep pay competitive with the external labor market, so employees do not feel underpaid compared to similar positions in other organizations.

8. Transparency and Communication:

Effective wage and salary administration should be transparent and well-communicated to employees. Clear communication of the compensation structure and policies helps employees understand how their pay is determined, which can reduce misunderstandings and conflicts.

9. Employee Development:

The system should encourage and reward employee development and growth. This includes providing opportunities for skill development and advancement and linking pay increases to career progression and improved skills.

10. Alignment with Organizational Objectives:

Compensation strategies should be aligned with the organization’s overall goals, strategies, and financial capabilities. The compensation structure should support the company’s mission and help achieve its strategic objectives.

11. Performance Differentiation:

Differentiating pay based on individual or team performance is often a key objective. This can include the use of performance appraisals, merit-based pay raises, and incentive programs to reward high-performing employees.

Effective wage and salary administration is a critical part of overall human resource management. When implemented successfully, it can help organizations attract, retain, and motivate a talented workforce while ensuring fairness, compliance, and cost control.

Factors Affecting Wage/Salary Levels:-

Wage and salary levels in an organization are influenced by various factors, both internal and external. These factors can vary depending on the industry, location, and the specific organization’s policies. Here are some of the  factors that affect wage and salary levels:

1. Labor Market Conditions:

Supply and Demand: The availability of skilled labor in the job market and the demand for specific skills can significantly impact wage levels. In industries with a high demand for specialized talent, wages tend to be higher.

2. Organizational Factors

Industry and Sector: Different industries and sectors have varying compensation norms. For example, wages in the tech sector are often higher than those in retail.

  • Larger organizations may offer higher salaries than smaller ones due to their financial capacity and the complexity of their operations.
  • The financial stability and profitability of the organization play a role in determining wage levels. Companies in better financial shape can afford to pay higher wages.

3. Geographic Location:

Cost of Living: Wages often vary by region due to differences in the cost of living. Employees in high-cost-of-living areas like major cities may receive higher salaries to compensate for the increased expenses.

4. Economic Conditions:

  • Elevated inflation rates have the potential to diminish the real purchasing power of wages.Employers may need to adjust wages to keep pace with rising living costs.
  • A strong economy with low unemployment tends to push wages upward as the demand for labor increases.
  • Minimum Wage Laws: Government-mandated minimum wage laws set the lowest hourly wage rate that employers can legally pay to employees. This influences wage levels at the lower end of the pay scale.

5. Employee Skills and Experience:

Employees with specialized skills, advanced degrees, or extensive experience in their field typically command higher wages due to their higher market value.

6. Performance and Merit:

Many organizations link pay increases to employee performance. High-performing individuals often receive merit-based salary raises or bonuses.

7. Compensation Philosophy:

Each organization may have its own compensation philosophy, which can affect wage levels. Some companies may prioritize competitive pay to attract top talent, while others may emphasize internal equity and fairness.

  1. The value of benefits such as health insurance, retirement plans, and other perks can also affect an employee’s total compensation package. A more generous benefits package may compensate for lower base salaries.
  2. Organizations often conduct salary surveys and benchmark their wages against industry standards and competitors to ensure their pay scales remain competitive.
  3. In cases of individual salary negotiations, an employee’s ability to negotiate effectively can impact the final salary offer.

Wage Incentive Schemes:-

Wage incentive schemes, also known as performance-based pay or incentive pay programs, are compensation systems designed to motivate employees by rewarding them for achieving specific performance or productivity targets. These schemes go beyond the standard base wage or salary and offer additional financial incentives to encourage employees to meet or exceed certain goals. Various wage incentive schemes can be implemented depending on the nature of the work, the industry, and organizational goals.


The objectives of implementing wage incentive schemes in an organization are as follows:

  • The primary objective of wage incentive schemes is to improve employee performance and productivity. By offering additional financial rewards for meeting or exceeding performance targets, organizations encourage employees to work more efficiently and effectively.
  • Incentive schemes aim to motivate employees by linking their efforts directly to financial rewards. When employees see a clear connection between their performance and increased earnings, they are more likely to be motivated to excel in their work.
  • These schemes help align employees’ efforts with the organization’s goals and objectives. By setting performance targets that are in line with the company’s strategic goals, incentive schemes ensure that employees are working toward common objectives.
  • Some incentive schemes, like gainsharing, can help control costs by rewarding employees for cost-saving initiatives. This can lead to improved cost management and a more efficient use of resources.
  • Attracting and retaining talent is another objective. By offering competitive incentive packages, organizations can retain high-performing employees and reduce turnover, as employees are less likely to leave for better-paying opportunities elsewhere.
  • Incentive schemes aim to provide fair and equitable compensation. Employees who contribute more to the organization by exceeding their performance targets are rewarded accordingly, ensuring that compensation is based on merit.
  • Team-based incentive schemes promote collaboration and teamwork. Employees work together to achieve collective goals, which can foster a more cooperative and supportive work environment.


Wage incentive schemes offer several merits and advantages for both organizations and employees when implemented effectively. Here are some of the  benefits of using wage incentive schemes:

  • Incentive schemes motivate employees to work more efficiently and productively. When employees see a direct connection between their efforts and financial rewards, they are encouraged to perform at their best.
  • Employees strive to meet or exceed performance targets, which can lead to improved individual and team performance. This, in turn, can benefit the organization by achieving its goals more effectively.
  • Some incentive schemes, such as gainsharing and cost-saving bonuses, can help organizations control costs and improve cost management. Employees become more cost-conscious and seek ways to reduce expenses.
  • Incentive schemes ensure that employees’ efforts are aligned with the organization’s goals and objectives. Employees work toward common targets, fostering a shared sense of purpose.
  • Employees are more motivated and satisfied when they are rewarded for their hard work. This can lead to higher morale, increased job satisfaction, and reduced turnover rates.


While wage incentive schemes offer several benefits, they also have potential drawbacks and demerits that organizations need to consider when implementing such programs. Here are some of the common disadvantages associated with wage incentive schemes:

  • Creating and managing incentive schemes can be complex and time-consuming. It requires careful design, documentation, and ongoing monitoring to ensure fairness and effectiveness.
  • Excessive focus on monetary incentives may lead to employees prioritizing financial gain over other important factors, such as job satisfaction, work-life balance, and personal development.
  • Incentive schemes may encourage employees to meet performance targets at the expense of other critical aspects of their work, such as quality, safety, or customer service. This can lead to short-term gains at the cost of long-term problems.
  • In competitive work environments, employees may engage in unhealthy competition to outperform their peers, leading to conflicts and reduced teamwork.
  • Poorly designed or executed incentive schemes can result in inequity and perceived unfairness among employees, which can lead to demotivation, resentment, and decreased morale.

Difference btw Financial and Non-Financial Incentives:-

Financial IncentivesNon-Financial Incentives
Monetary rewards or bonusesNon-monetary rewards or recognition
Tangible and measurableIntangible and difficult to quantify
Bonuses, salary increases, profit-sharing, stock optionsRecognition, praise, promotions, flexible work hours, training opportunities
Direct financial costIndirect cost in terms of time, effort, or resources
Often tied to extrinsic motivation, focused on financial gainTied to intrinsic motivation, emotional well-being, and job satisfaction
Often associated with short-term performance improvementsCan have lasting effects on employee engagement, loyalty, and well-being
Relatively straightforward, as they involve financial transactionsMore complex to implement as they require a culture of appreciation and support
#Difference btw Financial and Non-Financial Incentives

Fringe Benefits:-

Fringe benefits, often referred to as “perks” or “employee benefits,” are non-wage compensations provided by employers to employees as part of their overall compensation package. These benefits are in addition to an employee’s regular salary or wages and are designed to enhance the overall well-being and job satisfaction of employees. Fringe benefits can vary widely from one employer to another, but they commonly include the following:

  • Health Insurance
  • Retirement Benefits
  • Life Insurance
  • Employee Assistance Programs (EAPs)
  • Childcare Assistance and so on

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