Factors Influencing Compensation Levels
The package of compensation received by a worker
should reflect the effort put in by the worker, the degree of difficulty
experienced while expending his energies, the competitive rates offered by
others in the industry and also the demand-supply position within the country,
etc. These are discussed below:
A)
Job Needs: Jobs differ greatly in their difficulty,
complexity and challenge. Some need higher skills and knowledge while others
can be handled by almost anyone. Simple, routine tasks that can be done by many
people with minimal skills receive relatively low pay. On the other hand,
complex, challenging tasks that can be done by few people with high skill
levels generally receive high pay.
B)
Ability to Pay: Projects deciding the paying capacity of
a firm. High profit levels enable organisations to pay higher wages.
C)
Cost of Living: Inflation reduces the purchasing power
of employees. To defeat this, unions and workers prefer to link wages to the
cost of living index. At the time,when the index rises due to rising prices,
wages follow suit.
D)
Prevailing Wage Rates: Prevailing compensation rates in
competing firms within an industry are considered while fixing wages. An
organisation that does not pay comparable wages may find it difficult to
attract and retain talent.
E)
Unions: Highly unionised sectors generally have higher
wages because well organised unions can exert presence on management and obtain
wide range of benefits and concessions to employees.
F)
Productivity: This is the latest trend in most
private sector companies when workers’ wages are connected to their
productivity levels. If your job performance is good, you get good wages.
G)
State Regulation: The legal stipulations in regard of
minimum wages, bonus, dearness allowance, allowances, and so forth, determine
the wage structure in an industry. Taxation policies of government, for example,
influence the manner organisations structure their compensation payables to
executives in the forms of reimbursements, concessions, allowances and various
other benefits.
H)
Demand and Supply of Labour: The demand for and the
supply of specefic skills determine prevailing wage rates. Oversupply kills
demand for a certain category of employees leading to a steep fall in their
wages as well.
Most employers, nowadays, are interested in paying a
fair wage to all workers which is neither very high nor very low.
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