MBA Sem - 3 RCET, Bhilai

DR
Unit - I
[2014]
Dr. Saket Jeswani, Associate Professor, MBA, RCET, Bhilai

Dr. Saket Jeswani
Associate Professor,
MBA, RCET, Bhilai
• Introduction
• Definitions
• Objectives of CM
• Advantages of CM
• Course Objective
• Syllabus
• Course Outline
• Course Outcomes
• Books
Dr. Saket Jeswani, Associate Professor, MBA, RCET
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• Companies want to attract, retain and motivate brains to meet objectives.
• Today Humans are regarded as one of the most important asset, so they need to be efficiently and effectively managed.
• One of the tools companies use to attract, retain and motivate its people is “Compensation Management” .
• Compensation is one of many human resource (HR) tools that organizations use to manage their employees.
• Therefore, not only is it important for an organization to link compensation to its overall goals and strategies, it is important that its compensation system aligns with its HR strategy.
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• Smart, successful organizations do regular planning and evaluating of their compensation and performance appraisal systems.
• Because compensation is visible and important to employees, it is critical to consistently communicate a clear message regarding how pay decisions are made.
• In short, a solid pay-for-performance strategy requires that employee pay matches the organizations’ message.
• The term compensation is a substitute word for wages and salaries, is of recent origin. Wages is now considered as a cost factor.
Therefore, strategic management of wages and salaries is very important for organizations.
It is done by Compensation
Management.
• It has become imperative for organizations to balance the cost of compensation and employee motivation (for retention) to survive in a competitive world.
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• Compensation
– It is the remuneration received by an employee in return for his/her contribution to the organization.
– It is an organized practice that involves balancing the workemployee relation by providing monetary and non-monetary benefits to the employees.
– Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness.
• Compensation Management
– It is a general policy, implemented in conjunction with specialized software, designed to help an organization maximize the returns on available talent.
– The ultimate goal is to reward the right people to the greatest extent for the most relevant reasons.
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Dr. Saket Jeswani, Associate Professor, MBA, RCET
• Objectives of Compensation Management can be classified into 4 categories
– Equity
– Efficiency
– Macro-economic Stability
– Optimum Utilization of workforce
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A well designed compensation and benefits plan helps to attract, motivate and retain talent. A well designed compensation & benefits plan will benefit in the following ways.
1. Job satisfaction: Your employees would be happy with their jobs and would love to work for you if they get fair rewards in exchange of their services.
2. Motivation: We all have different kinds of needs. Some of us want money so they work for the company which gives them higher pay. Some value achievement more than money, they would associate themselves with firms which offer greater chances of promotion, learning and development. A compensation plan that hits workers’ needs is more likely to motivate them to act in the desired way.
3. Low Absenteeism: Why would anyone want to skip the day and watch not-sofavorite TV program at home, if they enjoy the office environment and are happy with their salaries and get what they need and want?
4. Low Turnover: Would your employees want to work for any other boutique if you offer them fair rewards. Rewards which they thought they deserved?
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– To acquaint students with various issues related to compensation or rewarding human resources working in various forms of organizations.
– To impart skills in designing, analyzing and restructuring reward management systems, policies and strategies.
– To equip students with the ability for managing compensation in practical business situations.
– To acquaint students with application of information in decision-making and control to optimize organizational cost.
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Dr. Saket Jeswani, Associate Professor, MBA, RCET
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Dr. Saket Jeswani, Associate Professor, MBA, RCET
1. General Compensation System
2. Strategic Compensation System
3. Performance Management System
4. Compensation Laws
5. Institution/Machineries
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Sl.
No.
1
2
3
4
Course Outcomes
Understand Compensation System and its designing for cost effectiveness
Understand the strategic compensation system applying various tools and techniques for effective decision making to achieve organizational objective
Gain skills and knowledge necessary to measure and manage the performance linked with compensation.
Ability to correct failures in an compensation system through various compensation laws and institution/machineries.
Mapping
Units
Pedagogical
Tools
Assesssment
Tools
I & II
I & II
III & V
IV & V
Lecture,
Video Cases,
Case Analysis,
Presentation
Attendance,
Assignments,
Class Tests,
End-Sem
Exams,
Case Analysis
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Sr. No.
1
2
3
4
5
Name of the Book
Compensation
Compensation
Management
Compensation
Management
Compensation
Management
Compensation
Management in a
Knowledge-Based World,
10/E
Author
Milkovick &
Newman
Dipak Kumar
Bhattacharya
T.N.Chhabra &
Savita Rastogi
Publisher
Tata McGraw Hill
Oxford
Sun India
B.D.Singh
Richard I
Henderson
Excel Publication
Prentice Hall
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Dr. Saket Jeswani
Associate Professor,
MBA,RCET, Bhilai
Learning Objectives
Introduction, Definition, Importance, Objectives
Types of Compensation
Factors Affecting Compensation
Wage Concepts
Pay Philosophy
Wage Differential & Equity
Designing Compensation System
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Dr. Saket Jeswani, Associate Professor, MBA, RCET, Bhilai
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• Organization expect efficient performance from their employees in order to contribute to the attainment of individual and organizational goals.
• Organization reward employees who contribute to the achievement of organizational goals.
Effort Performance
Organization al Goals
Individual
Goals
Reward
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•
•
•
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• According to Casio, “Compensation includes direct cash payments, indirect payments in the form of employee benefits and incentives to motivate employees to strive for higher levels of productivity”.
• It refers to a wide range of financial and non-financial rewards to employees for their services rendered to the organization.
• It is a systematic approach to providing monetary value to employees in exchange for work performed.
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•
•
•
•
•
•
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Objectives of Compensation Management
• The basic purpose of compensation management is to establish and maintain an equitable reward system.
• Objectives of Compensation Management can be classified into 4 categories
– Equity
– Efficiency
– Macro-economic Stability
– Optimum Utilization of workforce
– Acquire qualified personnel
– Retain current employees
– Reward desired behaviour
– Control Cost
– Comply with legal regulations
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Learning Objectives
Introduction, Definition, Concept, Importance
Types of Compensation
Factors Affecting Compensation
Wage Concepts
Pay Philosophy
Wage Differential & Equity
Designing Compensation System
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• Non-monetary compensation is any benefit an employee receives from an employer or job that does not involve tangible value. This includes career and social rewards such as job security, flexible hours, opportunity for growth, praise and recognition, task enjoyment, and friendships.
• Direct compensation is an employee’s base wage, which can be an annual salary or hourly wage, plus any performance-based pay an employee receives, such as profit-sharing, bonuses.
• Indirect compensation is far more varied. It includes everything from legally required public protection programs such as Social security to health insurance, retirement programs, paid leave, child care or moving expenses.
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• Base compensation: it involves monetary benefit to the employees in the form of wages and salaries. It is giving the remuneration to the workers for doing the work.
• Supplementary compensation: now days the organizations use supplementary compensation over and above the base compensation. It helps in satisfying the employees as well as retaining them for long time. It can be given in form of various services like housing, medical, educational facility.
Supplementary compensation is also called fringe benefit as well as hidden payroll. The basic purpose of fringe benefit is to maintain efficient human resources in the organization and to motivate the employees.
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Learning Objectives
Introduction, Definition, Concept, Importance
Types of Compensation
Factors Affecting Compensation
Wage Concepts
Pay Philosophy
Wage Differential & Equity
Designing Compensation System
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Wage/Salary
External
Demand & Supply
Cost of living
Trade union’s
Govt. Legislation
Psychological & Social Factors
Economy
Technological Development
Prevailing market rates
Level of skills available in the market
Internal
Ability to pay
Job requirement
Managerial Strategy
The employee
- performance
- seniority
- experience
- potential
Dr. Saket Jeswani, Associate Professor, RCET, Bhilai
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•
•
– Internal Equity
– External Equity
– Individual Equity
– Procedural Equity
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• This process theory focuses on the employees perception of fairness of their work input and outcomes. Specifically, they strive to maintain the ratios of their own reward to contribution with others.
• Employees develop beliefs about what is fair reward for one’s contribution – an exchange.
• They compare their exchanges with self, others – insiders and outsiders called referents.
• If an employee believes his treatment is inequitable, he or she will be motivated to do something about it – that is, seek justice.
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• Internal Equity : Relationship among jobs within a single organization
• External Equity : Comparisons of similar jobs in different organizations
• Individual Equity : Comparisons among individuals in the same job within the same organization
• Procedural Equity : Comparison of individual job with the procedure of the organization.
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Learning Objectives
Introduction, Definition, Concept, Importance
Types of Compensation
Factors Affecting Compensation
Wage Concepts
Pay Philosophy
Wage Differential & Equity
Designing Compensation System
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• Wages have been classified into three categories:
(1) Minimum wage
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(2) Fair wage
(3) Living wage
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• The minimum wage may be defined as the lowest wage necessary to maintain a worker and his family at the minimum level of subsistence, which includes food, clothing and shelter.
• The main objective is not to control or determine wages in general but to prevent the employment of workers at a wage below an amount necessary to maintain the worker at the minimum level of subsistence.
• Minimum wage in a country is fixed by the government in consultation with business organisations and trade unions.
• The law relating to the minimum wage either states definitely the wage considered to the minimum or the determination of the wage left to an administrative commission which from time to time determines the minimum wage according to the varying economic conditions, e.g., variation in the price level should be compensated with the variation in the wage rates because the prime aim of the minimum wage low is just to cover "minimum living cost."
• The authority entrusted with the task of fixing of minimum wage should consider such factors as local economic conditions, transportation cost and the size of the units in the industry in fixing minimum wages.
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• A fair wage is something more than the minimum wages. Fair wage is a mean between the living wage and the minimum wage.
• While the lower limit of the fair wage must obviously be the minimum wage, the upper limit is the capacity of the industry to pay fair wage compares reasonably with the average payment of similar task in other trades or occupations requiring the same amount of ability. Fair wage depends on the present economic position as well as on its future prospects. Thus the fair wages depends upon the following factors :
(1) Minimum Wages
(2) Capacity of the industry to pay
(3) Prevailing rates of wages in the same or similar occupations in the same or neighbouring localities
(4) Productivity of labour
(5) Level of national income and its distribution.
(6) The place of the industry in the economy of the country.
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• According to Justice Higgins, "Living wage is a wage sufficient to ensure the workman food, shelter, clothing, frugal comfort, provision for evil days".
• According to Fair Wages Committee Report: "The living wage should enable the male earner to provide himself and his family not merely the basic essentials of food, clothing and shelter but a measure of frugal comfort including education for the children, protection against ill-health, requirement of essential social needs and measures of insurance against old age."
• Thus living wages means the provision for the bare necessities plus certain amenities considered necessary for the wellbeing of the workers in terms of his social status.
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Learning Objectives
Introduction, Definition, Concept, Importance
Types of Compensation
Factors Affecting Compensation
Wage Concepts
Pay Philosophy
Wage Differential & Equity
Designing Compensation System
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• A pay philosophy is a company's commitment to how it values employees. A consistent pay philosophy gives the company and the employee a frame of reference when discussing salary in a negotiation.
• The goal of a pay philosophy is to attract, retain, and motivate employees.
For companies in the private sector, this usually requires a competitive pay philosophy. For companies in the public sector, this means a well-rounded philosophy, with a focus on benefits and work life.
• A sound philosophy is a well-reasoned operating guidelines within which the compensation program is designed.
– Companies attract, motivate, and retain through total compensation,
– Lead-lag, lag-lead establishes timing of adjustments,
– Employee proficiency ties skills to market value,
– Program should be carried out consistently,
– Communication is part of retention,
– Start the dialog, involve senior management
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• Developing a compensation philosophy can support an organization in developing a program that is in line with the work culture an organization has or wants to create.
• A compensation philosophy is developed to guide the design and complexity of compensation programs; this is done by
– identifying your goals and objectives,
– considering your competitiveness in attracting and retaining employees,
– emphasis on internal and/or external equity, and
– whether performance is tied to pay increases.
• A consistent philosophy provides a strong foundation for both the organization and the employee. Without a philosophy, leaders often find themselves unsure of what to offer as a starting salary for a new employee.
This can lead to offering too high a total compensation package for a new employee in relation to existing employees, or being unable to successfully hire because the total compensation offer is too low to be competitive.
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Questions to consider when developing your
Compensation Philosophy
• What do you want your compensation program to do to help your organization succeed?
• Where do you want your organization to sit regarding compensation as compared with your industry or market? You have three choices: Lead, lag or match the market. The figures below are normally derived from salary survey data.
– Lead the market: i.e. positioning at the 75th percentile where 75% of your comparators pay less. This is for high paying employers. It is also referred to as
P75 or Q3 (third quartile).
– Lag the market: i.e. positioning at the 30th percentile, where 70% of your comparators pay better. This is for employers who cannot afford to pay more for labour.
– Match the market: i.e. positioning at the 50th percentile (median), where half of your comparators pay less and half pay more. Most non-profit employers like to be competitive and will target to pay at this level. It is also referred to as
P50 or Q2 (second quartile).
• Are you ensuring that you demonstrate fair, equitable and competitive pay practices?
• How do each employee talent link to the organization goals?
• What is your organizations capacity to pay? What are the restraints on that capacity?
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Learning Objectives
Introduction, Definition, Concept, Importance
Types of Compensation
Factors Affecting Compensation
Wage Concepts
Pay Philosophy
Wage Differential & Equity
Designing Compensation System
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• Relative difference in wage levels is called wage differentials.
• Different persons get different wages depending upon the nature of job, skill of person, sex, age, region, employers capacity to pay, demand & supply of labour, cost of living, bargaining power etc.
• Types of wage differentials:
– Occupational wage differential
– Inter-Firm wage differential
– Inter-Area or Regional wage differential
– Inter-Industry wage differential
– Inter-Personal wage differential
– Sectoral wage differential
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• Employees desire compensation that must be distributed in a equitable manner.
• It means fairness among the organizations’ employees & fairness relative to what people get for doing a similar job in another organization.
• Equity theory explains that what happens when individuals perceive an imbalance between what they put into a job and what they get out of it relative to others give & get ratio.
• Employees are strongly motivated to maintain a balance between what they perceive as their inputs or contributions with their compensation they get.
• If an employee perceives an inequity, a tension will develop & employee gets demotivated.
• 3 referent categories are:
– Others
– System
– self
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• Distort either their own or others input or outcome.
• Behave in some way so as to induce their own inputs or outcomes
• Behave in some way so as to induce others inputs or outcomes
• Choose a different comparison referent
• Leave the organization
 External Equity
 Internal Equity
 Individual Equity
 Procedural Equity
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Learning Objectives
Introduction, Definition, Concept, Importance
Types of Compensation
Factors Affecting Compensation
Wage Concepts
Pay Philosophy
Wage Differential & Equity
Designing Compensation System
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FIXED
(A)
- Basic
- HRA
- DA
- Educational
Allowance
VARIABLE
(B)
- Performance
Bonus
BENEFITS
(C)
- Joining Bonus
- Assured Bonus - Termination Bonus
- Car / House - Loan
- Incentives - Insurance
RETIRALS
(D)
DEDUCTIONS
(E)
- Car / House - Prof. Tax
- PF
- Gratuity
- Pension
- PPF
- Car / House - Leave Encashment
- Ex-Gratia
- Car / House
- Mobile / Tel.
- Petrol / Diesel
- Food Coupons
- LTA
- Medical
- ESIC
- ESOP
- Profit Sharing
- Super
Annuation
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• Annual Gross : [ (A + B +D + Medical + LTA + Mobile / Tel / Petrol / Diesel) – E ]
• Net : [ (A + B) – E ]
• CTC (Cost To Company): (A + B + C + D)
• Gross Earning: Total earning during a given period of time, calculated on the basis of mandays including overtime, incentives & allowances payable in cash.
• Take Home Pay: Gross earnings minus all deductions like taxes, PF etc.
• Nominal Wage: Monetary Benefits
• Real Wage: Nominal Wage – Living Cost
• Minimum Wage: Remuneration which would met normal needs of an average employee
• Incentives: Linked with productivity/performance
• Fringe Benefits: PF, Gratuity, Pension, Medical, Insurance
• Perquisites (Perks): To managerial persons includes company car, free accommodation, paid holiday trips, Stock options.
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• Once job analysis has been done organizations need to decide upon the pay structures.
• Pay structure refers to the process of setting up the pay for a job in an organization.
• The process deals with internal and external analysis to estimate the compensation package for a job profile.
• Internal equity, External equity and Individual equity are the most popular pay structures. Job description provides the in depth knowledge about the job profile and its worth.
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•
•
•
•
•
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• Wage / Salary administration is to establish an equitable wage & salary system.
• Properly developed compensation system enables an employer to attract, motivate & retain people of required caliber & qualification.
• It refers to establishment of sound policies & practices of employees compensation.
• It is the application of systematic approach to the problem of ensuring that employees are paid in a logical, equitable & fair manner.
• The objective of compensation administration is to design a cost-effective pay structure that will attract, motivate & retain competent employees.
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• Beach has listed 5 objectives of Wage/Salary
Administration:
– To recruit competent peoples for a firm
– To control payroll cost
– To satisfy people to reduce the incidence of quitting, grievances & frictions.
– To motivate people to perform better
– To maintain a good public image
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•
•
•
•
•
•
•
•
•
•
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• There are 2 components of Wage/Salary
Administration:
– Determination of Wage & Salary
– Implementation of Wage & Salary
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Pay Structure


Pay grades
Pay ranges
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•
•
– Wage Enactments
– Prevalent market wage rate
– Influence of trade unions
– Corporate philosophy on wages
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1.
Internal versus External Equity: Will the compensation plan be perceived as fair within the company, or will it be perceived as fair relative to what other employers are paying for the same type of labor?
2.
Fixed versus Variable Pay: Will compensation be paid monthly on a fixed basis
—through base salaries —or will it fluctuate depending on such preestablished criteria as performance and company profits?
3. Performance versus Membership: Will compensation emphasize performance and tie pay to individual or group contributions, or will it emphasize membership in the organization —logging in a prescribed number of hours each week and progressing up the organizational ladder?
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4.
Job versus Individual Pay: Will compensation be based on how the company values a particular job, or will it be based on how much skill and knowledge an employee brings to that job?
5.
Egalitarianism versus Elitism: Will the compensation plan place most employees under the same compensation system
(egalitarianism), or will it establish different plans by organizational level and/or employee group (elitism)?
6. Below-Market versus Above-Market Compensation: Will employees be compensated at below-market levels, at market levels, or at above-market levels?
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Dr. Saket Jeswani, Associate Professor, RCET, Bhilai
7.
Monetary versus Nonmonetary Awards: Will the compensation plan emphasize motivating employees through monetary rewards like pay and stock options, or will it stress nonmonetary rewards such as interesting work and job security?
8.
Open versus Secret Pay: Will employees have access to information about other workers’ compensation levels and how compensation decisions are made (open pay) or will this knowledge be withheld from employees (secret pay)?
9. Centralization versus Decentralization of Pay Decisions:
Will compensation decisions be made in a tightly controlled central location, or will they be delegated to managers of the firm’s units?
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• Jobs offered by organizations vary in terms of their values.
• Once all jobs are assigned values, then these are placed in grades.
• These grades are arranged in an hierarchical order starting with lower to higher jobs.
• Thus wage/salary structure consist of various salary grades & their different levels of single jobs or group of jobs.
– Professor: Rs. 16,400 – 450 -20,900 – 500 – 22,400
– Reader: Rs. 12,000 – 420 – 18,300
– Lecturer: Rs. 8,000 – 275 – 13,500
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Dr. Saket Jeswani
Associate Professor,
MBA,RCET, Bhilai
1. It is a well-established fact that the quantity of a good or service demanded declines as its price rises relative to the prices of other goods and services.
2. When the relative price of bananas rises, utilitymaximizing consumers will buy fewer bananas and more oranges. Similarly, when the price of labour ( i.e
. the wage rate) rises, profit-maximizing firms will tend to substitute other inputs ( e.g.
machinery) for labour and reduce their demand for workers.
3. This simple observation underscores the standard textbook conclusion that increases in minimum wages reduce employment.
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4. In a competitive labour market, the demand for labour falls as real wages rise.
5. Profit maximization on the part of the firm requires that the value of the marginal product of labour equal the real wage. Since, for a given level of capital and other inputs, each additional unit of labour produces less output, labour demand must vary inversely with the real wage.
6. The effect of a minimum-wage law in this context is to reduce firms’ demand for labour. When the cost of labour input rises, the marginal product of labour must be higher than before if the firm is to minimize costs.
7. However, because each additional unit of labour produces less output when other factors are fixed, the only way to increase the marginal product of labour is to reduce the number of workers employed. Hence, the imposition of a minimum wage law will lead to fewer employment opportunities for those workers whose marginal productivity is below the minimum wage.
Dr. Saket Jeswani, Associate Professor, RCET, Bhilai 3
Wages are fixed mainly as a result of individual bargaining, collective bargaining or by public or State regulation. How wages are determined has been the subject of several theories of wages. The main elements in these theories may be summed up as follows:
(1) Subsistence theory
(2) Wages fund theory
(3) The surplus value theory of wages
(4) Residual claimant theory
(5) Marginal productivity theory
(6) The bargaining theory of wages
(7) Investment Theory of Wages
(8) Behavioural theories
Dr. Saket Jeswani, Associate Professor, RCET, Bhilai
Dr. Saket Jeswani, Associate Professor, MBA, RCET, Bhilai
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Assumptions:
1.
David Recardo given this theory in 1817 also called the iron law of wages.
2.
It puts more emphasis on supply of labour (Population).
3.
Any increase in the wage rate above the subsistence level would induce an increase in the birth rate and therefore in the supply of labor. The expanded labor supply would force the wage rate back to the subsistence level. Any decrease in the wage rate below the subsistence level would result in starvation and a reduction in the labor supply.
Dr. Saket Jeswani, Associate Professor, RCET, Bhilai 5
Assumptions:
1.
This theory was described by John Stuart Mill in 1930, this theory explained the short-term variations in the general wage level in terms of
(1) the number of available workers and (2) the size of the wages fund. The wages fund was thought to come from resources accumulated by employers from previous years and allocated by them to buy labor currently.
2.
Employers were thought to have a fixed stock of "circulating capital" for the payment of wages. Dividing the labor force (assumed to be the population) into the wages fund determined the wage.
3.
Fixed wage fund distributed equally among all the employees and the amount of wages paid to each employee is fixed.
4.
The demand for labour and the wages to be paid are determined by the size of the fund.
5.
If supply of labour increases the average wages will go down.
Dr. Saket Jeswani, Associate Professor, RCET, Bhilai 6
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Assumptions:
1.
This theory was given by Karl Marx. Employees can be purchased on payment of
“Subsistence Price”.
2.
The price of any product is determined by the labour time needed for producing it.
Labour is not paid in proportion to the time spent on a job but less.
3.
Surplus between labour cost and product cost should be paid to the labour.
Entrepreneur collects the value created by labor but pays labor only the cost of subsistence. The difference is surplus value, roughly equivalent to profit.
4.
The existence of surplus value means exploitation of labor. Competition among capitalists, Marx argued, results in the accumulation of labor saving capital. This substitution of capital for labor results in technological unemployment and a reserve army of unemployed. Because labor is the only source of value, substituting capital for labor results in a falling rate of profits.
5.
The only solution for capitalists is to spend relatively more on capital and relatively less on labor. In this way, surplus value can be maintained by further exploitation of labor. This exploitation of labor in turn results in a class conflict which would, according to Marx, result in the demise of capitalism.
Dr. Saket Jeswani, Associate Professor, RCET, Bhilai 7
William Stanley Jevons first stated the theory in 1862, but the analysis of
Francis Walker, twenty years later, is usually referred to.
Assumptions :
1.
According to this theory, after rent, interest and profit have been paid, the remainder of the total output goes to the workers as wages.
2.
Labour is the residual claimant.
3.
Wages are equal to the whole production minus rent, interest and profit.
4.
If productivity increase residual meant for wages will also increase.
5.
This theory admits the possibility of increase in wages through greater efficiency of employees.
Dr. Saket Jeswani, Associate Professor, RCET, Bhilai
Dr. Saket Jeswani, Associate Professor, MBA, RCET, Bhilai
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The marginal productivity theory was first stated by Von-Thunen.
Assumptions :
1.
Marginal productivity theory of wage explains that under perfect competition a worker's wage is equal to marginal revenue productivity.
2.
Marginal productivity is the addition made to total productivity by employing one more unit of labour. As the labors are given money wage their marginal productivity is calculated in terms of money.
3.
MRP is the addition made to the total revenue by employing one more unit of a worker. A producer will maximize his profit when the wage of a labor is equal to the marginal revenue product (MRP= MW). If MW is greater than MRP (MW > MRP) i.e. wage is greater than marginal revenue product. The producer will sustain loss.
Dr. Saket Jeswani, Associate Professor, RCET, Bhilai 9
4. On the other hand if the producer pays wage less than MRP. (ME < MRP) he will gain. But his gain will not be maximized. Thus he will gain by employing workers so long when MW = MRP. Thus the wage of a laborer will be determined where
MRP - M.W.
5. Supposing producer employee 3 laborers with other factors of production. He gets Rs.200 as total revenue i.e. income from the sale of output. If he employe an additional labor, his total revenue increases by Rs. 300. Thus by employing one additional labor, he adds Rs. (300-200) = Rs.100 to the total revenue, this increase in Rs. 100 is called MRP. Under perfect competition, n worker gets wages equal to his marginal revenue productivity.
6. If the labors demand more than Rs. 100, the producer will employ lower number of workers since their new price exceeds their marginal productivity.
When less number of workers get higher wage, the unemployed labors will bring down the wage to the equilibrium level. Ultimately wages will tend to equal marginal productivity of workers. In such a situation the producer thinks of employing more labors to maximize his profit. This process will continue until wages become equal to the workers marginal activity.
Dr. Saket Jeswani, Associate Professor, RCET, Bhilai 10
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Assumptions:
1. Wages are determined by the bargaining power of workers/their representatives and the employer.
2. Possible in large plants where employees are well organized.
3. Profits earned by the employer plays a major role in determining the wages.
Dr. Saket Jeswani, Associate Professor, RCET, Bhilai
Assumptions:
1. Concentrates on labour inputs
2.
Productivity is a function of personal attributes and his labour
3.
Highly productive labour is an investment
4.
His highly mobile and has wider scope of employment
5.
Wages are related to his mobility
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Dr. Saket Jeswani, Associate Professor, RCET, Bhilai
Dr. Saket Jeswani, Associate Professor, MBA, RCET, Bhilai
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Assumptions:
1. Wages are determined by such factors as size, prestige of the company, strength of the union, employers’ concern to maintain the workers contribution by the workers etc.
2. Wage differentials are explained by social norms, traditions and customs prevalent in the organization.
3. Wages paid for similar jobs in other firms.
Dr. Saket Jeswani, Associate Professor, RCET, Bhilai
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Dr. Saket Jeswani, Associate Professor, RCET, Bhilai
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