Components of compensation and labour relations in an organisation

Components of compensation and labour relations in an organisation

Wage and salary administration “refers to establishment and implementation of sound policies and practices of employees compensation.” It involves job evaluation survey of wage and salary analysis, development and maintenance of wage structure, establishment and maintenance of wage structure, establishment of rules for administering wage payment, incentives, profit sharing, wage changes/adjustment, control of compensation costs and other related items - Components of compensation and labour relations in an organisation introduction. The main objective is to establish and maintain an equitable wage and structure.

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The specific objectives of wage administration to employee are that; it helps to minimize favoritism in wage payment; helps to establish job sequence and lines of promotion where applicable. The specific objectives to employers on wages and salary administration are that; this helps them to plan systematically and control their labor costs; helps in dealing with unions because they are able to explain the basis of their wage plan. It also helps to reduce the likelihood of affliction and grievances over wage inequalities; enhances employee morale and motivation; helps in reducing labor turn over.

Wage and salary administration in any given organization is guided/determined by some factors which includes: organization ability to pay, this means that if the overall performance of a company is good then it is able to maintain and attract good workers as well maintain them; supply and demand of labor in that when the market is flooded with people who have skills the payment in organization is low because the labor can be obtained very easily.  When some skills are on higher demand and the demand is a prolonged one the labor market pressures do force an organization to reclassify hard to fill jobs at a higher level than could be suggested by job evaluation; prevailing market rates; cost of living; living wage which implies that the wage paid to a worker should be enough to enable that worker to maintain himself and his family at a reasonable level of existence; productivity union bargaining power which according to Gawrav Datt; 1996 (Bargaining power; wages and employment) the stronger the union, the better the pay. At times, Union actions may lead to unemployment e.g. when they insist on higher pay without increment in productivity.

In his book Gawrav Datt, 1996 wage and salary administration should be guided by principles like; the general level of wage/salary should be reason ably in line with that prevailing in the labor market. The wage plan should be simple to understand and convenient to implement; the wage and salary structure should be flexible so that it should easily meet changing conditions; also an equitable practice should be adopted for the recognition of individual differences in ability and contribution; the employee and the trade unions (where applicable) should be well informed about procedures used to establish wage rate; there should be a definite plan to ensure that differences in pay are based upon variations in file requirements e.g. skills, mental/physical requirements. Various methods of wage payments are employed to John Taye, 1995 (employment policy) such as; time wage system/dry/flat rate which involves payment of time. This is the oldest and most common system of paying. It doesn’t take into consideration of a person’s performance. Some of the pros with the time wage system are: it is easy and simple to understand and operate; it is fairly cheap to operate the system, it gives the workers some security but some of the cons/disadvantages with this method of wage system are; it fails to take into account individual differences in one’s performance. It doesn’t motivate hardworking people; it discourages workers due to wage payment parity with the inferior workers; it requires adequate and effective supervision and this may lead to strange relationship between the employee and the employers piece wage rate/productivity based method is a payment of wages according to the amount of work done or according to the number of units finished. The payment may be paid in advance irrespective of the time it will take. This is applicable in cases where work is standardized and can be divided in pieces or with units. Often a minimum rate is provided to give some sort of security this is according to John Toye, 1995 (employment policy). Some of the advantages of piece wage rate system of wage administration is that; it provides a great incentive to workers; it also distinguishes between the efficient and inefficient workers; requires less supervision; helps in improving quality of goods because workers will want to use quality materials as well as good equipment; it also makes it easy to calculate the cost of production and therefore the management will be able to give correct quotations. Some of the disadvantages of this methods are that; in order to earn more quality of work may be compromised while quantity may take precedence; union do not support this method of payment because it has a tendency to crate on healthy competition. The systems frustrate workers due to unstable and unpredictable payment.

Employees relations deals with employees not as individual but collectively and the main purpose is to improve employees cooperation with management and to minimize unnecessary conflicts to allow employees to have a say or play an appropriate part to decision making as well as keeping them informed industrial relations as system of roles regarded as a system or web of rules regulating employment relations. The essence of the system is that the rules are jointly          agreed by the representatives of the parties to employment relation thus making them more readily available.

Collective bargaining according to L.P.A. Aluchio, 1998, (Trade Unions in Kenya, Development and the system of industrial relations) defines it as a social process that continually turns disagreement into agreements into orderly fashion. The aim of collective bargaining is to establish by discussion or negotiations agreed rules and decisions in mattes of mutual concern to employers and unions in methods of regulating the conditions governing employment. It can also be seen as a joint regulating process that deals with regulation of management its relationship with workers as well as regulations of conditions of employment. According to some authors collective bargaining takes two forms; conjunctive bargaining/distributive which recognizes mutual interdependence of parties and also arises from absolute necessity that some agreement must be reached to enable operation on which the two parties are dependent; cooperative bargaining/integrative this recognizes that each party is dependant on each other and can achieve much by getting support from each other.

Unions have a variety of rules and regulations which are supposed to oversee the rights of their workers. Also charged with responsibility of ensuring that employer have secure forever of service, reasonable services, healthy working conditions, fair treatment.

Management service authority as well as to build team work, as a result they must develop rules as how this has to be done. Management and union of necessity must work together because they and mutually dependent. Important factors in union management relationship in cord stability which firmly established as basis for introduction between management and worker and even directors They should bear mutual trust when bargaining so as each party will keep its ward, moreso understanding from each other point of view so that each party can try to see issues from each other point of view. For non-unionized employees, there is formal negotiating procedure. There may be arrangements for joint consultations which includes; terms of reference and it is possible that these committees may be allowed to discuss terms of employment and is not a must to be allowed to discuss terms of employment and it is not a must to be allowed to discuss payment issues. Some companies may allow employee association and may be allowed to negotiate but not very much. Non-unionized organization are required by law at least have a disciplinary and grievance handling procedure in place.

Management should cultivate a harmonious working relationship between its workers; negotiations should take place when two parties meet and both aim to win as much as they can from the other while giving nothing away.


1.      Trade unions in Kenya (Development and the systems of Industrial relations by L.P.A. Aluchio, 1998).

2.      Bargaining Power wages and employment by Gaurav Dalt, 1996.

3.      Employment policy 1995, John Toye.



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