The Concept of Pay and Pay Determination - Literature review Example

PAY DETERMINATION Introduction Brown (1990) has defined the term “Pay” as a loose term that covers the equally d wages and remuneration of manual workers and the salaries of white-collar employees. At each workplace and in general in each region of the world the pay are determined on the basis different scales. According to Bratton, & Gold, (2009) the methods and procedures of determining the pay are fundamental to understanding the industrial relationship in United Kingdom. This is because of the reason that these procedures are very much linked with the pay levels of the employees, the wage distribution across and between workplaces. On these factors, employers look for employees, and the way they recruit, retain and motivate them. The concept of pay and pay determination is directly related to the labor market. Perkin and White (2011) have presented a Human Capital Theory. They said that the individuals accrue human capital by investing money and time in training, development, education, experiences and other qualities to augment the productivity and capacity. In short, the employer invest to increase their worth. Role of the state: The role of the state in the determining the pay and the capacity of labor market in determining the pay is very important, and it has a huge influence on the pay levels. This is because the state plays a role of regulator and legislator. It imposes the wage regulations and makes them obligatory to regulate the control of the entire labor market and set income policies that are applicable in the country (Bratton et al., 2010). In addition to that role of the state is seen as an employer especially in the public sector and determining the public sector income policies. The state also negotiates with the trade unions of public sector and assists the system of collective bargaining (Maybey, Salaman, and Storey, 1999). Such initiatives by the state along with the implementation have great influence on the private sector of the country. Further, it has been also observed that the income policies are linked with the ideology of the governments. Moreover, this reflects on managing and running the economy, as well as the employment relationship. In any country, the government possess the authority to determining and alter any increase or decrease in wages or any wage constraints. The rationale behind these strategies lies in sustaining the public services in a good manner versus making and implementing the strategies that are cost saving (Henry, 1995). With the passage of time, some changes have been observed in the role of the state of pay determination. Bach (2010) stated that the state is an entity that sets example and role model for the private sector by support the principles and standards of fairness, equity and involvement in the treatment of its workforce. This is directly in relation with the encouragement of the membership of trade unions and endorses the centralized system and order of collective bargaining. On the other hand, Coffey and Thornley (2009) argued over the concept of “model employer”. According to them, a model employer needs to assess historically in contrast with all sectors as well as at the international level. It needs to look at the processes, as well as the outcomes. The model employer should need to distinguish legitimating and rhetoric from the reality. Role of trade unions Trade unions play an integral role in the labor market and all the related aspect of it. Trade union is defined as a continuous and consistent association for improving and maintaining the conditions of the individuals working lives (Webb and Webb, 1920). According to Webb and Webb (1920), the trade unions at the early British times has adopted and executed several different strategies that were dependent on the classification of membership they used to organize. These have changed with the changes in the labor market. The role of trade unions has seen in the controlling the supply of labor. They have got great influence on the training requirements for allowing a certain entry in a job. For example, the professions related to medical studies look for influencing the state and the employers for fulfilling their training and development requirements. Trade unions are found regulating the content of the job; they have an influence over the job content to distinguish and differentiate that particular job other ones (Jackson, Schuler, & Werner, 2009). This influence was very much practiced previously but with the passage of time this control of trade unions on job content was overhauled by the improved control of employers as well as technology. Another influence that trade unions put on employers is through collective bargain. They search for negotiating the employers on the terms and conditions of trade union members. In the labor market, these negotiations often strengthen by some threats and/or some industrial actions. The collective arguments of trade unions with the employers often vary over several issues. Trade union discusses and bargains over rates of basic pay to the comprehensive agreements on employees’ productivity and other several issues (Balkin, & Gomez‐Mejia, 1990). In the labor market, trade unions are the front line representatives of their members. This representation is seen both individually as well as collectively at workplaces in the form of grievances case and disciplinary issues. Not just that the trade unions are often in a position to influence the state. This has been seen in the form of Trade Union Congress (TUC) which is founded in the year 1868 and has 54 affiliated unions at presently comprising of 6.2 million members. With that influence of trade unions on state, they are in a position introduce, repeal and amend laws related to the labor market in the country (Balkin, & Gomez‐Mejia, 1990). Role of pay strategies within organizations: The role of pay strategies in any organization is very important. The strategies related to pay, and compensation were operationalized in the form of pay policy choices of the company, it is positioning in the market and the pay package design. This is comprehended by the research of Milkovich, 1988; Balkin and Gomez-Mejia, 1987; Lawler, 1981; Gomez - Mejia and Welbourne, 1988). The pay or compensation strategies are directly related to the human resource strategies of the organization and help the companies to manage their human capital and keep them motivated by compensating them well. The right pay strategy help the company to build an effective and competitive organization this is because the human resource strategies are directly linked to the business strategies of the organization (Newell, & Scarbrough, 2002). The strategy has a potential to influence the cost of the company, and it is often held by organizational top and executive management. The strategy is based on the working condition, working requirements and expectations of the organization (Miner, & Crane, 1995). The compensation and pay strategies are also linked with the culture and values of the organization. It determine the standing of the organization in the market and create its image in the especially in the job market. Hence from a strategic point of view, the pay strategies adopted by the organization help them to create and strengthen a culture that attract the individuals with high value, skills, attributes, and knowledge. They attract individuals that would be able to support the strategic goals and objectives of the organization. According to Cho (n.d.), the effective and efficient pay strategies provides surety in the organization that the employees working on similar job task are getting comparable wages. It ensures that any form of variation in pay and compensation of the workforce should be based on significant and major differences in the job role and responsibilities along with the knowledge, skills and abilities that are required for a certain rate of salaries given by the employers in the current marketplace. In addition to that, the role of pay strategies in the organization is seen in categorizing, assessing and evaluating the fair worth of the positions that the company offer. A key role of the strategy is seen in building and providing a basis for evaluating the performance of the employees at the workplace and eliminating the morale problems and pay equities at organization. In addition to that, Cho (n.d.) stated that the organizations must set their reward policies that are in line with their goals, objectives, values, and cultures. Moreover, the organization must have a potential to deal with the increasing challenges of the prevailing global competitive economy. Labor and Major cost: At present, it can easily observe that the competition in the domestic, as well as domestic market, is increasing, and the business situations are getting tougher. Each company wants to attain a substantial and sustainable success with a good number of profits. In such circumstances, reaching these goals and objectives is becoming challenging (Newman, & Hodgetts, 1998). One way that the majority of the organizations are adopting and practicing is that they have set certain strict measures that control the expenses incurred by the company in running its operations and processes. These expenses include several costs and among them one is the labor cost to the organization. According to Armstrong, & Murlis, (2007), labor cost is defined as the cost incurred by the employer relating to its works. This cost is the total of all the wages paid to the workforce, along with the cost of payroll taxes and benefits paid to the employees by the employer. The labor cost is divided into two main categories, and these are a direct cost and the indirect costs. The direct labor costs include the wages and pays of employees that are physically involved in making of a product for instance employees working on an assembly line. The indirect labor cost is related with labors that are there in the organization for any support as the employees working for the maintenance of the machinery involved in the different operations and process of its function but they are not directly involved in operating the machinery themselves. Successful organizations, especially the ones who want to grow for a long period always eagerly willing to reduce their cost. With that they are equally inclined towards their talent management and by focusing entirely on the development and growth of their talent they save the cost of hiring new employees and training them again and again as well as they also save the cost of operations because of high-performance human capital (Lawler, 2009). Build a relation between the wages and the productivity to get the critical point of the profit target from the organization: There is a very strong connection with wage and the productivity of employees and hence with the overall profit target of the organization. An economic theory state that the wage earns by a worker, which is measures in some output units, is equal to the amount of output produced by the worker. If the wages are above the productivity levels of the employees, the companies will seek to get some profit by downsizing the labor force. This way, the organization will be putting increasing pressure on the productivity and a downwards pressure on the workers’ wages (Mankiw, 2006). According to Cashell (2004), a rise in the demand for labor for a company stimulates the wage rate to go up. Hence, it can be said that the productivity of labor increases the labor income. However, once the company reaches a point that shows some variation and at which the value of incremental goods produced is less that the additional cost of labor, it seize the hiring of its workforce. It is very important to ponder upon a fact that there are few circumstances that do possess an increase in the productivity. However, this increase does not reflect the increase in the employment of the organization (Sachdev, 2007). Explain about the employee income (legal and illegal): Legal income is defined as the return an individual obtain from his or her labor, work, and business or any capital investment in the form of money. The income also comprises the profits, gains or a monetary form of private revenues of an individual. The legal income of an individual means the monetary value or return he or she receives from any business that involve in legal operations and activities, the investment of capital that is conducted by fulfilling all the legal requirements of the business. Usually, the income does not refer to the outgoing expenditures in the capital investments. However, when it comes to profits, it means again that is obtained from any investment or any business after the payments, as well as the receipts, are taken into consideration. The most important thing is that the income must be generated from all the means that fall into the legal category of work (Pynes, 2008). On the other hand illegal income include those returns or gains of an individual that are obtained from the illegal acts that is the nature of the of the work or job that is the source of generating that income is considered as unlawful and illegal. The activities that come into the category of unlawful, illegal or forge ones include income generated from theft, smuggling, and dealing in drugs, betting, bookie operations, and embezzlements and from other means of illegal resources. In the United States of America, irrespective of the nature of the income whether it is legal or illegal, it is taxed and all the records are reported to the IRS (Internal Revenue Service) in accordance with the earning of that income. Explanations about the trade union and labor power effect: According to the Webb and Webb (1920), the trade union is defined as a consistent association and union of wage earners for improving and maintaining the condition and state of their working lives. Hinton, & Hyman (1975) explains trade unions as the first and foremost medium and energy of power. Its main purpose is to allow the workers to put collectively forth the control and command over their current employment conditions from which they are unable and hopeless to hold as sole individuals. Trade unions are voluntary organizations, their strength and power lie in the workplace of the organization. The workplace representatives of trade unions are often voluntarily officials and them most of the time elected by the voting of their colleagues. The trade unions members give up their time, energy and efforts in order to represent their fellow members without any pay or reward in return. Trade unions possess a full-time proper union structure that is comprised of a head office, officials that are paid along with a regional structure that are often hired by the paid staff of the company. The paid officials of trade unions may or may not be elected or appointed, and they run the trade unions on democratic principles. The term labor power is defined as the capacity and capability for labor. That reflects the entirety of intellectual and physical capacities that are part of a person and utilized to develop the means of survival, continuation and subsistence. Labor power is an integral productive force of the society, and an essential element of the productive forces that works only in a definite and well defines structure system of production relations. Proposed table is based on the annual gross pay of United Kingdom in the year 2012. The figures in the table are given in pound sterling. The entire table is divided into three sub-sections. The initial one comprise the data for all employees jobs in the specifies region that is United Kingdom, the second section is based on the data gathered on full-time job of the employees that are male and the third section have the data based on the figures of annual gross pay for the full time job as an employee. The table is based on the data gathered from various industries and sectors. Some of these sectors including Agriculture Fishing and forest Mining and quarrying Manufacturing Accommodation and food services Information, technology and communication Financial and insurance activities Real estate measures Professional, technical and scientific services Administrative and support service activities The activities related to extra-territorial bodies and organizations Defense and public administration Education Human, health and social activities Arts, entertainment, and recreation Electricity Air conditioning Gas and steam supply activities Construction Wholesale and retail sale of motor vehicles, transport and storage and other services. The table has presented the number of jobs along with the annual percentage change in the median of pay and annual percentage change in the mean of pay. The table present that all industries and services have highest number of jobs and that is around 20,869 thousand, the services industries have 17,548 thousand jobs then comes the complete index of the production industries as well as the all manufacturing sector having 2,466 and 2,161 thousand jobs respectively. This is for the section of all employee jobs and the median pay for this group is highest for all indexes of production industries having 26,400 pounds on annual basis as compared to the figures of 25,732 pounds for the manufacturing industries and 21,500 thousand for all industries and services. For the category of females it has been seen that the total number of job is mostly in the industries and services and that are around 5832 thousand with the median salary of 23,090 pounds, the second highest number of jobs for females is in the service industries that is 5,342 with the highest median salary of 23,355 pounds. In the analysis of males, it has been figured out that male dominates a big portion of labor market as compared to the women. According to the table, male employees have got 9,208 thousand jobs at all industries sand services with the median pay of 28,717 pounds. The index of production industries has a median pay of around 29,021 pounds. The results reflect that in United Kingdom, males are at better off in terms of pay and compensation as well in the number of jobs for them, as compared to females. References Armstrong, M., & Murlis, H. (2007). Reward management: a handbook of remuneration strategy and practice. Kogan Page Publishers. Bach, S. (2010). Public sector industrial relations: the challenge of modernisation. Colling, T. and Terry, M. Industrial Relations, Theory and Practice, Chichester: Wiley, pp. 151-177. Balkin, D. B., & Gomez‐Mejia, L. R. (1987). Toward a contingency theory of compensation strategy. Strategic management journal, vol. 8, no. 2, pp. 169-182. Balkin, D. B., & Gomez‐Mejia, L. R. (1990). Matching compensation and organizational strategies. Strategic management journal, vol. 11, no. 2, pp. 153-169. Bratton, J. & Gold, J. (2009). Human Resource Management: Theory and Practice, 4th edition. Basingstoke: Palgrave Macmillan. Bratton, J., Sawchuk, P., Forshaw, C., Callinan, M. & Corbett, M. (2010). Work and Organizational Behaviour, 2nd edition. Basingstoke: Palgrave Macmillan. Brown, C. (1990). Wage levels and method of pay. National Bureau of Economic Research. Cashell, B. W. (2004). Productivity and wages. Cho, C. (n.d.). Classification and Compensation Strategies. Available from http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN014203.pdf [Accessed 7th March, 2015] Coffey, D., & Thornley, C. (2009). Globalization and varieties of capitalism: New labour, economic policy and the abject state. Houndmills, Basingstoke: Palgrave Macmillan. Gomez-Mejia, L. R., & Welbourne, T. M. (1988). Compensation strategy: An overview and future steps. Human resource planning, vol. 11, no. 3, pp. 173-189. Henry, C. (1995). Human Resource Management: A Strategic Approach to Management. Oxford: Butterworth-Heinemann. Hinton, J., & Hyman, R. (1975). Trade Unions and Revolution: The Industrial Politics of the Early British Communist Party. Pluto Press. Jackson, S., Schuler, R., & Werner, S. (2009). Managing Human Resources. Mason, OH: South-Western Cengage Learning. Lawler, E. E. (1981). Pay and organization development. Prentice Hall. Lawler, L. (2009). Reducing Labor Costs: Choosing The Right Approach. Center for Effective Organizations, Available from http://ceo.usc.edu/pdf/G09-07.pdf [Accessed 7th March, 2015] Mankiw, G. (2006). How are wages and productivity related?. Available from http://gregmankiw.blogspot.ae/2006/08/how-are-wages-and-productivity-related.html [Accessed 7th March, 2015] Maybey, C., Salaman, G., and Storey, J. (1999). Human Resource Management: a strategic introduction. Oxford: Blackwell Publishers Ltd. Milkovich, G. T. (1988). Canadian personnel/human resource management: a diagnostic approach. Irwin Professional Publishing. Miner, J., & Crane, D. (1995). Human Resource Management : The Strategic Perspective. HarperCollins College Publishers. Newell, H., & Scarbrough, H. (2002). HRM in Context: A case study approach. Palgrave. Newman, N., & Hodgetts, R. (1998). Human Resource Management. USA: R.R Donnelley & Sons Co. Perkins, S. J., & White, G. (2011). Reward management: alternatives, consequences and contexts. Chartered Institute of Personnel and Development. Pynes, J. E. (2008). Human resources management for public and nonprofit organizations: A strategic approach (Vol. 30). John Wiley & Sons. Sachdev, N. (2007). An Examination of the Wage Productivity Gap.Department of Economics, Stanford University. Webb, S., & Webb, B. (1920). The history of trade unionism. Longmans: Green. Read More