Wage and Salary

Administration
Personnel Management

Importance of Pay, Basic Determinants of Pay,

Difficulties of Wage Administration
Alvin B. De Leon

DON HONORIO VENTURA TECHNOLOGICAL STATE UNIVERSITY

GRADUATE SCHOOL OF EDUCATION

Wage and Salary Administration

Salary refers to the compensation covering weekly, monthly, or yearly period for
services rendered. A salary is based on a stated minimum number of days per week or
hours per day or week. The term salary applies to the pay of higher levels of personnel
such as whitecollar employees or persons in positions of responsibility and authority in
the firm.
Wage refers to compensation for manual laborskilled or unskilled for work done by
socalled bluecollar 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 or production
Four kinds of employee compensation:
1. Salary or wage is the basic compensation.
2. Incentive pay is 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.
IMPORTANCE OF PAY
1. He works to earn a living. His pay provides him with a strong incentive to do his
job well.
2. The employees p y rate of pay often indicates his status in the company.
3. His wages determine his standard of living and the comforts that he and his
family can have.
4. The wage determines his standing in the community. It also determines what he
can contribute to community development and social welfare.
5. His pay determines his purchasing power. With higher wages he can acquire
more goods and services for his family.
6. High purchasing power for the workers stimulates the production of more goods
and increases the need for more services.
7. Hence, higher pay may lead to greater production.
BASIC DETERMINANTS OF SALARY
1. The relationship between jobs and wage rates
Salaries paid for jobs vary because of differences among jobs and in the
way people do their work. The relationship between jobs and wages rates
involves three considerations:
a. The qualifications required for the job.
b. Worker supply and demand.
c. The duties and responsibilities of the job.
2. The recognition of individual differences.
a.Individuals doing the same job differ in ability, experience, skill, and
efficiency. Some individuals are more capable of handling mental tasks
than others. Some are more efficient in general than their coworkers.

b. These differences should be recognized through a merit rating systems

and provided for in a salary structure embodying a pay scale for each job.
c. In this way an employee who starts at the base rate for the job can aspire
for pay increases as he gains greater proficiency and experience.
3. The level of pay existing in the community.
a. Workers with high qualifications are relatively few. Efficient workers are in
demand. 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.
4. The companys ability to pay
a. Employers 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.
5. Labor cost
a. Certain types of industry or business have 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.
6. Cost of living
a. The purchasing power of the money that the employee receives from his
employer determines the amount of essential needs for decent living that
the employee could provide himself and his family.
7. Collective bargaining
a. In unionized firms, wages and salaries are largely determined through
collective bargaining negotiations. The bargaining positions are based on
prevailing wage rate, the cost of living and other relevant factors.
b. The salary rates that are finally agreed upon is often the result of the skill
which the parties are able to effectively employ in their bargaining
strategies.
8. Minimum Wage Fixing
a. The Labor Code in prescribing the criteria for establishing the minimum
wage, state that said wage must be as nearly adequate as is economically
feasible to maintain the minimum standards of living necessary for the
health, efficiency and generally wellbeing of the employees within the
framework of the national economic and social development program.

DIFFICULTIES IN WAGE ADMINISTRATION

1. Difficulty in determining what is an adequate and fair pay for a particular
job.
a. A salary can be said to be fair when it is well to the salaries paid for other
jobs in the company and to rates paid for similar work in the community.
While job evaluation has satisfactorily met many ticklish problems
involving wages for some firms, it has not yet gained wide acceptance by
both management and labor.

2. Desire of workers to earn more money and of management to operate at

greater profit.
a. Employers want to pay as low a wage as possible, in order to lower the
cost of production and earn more profit while workers continuously agitate
for higher wages and shorter hours of work. On one hand, there is
individual and group pressure for higher wages to improve the workers
living standard. On the other, there is managements concern to keep its
costs as low as possible so that its good and services can be offered at
prices within and reach of consumers and still allow
3. Dissatisfaction of employees owing to inequality in pay.
a. One of the main roots of dissatisfaction among employees is the payment
of salaries not commensurate with the responsibilities of their job. Workers
and management may agree on the principle of equal pay for equal
work, but there is bound to be disagreement in its implementation. The
most common problem is how to determine what jobs are equal and how
the various factors in evaluating jobs should be rated to arrive at an
equitable scale.
4. Lack of measuring device which can establish to the satisfaction of all
concerned what a mans services are worth (Pesos/Vietnam Dong).
a. The worth of a mans services in terms of pesos and centavos is hard to
determine. Individuals differ in the way they evaluate the worth of their
services. Some consider such factors as their social standing in the
community, family background, personality, and educational attainment.
Job evaluation and merit rating have been found so far to be the best
methods of meeting this problem but they still need a great deal of selling
before they are fully accepted by both management and the workers.
5. . Lack of sound pay policy.
a. When a firm has no written policy on wages, and salaries, inequalities in
pay occur, resulting in employees grievances, frequent turnover and low
employee morale. Without a sound pay policy, the supervisors meet
difficulties in wage and salary administration, since they have no clear
guide in determining the wage levels for each job, the pay raises, and the
promotions.
6. Lack of communication on the salary program.
a. If each employee fully understands the policies and procedures in
determining his salary, he will better appreciate the salary program of the
company. Communicating the companys salary program to the employee
will minimize complaints concerning salaries. Such understanding is
important for his morale.