FACTORS INFLUENCING EMPLOYEE REMUNERATION
A number of factors influence the remuneration payable to employees. They can be categorized into:
1) External and
2) Internal factors.
EXTERNAL FACTORS - Factors external to an organisation are labour market, cost of living, labor unions, government legislations, the society, and the economy'.
Labour Market: Demand for and supply of labor influence wage and salary fixation. A low wage may he fixed when the supply of labour exceeds the demand for it.
A higher wage will have to he paid when he demand exceeds supply, as in the case of skilled labour. A paradoxical situation is prevailing in our country—excessive unemployment is being juxtaposed with shortage of labour. While unskilled labour is available in plenty, there is a shortage of technicians, computer specialists and professional managers. High remuneration to skilled labour is necessary to attract and retain it. But exploitation of unskilled labour, like, for instance, paying niggardly wages because it is available in plenty, is unjustifiable.
Going rate of pay is another labour-related factor influencing employee remuneration. Going rates are those that are paid by different units of an industry in a locality and by comparable units of the same industry located elsewhere. This is the only way of fixing salary and wage in the initial stages of plant operations. Subsequently, a comparison of going rates would be highly useful in resolving wage-related disputes.
However, the argument that productively would increase if it is linked to remuneration is hardly acceptable to labour and labour organisations.
Cost of Living: Next in importance to labour market is the cost of living.
This criterion matters during periods of rising prices, and is forgotten when prices are stable or falling. The justification for cost of living as a criterion for wage fixation is that the real wages of workers should not be allowed to be whittled down by price increases- A rise in the cost of living is sought to be compensated by payment of dearness allowance, basic pay to remain undisturbed. Many companies include an escalatory clause in their wage agreements in terms of which dearness allowance increases or decreases depending upon the movement of consumer price index (CPI).
Labour Unions: The presence or absence of labor organizations often determine the quantum of wages paid ID employees. Employers in non-unionized factories enjoy the freedom to fix wages and salaries as they please.
Because of large-scale unemployment, these employers hire workers at little or even less than legal minimum wages. An individual non-unionized company may be willing to pay more to its employees if only to discourage them from forming one, but will buckle under the combined pressure from the other non-unionized organizations. The employees of strongly unionized companies to have no freedom in wage and salary fixation. They are forced to yield to the pressure of labour representatives in determining and revising pay scales.
Society: Remuneration paid to employees is reflected in the prices fixed by an organisation for its goods and services. For this reason, the consuming public is interested in remuneration decisions.
Though the financial position of the employer and the state of the national economies have their say in the matter of wage fixation, "the requirements of a workman living in a civilized and progressive society also came to be recognized." According to the Supreme Court, the social philosophy of the
period provides the background for decisions on industrial disputes relating to the wage –structure.
The Economy: The last external factor that has its impact on wage and salary fixation is the state of the economy. While it is possible for some
organisations to thrive in a recession, there is no question that the economy affects remuneration decisions. For example, a depressed economy will probably increase the labour supply. This, in turn, should serve to lower the going wage rate.
In most cases, the cost of living will rise in an expanding economy. Since the cost of living is commonly used as a pay standard, the economy's health exerts a major impact upon pay decisions. Labour unions, the government, and the society are all less likely to press for pay increases in a depressed economy.