Compensation and Benefits Unit 3

Unit 3 Wages and Salary Administration at

Macro (National) Level
Structure:
3.1 Introduction
Objectives
3.2 Wage Concept
3.3 Wage Policy
3.4 Institutional Mechanisms for Wage Determination
3.5 Pay Commission
3.6 Wage Boards
3.7 Public Sector Pay Revision
3.8 ILO and Collective Bargaining
3.9 Union Role in Wage and Salary Administration
3.10 Summary
3.11 Glossary
3.12 Terminal Questions
3.13 Answers
3.14 Case Study

3.1 Introduction
In the earlier unit, you studied about the compensation structure and the
practices related to it in Indian context. You learnt details like salary
structure, the progression methods, different methods of payment,
limitations of job related compensation, competency based compensation,
etc. In this unit you will be able to gain an in-depth knowledge of wages and
salary administration at National level.
The aim of Wage and salary administration is to achieve a rational wage
and salary structure where employers are satisfied that the employees are
not paid more than their capabilities and the employees are satisfied that
they are not underpaid. Administration of wages and salaries is important in
our country which suffers from the acute problem of poverty, high population
growth, high unemployment levels, etc. which calls for demand for balanced
fixation of wages and salaries at macro level.
In this unit, you will learn about various concepts of wage and salary
administration at National level like the concept of wage policy, wage
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boards, pay commissions, collective bargaining, union’s role in wage and

salary administration, etc.
Objectives:
After studying this unit, you should be able to:
• explain the concept of wage and wage policy
• describe various institutional mechanisms for wage determination
• explain the concept of pay commission
• identify the role of wage boards in wage determination
• analyse the approach to public sector pay revision
• identify the concept of ILO and collective bargaining
• describe the role of unions in wage and salary administration

3.2 Wage Concept

Wages in its broadest sense implies any kind of economic compensation
received by the employee from the employer under the contract of
employment whereby the employee renders some services to the employer.
The term wage is used to define different concepts like wage rate, gross
average hourly earnings, straight time average hourly earnings, weekly
earnings, weekly take home pay, annual earnings, etc.
Let us understand this concept with a case-let.

Case Let

MTB Private Ltd.

MTB Private Ltd was established in the year 1961. It is a manufacturing
company which is mainly into weaving cloth, bleaching, dying & finishing.
The total employee strength of the company is around 400. It is the 2nd
largest cloth manufacturing company in Nasik. There are mainly two
types of labour-force namely the Contractual and the Permanent.
The workers on contractual basis are paid a fixed wage of 120 rupees
per day, which is also the minimum wage applicable as per the Minimum
Wages Act. They are paid 60% for over-time.
On the other hand, the workers on permanent basis are paid a piece rate
basis (i.e. production basis). However, the salary of the engineers and all

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the other employees is fixed. The contractual workers are not entitled to
festive bonuses. Since the labour is easily available in the surrounding
areas of Nasik they don’t have much say in their wages.
Mostly due to the huge supply of labours, the trade unions are hesitant to
ask for a wage increment. Thus, the labours are fully content with their
wage rates. The medical expenses and educational expenses of the
labourers’ children are borne by the company. This acts as an incentive
for the labourers.
Six months back the entire manufacturing process in the company has
undergone a drastic change resulting in a major retrenchment of the
labour force. However, it was off-set by the increasing salary of the
remaining labours as the production increased and they were paid on
piece-rate bases. Their salary proportionality increased.
Source: http://hrmba.blogspot.in/2009/10/factors-influencing-wage-and
salary.html

When you talk about wages, you can simply consider wage levels such as
statutory minimum wage, base minimum wage, the minimum wages, the
living wages and the need based minimum wages, etc.
1. Minimum wages: It can be categorised into three types:
(a) The minimum wages represented under Minimum Wages Act 1948
by the government for different scheduled employees
(b) A minimum wage earned by an un-skilled employee as a result of
wage settlement in an organised industry
(c) A need based minimum wage as determined by the norms
prescribed under 15th Session of Indian Labour Conference
2. Need based minimum wages: For computation of minimum wages, the
following five norms are applied and recommended to be used by all
wage setting authorities like wage boards, wage committees and
adjudicators.
(a) The standard working class household must be considered to
include three expenditure units for each one earner while computing
the minimum wage.
(b) Net intake of 2700 calories should be taken into account at the time
of minimum wage calculation.

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(c) Per capita consumption constituting of 18 yards per annum giving an

average workers family consisting of four members a total of 72
yards as the estimated clothing requirement.
(d) For housing, the minimum rent charged by Government under
subsidiary industrial housing scheme for low income group is
considered.
(e) Lighting, fuel and other miscellaneous items should be 20 percent of
total minimum wages.
3. Fair wage: It is equal to the wage received by workers performing the
work which requires use of equal skills, difficultly levels, unpleasantness,
etc. You can say that fair wage lies between minimum and living wage.
Its lower limit is minimum wage and its upper limit depends on the
industry paying capacity.
4. Living wages: It is this wage which is capable of meeting the normal
needs of an employee on an average. Living wage must be capable of
paying for satisfactory basic budget, must be enough to purchase
minimum theoretical needs of a typical family and must be comparable
with another already established living wage in similar circumstances,
etc.
5. Money and real wage: Money wage is determined and regulated
through the interactions between the demand and supply of labour on
one hand and the demand and supply of necessities on other. You can
define real wages as the inflation adjusted wages.

Example: If you are paying ` 2,000 more this year on purchase of goods
and services like food, rent, gas, etc. in comparison to last year and your
income is same; than you can say that your real income has fallen by `
2,000.
The foundation of minimum wages is based on the principles of social
justice and fair play. Wages are not only an economic concept but an
important aspect in society. Economically speaking, wages may be the price
of labour in the same way as interest is the price of capital and profit,
i.e., the price of risk. However, from social point of view, wages are unique

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i.e., they not only constitute payment for this effort but also provide the
means of subsistence for those who supply the effort.
Table 3.1: Wages for Various Sectors in Delhi

Basic
Sl. Category of Total
Scheduled Employment Minimum V.D.A.
No. Workers Wages
Wages
1 2 3 4 5 6
1 Agriculture Un-skilled 203.00 0.00 203.00
Semi-skilled 225.00 0.00 225.00
Skilled 248.00 0.00 248.00
2 Automobile Engineering Un-skilled 203.00 0.00 203.00
including Servicing and Semi-skilled 225.00 0.00 225.00
Repair Work of Skilled 248.00 0.00 248.00
Automobiles
3 Bakery, Confectionery, Un-skilled 203.00 0.00 203.00
Dairy Products, Food Semi-skilled 225.00 0.00 225.00
preservation etc. Skilled 248.00 0.00 248.00
4 Brick Kiln Industry Un-skilled 203.00 0.00 203.00
Semi-skilled 225.00 0.00 225.00
Skilled 248.00 0.00 248.00
5 Cement working Un-skilled 203.00 0.00 203.00
Establishments Semi-skilled 225.00 0.00 225.00
Skilled 248.00 0.00 248.00
6 Chemicals Un-skilled 203.00 0.00 203.00
Semi-skilled 225.00 0.00 225.00
Skilled 248.00 0.00 248.00
7 Clubs Un-skilled 203.00 0.00 203.00
Semi-skilled 225.00 0.00 225.00
Skilled 248.00 0.00 248.00
8 Construction and Un-skilled 203.00 0.00 203.00
Maintenance of roads or Semi-skilled 225.00 0.00 225.00
in Building operation Skilled 248.00 0.00 248.00
9 Dal and Flour Mills Un-skilled 203.00 0.00 203.00
Semi-skilled 225.00 0.00 225.00
Skilled 248.00 0.00 248.00
10 Delhi Transport Un-skilled 203.00 0.00 203.00
Corporation Semi-skilled 225.00 0.00 225.00
Skilled 248.00 0.00 248.00
11 Foundries with or without Un-skilled 203.00 0.00 203.00

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machine shop Semi-skilled 225.00 0.00 225.00

Skilled 248.00 0.00 248.00
12 Private Hospitals and Un-skilled 203.00 0.00 203.00
Nursing Homes not carried Semi-skilled 225.00 0.00 225.00
on by Government or local Skilled 248.00 0.00 248.00
Authorities
13 Ice Factories and Cold Un-skilled 203.00 0.00 203.00
Storages Semi-skilled 225.00 0.00 225.00
Skilled 248.00 0.00 248.00

Source: http://m.paycheck.in/main/salary/minimumwages/delhi

The data in table 3.1 above shows the minimum wages for Delhi in
13 sectors consisting of wage data of three types of workers namely the
un-skilled, the semi-skilled and skilled worker applicable w.e.f. 1st April 2012.
Self Assessment Questions
1. Wage is the economic compensation received by the employee from
the employer under the contract of employment. (True/False)
2. Net intake of _________________ calories should be taken into
account at the time of minimum wage calculation.
3. ___________________ is the wage which is suitable for meeting the
normal needs of an employee on an average.
(a) Minimum wages
(b) Living wages
(c) Money wages
(d) Real wages

3.3 Wage Policy

Wage policy can be defined as the principles which act as guidelines for
determination of a wage structure. It relates to all systematic efforts of the
Government in relation to a national wage and structure of wages.
The wage policy in India is built around the following fundamental principles:
1. Equal compensation for an equal work performed
2. Providing living wages for employees
3. Payment of wages without any deduction on the appointed dates
4. Use of collective bargaining to resolve wage related issues
5. As per legal provisions paying 8.33% as statutory bonus

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6. Determination of fair wages above minimum wages in respect to labour

productivity, prevailing wage levels, national income and its distribution
and place of industry in the financial system
The figure 3.1 shows that the Indian wage policy, which aims at providing at
least minimum wages to workers across different sectors, has increased the
wages from recent past.

SALARY STRUCTURE
A survey of 18,048 workers showed that the proportion of those getting
minimum wage is outnumbered by those who don't

Construction
Services
Technical helper
Self-employed/shops
Minimum
Manufacturing units wages
Driver Yes
Rickshaw-puller No

Agriculture
Domestic work
Others
0 1,000 2,000 3,000 4,000 5,000 6,000
(No. of people surveyed in each sector)

Source: http://www.livemint.com/labour.htm
Figure 3.1: Analysis of Minimum Wages in India

Therefore, you can say that with progress in industries and subsequent
industrial balance between employers and employees, the wage bargains
have become an issue of concern for all the employees, the employers and
the state as well. It helps a nation in achieving a number of economic and
social objectives as given in table 3.2.
Table 3.2: Economic and Social Objectives

Types of Objectives Details

Economic Objectives • Attainment of full employment and optimum
resource allocation
• Maintenance of highest degree of economic
stability
• Providing maximum income security for
community as a whole

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Social Objectives • Exclusion of remarkably low wages

• Stabilising fair labour standards
• Protecting wage earners from effects of Inflation
• Providing incentives to increase yield
Wage policy in India
The plans of wages in India are explained as follows:
• The first plan (1951 to 1956) suggested that pre-war levels of real
wages should be restored as an initial march towards “living wage” by
use of enhanced productivity. It further suggested various measures for
making wage adjustments like reduction of disparities in income,
reduction of gap between the current and living wages, maintenance
and standardisation of wage differentials to provide incentives.
• The second plan (1956 to 1961) stressed improvement in wages
through increased productivity stemming from efficiency on the part of
the workers, improved layout of plants and improvement in management
practices.
• The third plan (1961 to 1966) reinforced the wage policy of the
preceding two plans with respect to minimum wage fixation, reduction of
disparities and wage differentials and stressed the role of productivity in
raising the living standard of the workers.
• The fourth plan (1969 to 1974) did not provide a fresh direction or any
shift of the Government’s wage policy.
• The fifth plan (1974 to 1979) recommended that the reward structure of
the industrial employees in terms of wage and non-wage benefits must
be related to performance records in industrial enterprises. It was
necessary to build over a period of time a national wage structure to
narrow down disparities within the organised sector itself, including both
public and private sectors.
• The sixth plan (1980 to 1985) pointed out that there were clear
variations with respect to wages between the organised, unorganised,
and urban and rural sectors. The differences and inequalities have
resulted in social tensions and industrial unrest.
Therefore, the plan stressed the need for bringing about a larger support
of wage structure and connection of pay at least in some measure to
labour productivity.

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• The seventh plan (1985 to 1990) claimed that an important aspect of

labour policy is related to the formulation of an appropriate wage policy.
The basic aim of the wage policy was a rise in the levels of real income
in union with increases in productivity, promotion and productive
employment improvement in skills, sectoral shifts in the desired
directions and reduction in disparities.
• The eighth plan (1992 to 1997) laid focus on formulation of wage policy
involving child labour, rural and bonded labour, women labour and inter-
state migrant labour, etc.
Self Assessment Questions
4. ___________________ can be defined as the principles which act as
guidelines for determination of a wage structure.
5. The fourth plan provided a fresh direction or any shift of the
government’s wage policy. (True/False)
6. The basic aim of the wage policy as visualised by the seventh plan was
a rise in the levels of _________________ in consonance with
increases in productivity, promotion and productive employment
improvement.
(a) Real income
(b) Nominal income
(c) Per capita income
(d) Net income

3.4 Institutional Mechanisms for Wage Determination

Public policy and legislative framework provides the basis for wage
determination. Within the framework of public policy and legislative
framework, wages are determined through one or more of the following
methods:
(a) Unilaterally by employers: The wages of vast majority of workforce in
unorganised sector in India are determined unilaterally i.e.
independently. This often results in not only workers getting less than
the minimum wages and benefits stipulated under law, but also
discrimination in wages and benefits between one set of workers, and
another.

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In this case, however, usually employers tend to base the salary levels
at or around, the market rates in view of the difficulties in attracting,
retaining and motivating skilled and experienced personnel.
(b) Collective bargaining: It can be defined as a process where standards
are formed to govern labour relations – including wages and working
conditions – which were established in ILO Conventions No. 87
(Freedom of Association and Protection of Right to organise) and 98
(Right to organise and collective bargaining).
(c) Pay commissions: It describes that the pay structure of the Central
Government employees is based on the recommendations provided by
Pay Commissions constituted by the Central Government.
(d) Wage boards: It is concerned with fixing the fair wages on an industry-
cum-region basis. Wage boards struggle in providing better climate for
industrial relations, representing consumers/public interests,
standardising wage structure throughout the industry concerned and
alignment of the wage settlements with the social and economic policies
of the Government.
(e) Adjudication by a third party: It covers the cases where wage disputes
remain unsolved through negotiation and conciliation. Though the
adjudicators’ award is normally binding on labour and management, it is
not uncommon for parties to move to the courts over the award of the
adjudicator. In such cases, the Supreme Court is the final arbiter.
Example: Wages in Cement Industry during the 1970s and 1980s were
decided through arbitration.
Self Assessment Questions
7. The wages of vast majority of workforce in unorganised sector in India
are determined ______________________ .
8. ______________________ can be defined as a process where
standards are formed to govern labour relations – including wages and
working conditions.
(a) Collective bargaining
(b) Pay commission
(c) Wage boards
(d) Adjudication by third party

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9. Wage Boards describes the pay structure of the Central Government

employees is based on the recommendations provided by Pay
Commissions constituted by the Central Government. (True/False)
3.5 Pay Commission
Pay commission can be defined as a panel consisting of the Union Cabinet
of India members for the purpose of hiking the salaries of government
employees. Sixth pay commissions have been set up since independence to
evaluation and commend on the work and pay structure of all civil and
defence departments of Indian government.
In 1946, the Government of India appointed its first pay commission under
Justice Vardachariar chairmanship to look into the service conditions of
central government employees. The second pay commission was set up in
August, 1957 and after two years submitted its report costing ` 396 millions.
In April 1970, third pay commission was set up giving its report in March
1973. In June 1983, the fourth pay commission was established with
financial cost of 12.82 billion. The fifth commission was constituted in 1994
with outlay of ` 17,000 crores.

The sixth central pay commission was set up under the guidance of Justice
B. N. Srikrishna in July 2006. The cost of salary hikes was estimated to be
20,000 crores for 5.5 million employees.
The following studies have been taken up by the sixth pay commission:
• Studies relating to creating the concept, parameters and doctrines for
Performance-Related Incentive Scheme (PRIS) in Government.
• Study relating projections of the compensation package for Government
employees and the outlay to the Government.
• Study of terminal benefits of the Central Government employees.

Self Assessment Questions

10. _____________ is a panel consisting of the Union Cabinet of India
members with the aim of increasing the salaries of government
employees.
11. The first pay commission was selected by the Indian Government in
1946 under the chairmanship of Justice Vardachariar. (True/False)

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12. The Fifth Pay Commission was set up in 1994 and implemented in
1997 at a cost of ` ______________ crores
(a) 17,000
(b) 18,000
(c) 19,000
(d) 20,000
Activity 1
List down the pay commission of any six Asian Countries and show with
help of a report how it influenced the economic stability and growth rate of
those countries.

3.6 Wage Boards

In relation to the recommendations of the Planning Commission, the Wage
Board System was introduced in March, 1957 with the engagement of a
wage board for the cotton textile industry by the Government of India. Since
then 30 wage boards have so far been set up by the Government of India.
The Wage Boards were set up with the purpose to provide better climate for
industrial relations, to represent consumers/public interests, to standardise
wage structure throughout the industry concerned, and to align the wage
settlements with the social and economic policies of the Government.
Constitution of wage boards: Wage Board comprises of a chairperson,
the same number of employers’ and employees’ representatives (two
members each), and two other independent members (an economist and a
customer’s spokesperson) nominated to the Board.
Functions of the wage board: The primary function of the Wage Board
shall be to determine the wages payable to the employees of the activity.
The appropriate Government or the recognised organisations of employers
and employees, by mutual agreement, may refer to the Wage Board any
other matter for determination.
Criteria for award of the wage board: In developing a wage structure, a
Wage Board is required to take into account the requirements of the
industry, the system of payment by results, extensive rates of wages for
similar employments, the categories of workers to be covered, capacity to
pay, level of employment and other relevant factors including public interest
in making its award.
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Criticism for the wage boards: The major criticism levelled against the
Wage Boards is as follows:
1. Single mechanism for fixing wage for all kinds of industries will not be
appropriate and therefore, should be based on the nature of the
industry. Collective bargaining or adjudication can be used for
determination of remuneration.
2. Non-implemented or even commonly agreed recommendations.
3. The issue of linking wages with productivity has not been given serious
consideration by any of the Wage Boards.
4. Serious procedural delays.
Example: In April 2011, the wage board recommended 2.5 to 3 times hike
in basic pay of journalists and other newspaper workers in India. The aim
was to provide a hike in basic pay, DA, 30% interim relief and 35% variable
pay.
Self Assessment Questions
13. ________________ was introduced in March, 1957 with the
appointment of a wage board for the cotton textile industry by the
Government of India.
14. The primary work of the wage board is to determine the wages payable
to the employees of the activity. (True/False)
15. According to the wage board ___________________ could be utilised
for wage determination.
(a) Collective bargaining
(b) Adjudication
(c) Both (a) and (b)
(d) Pay Commission

3.7 Public Sector Pay Revision

Justice Mohan Committee, appointed by the Government of India on 31
August 1996 to recommend revised pay structure, allowances, perquisites
and benefits for the board level functionaries, below board level executives
and non-unionised supervisory staff submitted its report in December 1998.
It had to contend with the following issues:
(a) The capacity to pay the public sector: Till 1991, there was a broad
uniformity in pay structure and allowances. Post-liberalisation, pay

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revision was deferred in loss-making companies. The historical

circumstances and constraints and continued administrative hurdles
made it impossible for many public sector companies to earn profits.
Therefore, the union’s argument is that capacity to pay cannot be
considered in isolation.
(b) Relativity in emoluments: There is relativity in the emoluments paid in
the public sector enterprises, other Government sector employers, and
in the private sector. Government has revised the pay and benefits of
civil servants without regard to its financial situation. The Government,
as owner, is now asking the public sector to revise pay only if they earn
profits. This is done without increasing unit labour costs and price
revision.
(c) Autonomy for public sector enterprises: There is an increasing need
in determination of employee compensation. Without civil service
reforms, both reforms and autonomy in the public sector remain a
wishful indulgence.
(d) Duration: In the past, civil service pay was revised once in ten-to-twelve
years and public sector pay once in three-to-five years. In the private
sector, pay revision took place usually once in three years and in some
cases once in four-to-five years. The government now insists on pay
revision once in 10 years for the employees in public sector units.
(e) Parity between officers and workers: The parity between the lowest
paid worker and the highest paid executive was reduced from about 20
times in early 1970s to less than 6 times at the end of 1999. Justice
Mohan Committee recommended that the parity should be raised to 10
times.
(f) Parity between the public and private sector: This is considered to be
a complicated issue. At the worker level, emoluments in the public sector
were estimated to be 1.5 times higher than their counterparts in the
private sector. From senior manager onwards, emoluments in the public
sector could be at least 5 to 10 times less than counterparts in the
private sector.
(g) Parity at the worker level between the permanent and the casual
contract worker: In many companies, permanent workers doing similar
jobs with more or less similar skills get up to 8 to 10 times more pay than
the casual contract workers, working on similar jobs at the same site. A
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few collective agreements and some court judgements now insist that
there should be no such discrimination.
(h) Performance-linked pay: Public sector does not generally have either
the concept or the culture of performance-linked pay. In the public sector
units where performance-linked payments exist, the proportion of such
payments in the total pay never exceeded 8 per cent till 1999. Justice
Mohan Committee recommended that perquisites and allowances
should be up to 50 per cent of the pay.
Example: In the year 2007, about 3.7 million employees of PSUs like
SAIL and ONGC basic salaries got raised from ` 31,500 to ` 1.25 Lakh
per month including stock options, risk rewards and variable pays etc.
Self Assessment Questions
16. In the past, civil service pay was revised once in ten-to-twelve years
and public sector pay once in three-to-five years. (True/False)
17. At the worker level, emoluments in the public sector were estimated to
be ______________ times higher than their counterparts in the private
sector.
(a) 1.5
(b) 2
(c) 2.5
(d) 4.5
18. Public sector does not generally have either the concept or the culture
of _______________________.

3.8 ILO and Collective Bargaining

Administration of wages and salaries has been an issue of concern for
government of developed and developing countries as well as for
International Labour Organisation (ILO), at Geneva which concentrates
purely on formulation of International Labour Standards.
The Conventions No. 87 and 98 of ILO establish the right of workers to
organise and bargain collectively. In India, union density is about 6 per cent
of the labour force in the country.
According to Boone and Kurtz, the authors of Contemporary Business,
1999, "Collective bargaining is a process of negotiation between

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management and union representatives for the purpose of arriving at

mutually acceptable wages and working conditions for employees.”
Here, the workers terms and conditions are regulated through an agreement
initiated between employers and bargaining agents relating wages and
employment conditions.
The goals of collective bargaining are:
i) To settle disputes/conflicts relating to wages and working conditions.
ii) To protect the interest of workers through collective action.
iii) Use of voluntary negotiations to resolve the differences between
workers and management and arrive at an agreement
iv) To avoid third party interventions relating to employment.
Example: Tata Iron and Steel Company Ltd and Tata Workers Union
(Jamshedpur) is the best example of use of collective bargaining in fixing
wages and increasing productivity of employees.

Trade Union's Management

Demands Proposal

Negotiations

Third Party
Reference

Collective
Agreement

Source: http://www.futurageindia.com/industrial-dispute-resolution.php
Figure 3.2: Collective Bargaining Process

Figure 3.2 shows you the process of collective bargaining adopted to take
wage and salary administration decision including demands of trade union,
management proposal, third party references and collective agreements.
Self Assessment Questions
19. Expand ILO _______________________.
20. ILO Conventions No. 87 and 98 establish the right of workers to
organise to do ____________________ .
(a) Collective negotiation
(b) Collective bargaining
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(c) Adjudication
(d) Wage fixation
21. In India, union density is about 6 per cent of the labour force in the
country. (True/False)

3.9 Union Role in Wage and Salary Administration

The role of trade union in determination of wages and salaries was quite
strong in past which can be easily traced to Collective agreement. There is
enactment of different government laws and policies aimed at:
• Providing a decent work and life,
• Assuring payment of at least minimum wages,
• Indexing wages against rising cost of living,
• Ensuring equal remuneration to all employees and
• Restricting employers from practicing unfair and arbitrary deductions
from wages.
The government in addition to the joint effort of unions have enhanced the
standard of living of the workers.
Example: Some trade unions in India:

A.P. Mica Mine Workers Union

Andhra Pradesh Auto Rikshaw Drivers and Workers Federation
Calcutta Hawkers Men Union
Federation of Chatkal Mazdoor Unions
Nikhila Orissa Bleeci Sharmika Federation
Patiala Aviation Club Workers Union

In recent years the introduction of competition, decline in union density,

emergence of global production networks, collective bargain deregulation,
and the influence of trade unions in wage and salary administration has
declined.
Alfred Marshall, one of the most influential economists, defines four linkages
as given below between the demand for a product and the demand elasticity
of labour, the unions now do not enjoy the same bargaining capacity across
different sectors as it enjoyed earlier.
i) Substitution of other input for labour due to technological possibility in a
production process

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ii) Sensitiveness of the consumers to price changes

iii) The proportion of total cost of product accounted for by labour cost
iv) The supply elasticity of other inputs
In India, unions resisted technology changes which gave rise to productivity
and concession bargaining for analysis of mutual gains. As a result today
unions have realised that competition in present scenario is with customers
and not employers. The pay structure is composed of basic wage, house
rent allowance, dearness allowance and other statutory, voluntary and
bargained incentives.
Unions earlier had an unconfident attitude for alternative pay systems like
lump sum rewards, stock options, and pay for skills and knowledge, etc. But
with time, unions have gained an understanding and developed new
approaches to bargain on different aspects of change in technology,
alternative remuneration systems and productivity to make sure that
employees get a fair deal in the final wage analysis.
Today, unions are laying more emphasis on the benefits occurring post-
retirement. In India, unions want to get the triple benefits of pension, gratuity
and provident fund. Their sole concentration is on solving the dilemmas of
how to maximise return on investment of retirement funds when rate of
interest is falling and stock markets are declining.
Self Assessment Questions
22. Alfred Marshals claimed that the unions now do not enjoy the same
bargaining capacity across different sectors as earlier. (True/False)
23. In India, unions resisted technology changes which gave rise to
productivity and _________ for analysis of mutual gains.
(a) Concessional negotiation
(b) Collective bargaining
(c) Concession bargaining
(d) Collective negotiation
24. Today, unions are laying more emphasis on the ___________ benefits.

Activity 2
You are the head of trade union group at XYZ Technologies Pvt. Ltd.
which has recently implemented a technological change in its structures

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and systems. Your employees are not happy with the change and want
salary hikes to adjust with these changes which even you think as
justifiable. Management on the other hand, is looking for increased
productivity and is dependent on you for this. Suggest how you would
meet the needs of both employees and the management using collective
bargaining.
3.10 Summary
Let us recapitulate the important concepts discussed in this unit:
• The concept of wages includes wage levels like statutory minimum
wage, base minimum wage, the minimum wages, the living wages and
the need based minimum wages.
• Wage policy can be defined as the principles which act as guidelines for
determination of a wage structure.
• Public policy and legislative framework provides the basis for wage
determination.
• A pay commission is a panel comprising of the Union Cabinet of India
members for the purpose of hiking the salaries of government
employees.
• The Wage Boards were set up with the purpose to provide better climate
for industrial relations, to represent consumers/public interests, to
standardise wage structure, and to align the wage settlements with the
social and economic policies of the Government.
• Collective bargaining standards are formed to govern labour relations –
including, particularly, wages and working conditions
• The role of trade union in determination of wages and salaries was quite
strong in past which has now shifted to retrial benefits.

3.11 Glossary
Collective bargaining: A process where standards are formed to govern
labour relations – including, particularly, wages and working conditions.
Fair wages: Equal to the wage received by workers performing the work
which requires use of equal skills, difficultly levels and unpleasantness.
Minimum wages: The monthly, daily or hourly remuneration that employers
are legally obliged to pay to the employees under Minimum Wages Act
1948.

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Money wage: The wage determined and regulated through the interactions
between the demand and supply of labour on one hand and the demand
and supply of necessaries on other
Pay commission: A panel comprising of the Union Cabinet of India
members for the purpose of hiking the salaries of government employees.
Real wages: The inflation adjusted wages.
3.12 Terminal Questions
1. What do you understand by wages? Explain with examples.
2. Write a note on India’s wage policy mentioning its core objectives.
3. Write a short note on institutional mechanisms for wage determination.
4. Discuss briefly about pay commissions.
5. What are the major criticisms levied against wage board.
6. Describe the revision of public sector pay.
7. What are the benefits derived by workers in India from collective
bargaining?
8. What roles union play in administration of wages and salaries? Explain.

3.13 Answers
Self Assessment Questions
1. True
2. 2700
3. (b) Living wages
4. Wage policy
5. False
6. (a) Real income
7. Unilaterally
8. (a) Collective bargaining
9. False
10. Pay commission
11. True
12. (a) 17,000
13. Wage board system
14. True
15. (c) Both (a) and (b)
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16. True
17. (a) 1.5 times
18. Performance linked pay
19. International labour organisation
20. (b) Collective bargaining
21. True
22. True
23. (c) Concession bargain
24. Post-retirement
Terminal Questions
1. Wages are the economic compensation received by the employee from
the employer under the contract of employment. For more details, refer
to section 3.2.
2. Equal compensation, living wages, payment without deduction etc are
some of the fundamental principles of Indian Wage policy. For more
details, refer to section 3.3.
3. Public policy and legislative framework provides the basis for wage
determination. For more details, refer to section 3.4.
4. Pay commission can be defined as a panel consisting of the Union
Cabinet of India members for the purpose of hiking the salaries of
government employees. For more details, refer to section 3.5.
5. Single mechanism for fixing wage, unanimous recommendations, linking
of wages with productivity and procedural delays are certain criticisms of
Wage Board. For more details, refer to section 3.6.
6. Justice Mohan Committee recommended revising pay structure,
allowances, perquisites and benefits for the board level functionaries.
For more details, refer to section 3.7.
7. Collective bargaining is a process of negotiation between management
and union representatives. For more details, refer to section 3.8.
8. Today trade unions are laying more emphasis on the benefits occurring
post-retirement. For more details, refer to section 3.9.

3.14 Case Study

Panda International

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Mohan Panda, a bright young M.B.A, took over his father's responsibilities
as president of Panda International, a manufacturing unit in Orissa. The
company which is situated at Rourkela is a major industrial unit which
manufactures electrical equipments. The company employed approximately
one thousand people in the production division. It had never laced with a
demand for collective bargaining.
The company enjoyed wide reputation for its product quality, customer
dealings, distribution networks and above all its people friendly approach.
Majority of employees were highly satisfied with company’s HR policy as
well as wages and benefits offered to them. The wages offered by the
company was so far best in the locality. The working condition was
conducive for employees which had earned laurels for the company.
Recently two major players in the electrical equipment segment started two
major units at Rourkela and offered better wages to employees including
prospective employees from Panda International. Some of the existing
employees also joined in those units.
The new president had a conference with three long-term employees, who
explained that they and their associates had been discussing the desirability
of bargaining collectively. The employees had not voiced any strong
criticism of management, but they had held several meetings and had
invited representatives of a national union to talk with them. They concluded
that they ought to try collective bargaining and for this purpose formed a
union and enlisted a majority of workshop employees as members. The
three representatives had been elected to the bargaining committee in order
to present a written memorandum to the president with a request for
collective bargaining agreement. A series of issues carefully spelled out by
the union were handed over to the president by the three representatives.
The young executive accepted their memorandum and suggested that he
would like to have time to study it carefully. He proposed a meeting with
them for Tuesday of the following week.
When the committee members returned, the president reminded them that
the company had been careful to maintain wages and working conditions at
least on a par with those in unionised companies in the same industry and
region. He expressed the opinion that the specific proposals they had
presented seemed to him quite reasonable and appropriate.

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The president however expected the employees to maintain standard and

raise productivity in order to overcome competition from other industries and
maintain wage parity. He had been thinking of any of the same changes and
would probably have made them without their request. He was pleased to
hand them their memorandum with a notation indicating his acceptance.
The members left, quite satisfied with the effectiveness of their negotiations
and promising to report back to him as soon as possible
One week later, the president found the same group of representatives
waiting to see him. They appeared somewhat crestfallen and embarrassed.
They reported that they had gone back to the membership, presented a full
report of their discussions with him, explained his favourable attitude, and
recommended formal ratification of the memorandum as a new collective
bargaining agreement. After extensive discussion, when the motion for
ratification came up for a vote, a majority of the membership voted against
ratification.
Questions
1. What are the problems in this case?
2. Why did the members refuse to ratify the agreement?
3. In a situation like the one above, how can the union and management
play an effective role in fixing and revising wages and benefits through
the process of collective bargaining?
4. What measures do you suggest to maintain wage equilibrium and how?
Source: www.aima-ind.org
References:
• Armstrong, M. (2006). Handbook of Human Resource Management.
Kogan Page, 10th Edition.
• Milkovich G. T. & Newman J. M. (2005). Compensation Management.
Tata McGraw Hill.
• Robinson, S. L. & Rousseau, D. M. (1994) "Violating the psychological
contract: Not the exception but the norm" Journal of Organizational
Behavior 15, pp 245-259.
• Singh, B. D. (2007), Compensation and Reward Management, Excel
Books Pvt. Ltd.
• Soni, Shyam Singh (2008), Compensation Management, Excel Books
Pvt Ltd.

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E-References:
• http://www.economicswebinstitute.org/glossary/wages.htm/ Retrieved on
15th July 2012, Time: 12:19 PM
• http://www.scribd.com/doc/21894951/Concept-of-Wage-Salary-
Administration/ Retrieved on 15th July 2012, Time:12:20 PM
• http://www.slideshare.net/elisantos11/chapter-7-wage-and-salary-admin,
Retrieved on 15th July 2012/ Time: 12:22 PM
• http://labour.nic.in/lcomm2/2nlc-pdfs/Chap12-IIIfinal.pdf, Retrieved on
15th July 2012/ Time: 1:34 PM
• http://www.scribd.com/doc/26670160/Collective-Bargaining-in-India-
Project/ Retrieved on 15th July 2012, Time: 5:53 PM

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