The Factors That Influence the Determination of the Pay - Coursework Example

and Section # of Does the concept of ' a fair day's pay for a fair day's work' exist in practice When companies are hiring employees, they have a certain reward system set for them. And the major incentive for almost every worker in the corporate world is that of getting that one month or that one day's or that one hour's worth of pay that he has invested in the betterment of the organization. If there will be no monetary incentive, then workers will lack that motivation to work. And thus, fairness in receiving his pay is the most important factor that is kept in mind by the employees. Fairness in pay and equity in input versus output is a major contributor to whether there is job satisfaction or not. This paper will discuss the objectives of pay, the factors that influence the determination of the pay and the various forms that pay can take place. OBJECTIVES OF PAY A company has a certain objective when deciding the pay scale on which all the employees have to be paid. First the objective is determined and then the pay scales are formulated accordingly so that the pay is following and fulfilling the objective in mind. Companies can have various objectives. The first and the foremost one is that companies are trying to recruit, retain and then motivate their employees through the pay scale. Recruitment becomes easy if the company is paying more than the industry average. All prospective employees searching for jobs will consider the company as one of the most lucrative places to work if it is paying more than the industry average. Moreover, it also contributes to a very positive and appealing employer branding of the company in the eyes of the prospective employees. Once a person has been hired as an employee, a good pay scale will help in recruiting him for a long period of time, even if he gets offers from other companies to join them. moreover, motivation to perform better and to give increased levels of productivity are also one of the major objectives that can be linked with the pay. (Brown, pg 17, 2003) The second type of objectives that a company can have are that which are part of broader organizational objectives, for instance if the company has decreasing the amount of pay it is giving to its employees, then it is using this action as a contribution to the broader organizational objectives of controlling costs and cutting down on the expenses of the company. if the company wants to be competitive in nature, then its objectives as far as pay is concerned, will be to increase the pay so that it can get that edge over competitors. Other objectives can be that the company keeps a certain purchasing power position for its employees and gives them pays accordingly. (Locke, p234, 1995) It will help the company to see exactly how much purchasing power does its employees have in relation to the present economy. Objectives of fairness and equity can also be achieved through paying well. For instance, the motivation and productivity of the company's employees are also directly linked with how much fair the pay system is. If one person is giving less input than another person, is he getting less output than the other person Is there any sort of inclination towards certain employees when it comes to the pay systems This is linked to the concept of "a fair days pay for a fair days work" since everyone wants to get that share of the pay which they deserve and they do not want to see others getting more pay with less work. Thus, equity has to be maintained and the right balance between work and pay should be tried to achieve by the employers so that pay can be performance related, rather than time related. Time related pay leads to the employee getting too complacent about his work responsibilities and he might not be as productive as he can be in actuality. Lastly, the objectives of pay can also be linked to regularity, security, improvement and development. (Wright, p192, 2004) A company wants to satisfy its employees through the pay scales and only if employees are happy and working up to the standards, then the company flourishes. When we discuss the criterion "a fairs days pay for a fair days work", we emphasize on the fact the input which is put by the employee should be matched by the output in the shape of pay from the employer. Thus, pay should be equitable to the amount of work and the performance that the employee is doing. It should make him feel satisfied with what he was rewarded it. The pay should equate the hard work or the mental and physical stress that the employee has put into the work. MANAGEMENT OF PAY How do companies manage the numerous amounts of employees that they have to make pays to Pay systems have been defined as the rules and norms which companies use to determine pay rates which are linked not just to the formal job description, rather also to the performance, productivity and competence of the individual in the job that he is doing. Payment can be linked to time, that is an employee gets a certain fixed amount of pay after a specific predetermined period of time passes by. And the second way is that payment can be linked to results or performance of the employee. If in a fast moving consumer goods (FMCG) company, the employee gives the performance of selling around 50000 units of a certain good, and then he gets a specified amount of pay, plus sales commission of a certain amount per unit that he sold. (Kessler, p10, 1993) Thus, it is said that pay scales which are linked to performance are more motivating and thus yield into better productivity of the employee and more sales for the company. Companies also manage pay as motivator that is; they give more pay to those who are on the upper area of the organizational chart. (Rubery, p300, 1997) And thus, people want to work harder and get promoted to the upper levels of the hierarchy, so as to get the higher pay that is designated for those positions. Moreover, what a pay might mean to a person differs from individual to individual. For some, the importance of the monetary value that the ay holds might mean everything. For some, it might be the satisfaction to be able to earning and be independent. (Deery, p192, 1999) For some, the intangible benefits might be supreme, which are at times called the psychic income of an individual. They are the intangible value that is derived from the pay after its utilitarian value has been accounted for. If during the management of pay, the managers decide to change the pay scale, whether increase or decrease, then they should have proper rationale for it. They should be able to give justifications as to why they did so. Then at times, it is also not simply in the hands of managers to alter the pay, rather external factors also influence the pay determination, thereby changing all the figures that people used to earn prior to such alterations. Pay, also called remuneration, usually is a total figure which has in it the actual pay, the deferred pay (pay that the company owed to the employee from a previous period), holiday bonuses and non-monetary factors. Thus, the whole pay exchange is done on quite an informal basis, where almost all the needs of the employee are satisfied through the employer's capital power in exchange for all the labor that he is doing. HOW IS PAY DETERMINED Pay is determined keeping in mind the following factors and the various ways of deciding on it. The first is that of market forces determining the pay, in which the company and the top management do not have much part to play. The archaic way of using the market forces is that companies pay the rate at which the current economy is in equilibrium, that is the rate at which market demand and supply is coinciding. Even if some company wants to pay their employees more than industry average, they cant do so for a long time because equilibrium ultimately results. (Storey, p72, 2001) But there are some occupations on which the market forces do not have much pressure on, therefore, they are the ones where differentials in pay persist over a longer period of time. The second way of determining the pay is the usage of collective bargaining, where there are trade unions, representing the whole population of the employees and the TUs bargain with the employers so as to get the best deal, suitable for both the parties. Negotiations between both the parties are done and the terms and conditions are set. It is tried that the mutual interests of both the parties are kept into mind. (Mullins, pg 678, 2007) The trade unions keep in mind the cost of living, the current inflation rate, the economic and financial situation of the company. Private sector does not have that many trade unions and thus their pay determination is different, they have more negotiations on the individual level. And the third factor that highly determines how the whole pay scale is churned out are the government policies. The government is a major body which governs the corporate world and takes care of the interests of both the corporations and the employees. It ensures that employees are justly paid by companies. Governments pass legislations to ensure social security contributions by employers for the benefit of the employees. (Levine, p136, 1977) Moreover, in 1980s to 1990s, the government was encouraging companies to link their pay with performance, so as to get better productivity. The government also took the action of passing the Minimum Wage Laws which would make sure that no employee is paid less than the stipulated minimum wage. THE CURRENT FINANCIAL CRUNCH AND ITS IMPLICATIONS ON PAY Even though the monetary pay as well as the non-monetary aspects of the compensation package are a very important component for employees to stay on the job, the current global scenario has altered this situation. Employees now would want to stay put in the job that they are currently working in, even if wages are low. This is because the global financial crisis has set recession in and as a reciprocal step, the first thing that companies are doing is laying off of workers. Established and renowned companies who have forever taken care of their employees and their lay off rates have always been low; even those companies have given way under the immense pressure of the financial crunch. Companies are striving to survive in these times of crisis and thus they would not want to increase their expenses of paying salaries to many employees. Thus, the first thing they find viable is to cut costs on labor and human resources. This situation, which has affected almost every company, has altered the bargaining power that the employees previously had. They are now at a very weak position and thus cannot negotiate with the employer resulting in favorable terms for themselves. Thus, it is in the benefit of each employee to stay satisfied with the wage that he is getting, since even his job is at stake, thanks to the current financial crunch. CONCLUSION Therefore, in conclusion it can be said that pay is a major driver used by the companies to retain and motivate employees. Companies should be really careful in the way they make use of pay because employees can get really sensitive when it comes to their pay. Other factors like gaining that competitive edge over competitors can also be achieved through paying the employees more than the industry average. At the end of the day, it is not just the job description and its accordance which will get the employee his desired pay; rather it is a combination of other factors like being competent, performing more than expected etc through which employees can also get their expected pay scales. REFERENCE LIST BOOKS Locke, R. (1995) Employment Relations in a changing world economy. The MIT Press. Wright, A. (2004) Reward management in context. CIPD Publishing Kessler, I. (1993) Performance related pay: an old idea in new context. Templeton College Brown, W., Marginson, P. and Walsh, J. (2003): The Management of Pay as the Influence of Collective Bargaining Diminishes. ESRC Centre for Business Research, University of Cambridge Mullins, L. (2007) Management and Organizational Behavior. Prentice Hall. Deery, S. (1999) Employment relations: individualization and union exclusion. Federation Press. Storey, J. (2001) Managing Human Resources. Open University Worldwide. Levine, C. (1977) Managing Human Resources: A Challenge to Urban Governments. Sage Armstrong, M. (2002) Employee Reward. CIPD Publishing WEBSITES (2009) Trade Union Congress. Equal Pay Archive Publications [Internet]. Available from < http://www.tuc.org.uk/publications/srchResults.cfm > [24th March 2009] JOURNALS Rubery, J. (1997): Wages and the Labour Market, British Journal of Industrial Relations, 35 (3), 337-366. Read More