Wage Influencing Variables and Bonus Schemes

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Wage Influencing Variables and Bonus Schemes:

The capacity to pay:

This based upon a company's business performance over a period of time. The overall indicator of performance is the ratio of net profit over net worth. Additionally, the values of capital investment and market share held by the firm's product could also be considered. Another factor may be wage cost over overall cost of production.

Thus, the capacity of the firm to pay is determined by market technology and other cost factors. The capacity of a firm to pay is determined by the capacity of a particular unit, the capacity of an industry, and the capacities of all industries. Since 1948, the capacity of an industry as a whole is being considered. In addition to determining wage levels, a fair capital return, remuneration to management, a fair reserve-allocation and industrial depreciation have to be considered.

Productivity of labour:

Labour productivity is defined as a statistical ratio of total output to total labour. However, total labour involved alone doesn't attribute to total output. Other factors such as labour, capital and technology must also be considered.

Comparable pay based upon industry (Region principle):

It is always a wise idea to pay employees according to the local play scale. This ensures low turnover and high productivity. The fact that uniformity in wage scales is difficult to attain, and the presence of different financial capacities and concerns, the region principle may be hard to execute. Furthermore, job descriptions aren't always accurate. Comparisons between organized and organized sectors of different industries should be avoided because wage differential may also be due to factors like capacity of industry to pay and company productivity.

Rising cost of living:

Rising costs of living have to be compensated as purchasing power of money decreases.


Inter-temporal differences and legal rulings, etc.

Diagram of Wage Influencing Variables and Bonus Schemes:

Wage Influencing Variables and Bonus Schemes

Designing Bonus Schemes:

Bonus schemes are based upon these criteria:

1. Should a bonus be based upon company profits?

2. Should a bonus be based upon employees' individual productivity?

Other points to be noted:

1. Unions claim that bonuses should be paid to employees regardless of company profits because bonuses are nothing but accumulated total incomes of low paid employees.

2. Some companies award bonuses to employees only if the company has made considerable profit. Unions, however, oppose this notion; they claim that some companies deliberately alter profits/loss balance sheets to show an overall loss, so as to deny workers any right to a bonus.

Additional Readings:

1. Personnel Administration and Personnel Staff
2. Duties of Personnel Managers
3. Manpower Planning
4. Valuation of Human Resources
5. Career Planning
6. Advantages of Diversifying Managerial Training
7. Causes of Failure of Training Programs
8. Promotion Procedures of an Organization
9. Calculation of Minimum Wages according to Indian Labor Conference 1957
10. Wage Influencing Variables and Bonus Schemes
11. Salary Administration Procedures
12. Classification of Fringe Benefits
13. Importance of Good Communication in Business
14. Job Analysis
15. Recruitment Checklist

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