UNIT 10 INSTITUTIONAL MECHANISMS

FOR WAGE DETERMINATION

Institutional Mechanisms
for Wage Determination

Objectives
After going through this unit, you should be able to:
understand the different institutions/mechanisms for fixation of wages,
appreciate the relative merits and demerits, and
ascertain the significance of determining wages through collective bargaining and
its limitations.
Structure
10.1

Introduction

10.2

Public Policy and legal Framework

10.3

Unilateral Pay Fixation

10.4

Collective Bargaining

10.5

Pay Commissions

10.6

Wage Boards

10.7

Adjudication

10.8

Exercise

10.9

Review 'Questions

10.11

Further Readings

10.1 INTRODUCTION
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, (b) through collective bargaining between employer (or employers
association in an industry or industry-cum-region) and union (or federation of unions
in a sector or sector-cum-region), (c) Pay Commissions for civil service, (d) Wage
boards for select industries, and (e) adjudication by a third party where wage disputes
remain unsolved through negotiation and conciliation.

10.2 PUBLIC POLICY AND LEGAL FRAMEWORK

The legal framework for the payment of wages/salaries is governed mainly by four
legislations besides the guidelines for managerial remuneration and relevant
provisions in the Indian Companies Act. The four legislations include: The Payment
of Wages Act, 1936, The Minimum Wages Act, 1948, The Equal Remuneration Act,
1972, and the Payment of Bonus Act, 1965. The relevant provisions of these
legislations and the legal provisions/guidelines on managerial remuneration are
discussed in the concerned units separately. In addition, the Department of Public
Enterprises issues from time to time detailed guidelines and set up Pay Review
Committees with regard to public sector pay. These are discussed in the unit on
public sector pay.
To enforce legislative provisions, tripartite regional minimum wage advisory
committees exists in the centre and in various states. The labour machinery at the
state and central level oversees the implementation of the various legislations.
Additionally, for overseeing the implementation of equal remuneration act, four
voluntary organisations connected with womens' welfare have been empowered to
lodge complaints on behalf of the affected persons.

13

Compensation Structure
and Differentials

A series of welfare legislations - Employees' State Insurance Act, 1948 and

Employees Provident Act, 1952, for instance - also deal with remuneration related
aspects. To oversee their functioning tripartite boards with representatives of
government, employer organisations and workers organisations have been
established. In addition, there are Lok Adalats and Computerised Grievance
Redressal Mechanisms to deal with complaints relating to one or more of these
legislations. Individual employees, trade unions can also seek redressal through
labour courts all the way upto the Supreme Court. Even uninvolved parties and nongovernmental organisations also can proceed with public interest litigation to seek
redressal of persons affected by violations of various legislations like, for instance,
Minimum Wages Act.
Government has also established machinery to collect data and infouuation and
disseminate the same. Labour Bureau, Shimla not only collects and compiles
information about the cost of living index which provides the basis for compensating
the workers for rise in cost of living under the existing applicable schemes of
dearness allowance. Labour Bureau, Shimla, Annual Survey of Industries of the
Central Statistical Organisation .and National Sample Survey are among the other
institutions which collect and compile information on wages and living conditions.
Labour Bureau and the Central Industrial Relations Machinery in the Ministry of
Labour also prepare reports on the implementation of the legislations mentioned
above. Labour Bureau also conducts, from time to time, inquiries into wages and
working conditions of workers in select industries (for instance, mines, beedi and
cigar, etc.) for which separate legislations are in force.

10.3 UNILATERAL PAY FIXATION

In India 92 per cent of the labour force is unorganised. Though a significant portion
of the unorganised labour force is covered by minimum wage Iegislation, given the
high unemployment and underemployment there are little incentives for employers to
comply with the legislation (for every person who does not work below minimum
wage there could be many more who are willing to work for less than the minimum
wage) and many practical difficulties in effective enforcement. It is not only
anecdotal accounts by workers and trade union activists, but also field study reports
by researchers, both Indian and foreign, which confirm the problems with actual
implementation of minimum wage legislation. Majority of the unorganised sector
workforce is not unionised and hence the possibility for determining wages and
working conditions through collective bargaining is virtually ruled out. In a few cases
collective bargaining in the unorganised and sick industries in the private sector has
actually led to agreeing for less than the benefits and protection afforded by
legislation.
Given the above scenario, in respect of a vast majority of the workforce in the
unorganised sector wages are unilaterally determined. 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.
In a large number of private sector establishments, for the non-uninionised
supervisors and executives wages are unilaterally determined by their employers. In
this case, however, usually employers tend to basethe salary levels at or around, if not
above, the market rates in view of the difficulties in attracting, retaining and
motivating skilled and experienced personnel.
Unilateral wage fixation by employer can be unfair to the individual employees
because the latter will have lesser bargaining power vis-vis their employers, often
tend to encourage arbitrariness and raise questions about fairness and equity.

10.4 COLLECTIVE BARGAINING

14

Collective bargaining is a process where by standards are created to govern labour

relations including particularly wages and working conditions. ILO Conventions
No.87 and 98 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. Of them
nearly two-thirds are in government and quasi-governmental organisations, including

defence and are not covered by collective bargaining.

Trade Union Act does not provide for statutory recognition of collective bargaining
(though some state government legislations provide for it) and legislation puts a
premium on adjudication rather than collective bargaining. Refusal to bargain
collectively, in good faith, with recognized trade unions is, however, made an "unfair
labour practice" under section 2(ra)/Schedule V of the Industrial Disputes Act and is
punishable under section 25 (u) with imprisonment for a term which may extend to
six months or with fine which may extend to Rs.I,000 or with both.
LEVELS OF BARGAINING
Sectoral Bargaining At National Level: Prior to 1970s wage boards appointed by
government were given awards on wages and working conditions. The number of
wage boards had declined from 19 in late 1960s to one (for journalists) in late 1990s.
Since early 1970s sectoral bargaining is occurring at national mainly in industries
where the government is a dominant player. These include banks and coal
(approximately 800,000 workers each), steel and ports & docks (250,000 workers
each). 58 private/public/ multinational banks are members of the Indian Banks
Associations. They negotiate long-term settlements with the all-India federations of
bank employees. Over 200 coking and non-coking mines were nationalized in early
1970s. They are spread all over the country, with some owned by state governments
and many by the central government. There is one national agreement for the entire
coal industry. In steel there is a permanent bi-partite committee for the integrated
steel mills in the public and the private sectors.
Since 1969, this committee which is called the National Joint Consultative
Committee for Steel Industry (NJCS) has signed six long-term settlements. The 11
major ports in the country have formed the Indian Ports' Association. They hold
negotiations with the industrial federations of major national trade union centres in
the country.
A. peculiar feature of sectoral bargaining at the national level is the presence of a
single employer body and the involvement of concerned administrative ministry from
employers side. In many sectors, two to five major national centres of trade unions,
which have a major presence through respective industry federations of workers'
organizations, negotiate. In banks, coal and ports & docks invariably all agreements
were preceded by strikes or strike threats. Only in the steel industry this did not
happen during the past 29 years. Even though industry-wide bargaining is not
extended to the oil sector, which was nationalized in the late 1970s, the Oil
Coordination Committees accomplish a great deal of standardization in pay and
service conditions even if collective bargaining occurs at firm and/or plant (for
instance, Hindustan Petroleum Corporation Limited), The agreements in banking and
coal covered 800,000 workers each while that in steel and ports and docks covered
250,000 workers each.
Industry-cum-Region-wide Agreements: These are common in cotton/jute textiles,
engineering and tea, which are dominated by the private sector. But such agreements
are not binding on enterprise managements in the respective industries/regions unless
they authorize the respective employer associations in writing, to bargain on their
behalf. The employment in the four regional agreements in textile, jute and
plantations was around 1200,000. 300,00 and 250,000 respectively.
Decentralized Firm/Plant Level Agreements: In the rest of the private sector while
employers generally press for decentralized at plant level, unions insist on bargaining at
least at company level where the employees are formed into federations at company
(combining several plants/locations). In 1998 there was a 39-day strike in Escorts, a
private sector automobile and engineering conglomerate with over 14 factors and
35,000 workers in an industrial centre close to New Delhi on this issue of decentralized
bargaining. It does not mean, however, that employers in multi-unit private sector
enterprise do not bargain with trade union federations at company level. One example
relates to Brooke-Bond till it was merged with Lipton and became a part of Hindustan
Lever in of the recent mega mergers in the country. Plant level bargaining is believed to
reduce the bargaining power of unions, particularly during periods of crisis. In
juxtaposition, there is a general tendency on the part of particularly the unions and the
government to think of public sector as a whole. With the result, uniformity is sought

Institutional Mechanisms
for Wage Determination

15

Compensation Structure
and Differentials

at the highest level and the concept of capacity to pay is altogether ignored in public
sector wage negotiations. If a public enterprise's coffers are empty, the exchequer
used to raise the money. There is a no corresponding tendency, even among the trade
unions to consider the private sector as a whole, and capacity to pay continues to be
reckoned for the purpose of wage negotiations in the private sector.
DURATION: Till the 1970s the collective agreements were for a period of two to
three years. During the 1970s and the 1980s the duration of agreements increased to
three to four years. During the 1990s the Over four-fifths of the central public sector
agreements are signed for a duration of five years each. For the sixth round of wage
negotiations due from 1.1.1997 but serious negotiation; are still to commence even at
the beginning of the year 2000, the government 's proposal to extend wage
agreements for 10 years is meeting with stiff resistance from the unions and
sympathetic consideration from the Group of Ministers appointed for the purpose.
Collective agreements in most private sector agreements continue to be valid for a
period of three or in some rare cases four years.
EMERGING TRENDS: Till the 1970s, collective bargaining meant two things: As
far as possible, considering the adversarial relationship in most situations, the attitude
of both the managements and the trade unions has been to bar the gain to the other
party. A second trend during the period was for the workers unions to serve charter of
demands on the managements. Managements used to bargain that it is not possible to
give so much. After some negotiations agreements were reached and workers used to
collect some additional benefits. It was managements reluctantly giving in and
workers collecting. In the 1980s managements began to serve counter-proposals
before or after they receive charter of demands from the trade unions. The idea was
to give and to take in the name of 'productivity bargaining.' Trade unions used to
agree to give up restrictive and wasteful practices in return for higher wages and
benefits. In some cases there were general (honeymoon promises which say
something without meaning much) or specific, actionable clauses. Since the late
1990s the scope was widened to cover assertion of managerial rights to concession
bargaining in crisis. Over all, in the public sector, however, the trend is, "something
(to workers) for nothing (to management)" while in the private sector the usual
pattern has been "Something (to workers) in return for anything (for managements)".
The emerging trend, particularly in the private sector is something akin to what Ian
McGregor of British Steel averred during Thatcher's era in the UK: Something for
something, nothing for nothing. Overall, the difficult conditions in product markets
and near recessionary and/or jobless growth situation in several crucial sectors of the
economy collective bargaining is barring the gains to the workers.
Even in cases where they seem to gain significantly higher wage increases, it is as
Ramaswamy and Holmstorm observe, managements way of meeting unions head on
reducing complex issues of rights and career prospects and industrial relations to a
straight bargain between two corporate' groups. The managements get control over
work allocation, and the unions get more money for their members. Managements
emphasize that manning standards are fixed not arbitrarily but 'scientifically', by
Taylorist industrial engineers; an argument that middle-class union leaders can
accept. The company and the union become mirror images of each other hierarchically structured, under hardheaded leaders who believe they are competent
to take decisions on behalf of the less qualified people below them" (Holmstorm,
1990; 7-8; Also see: Ramaswamy, 1990,160-173).

16

Very few empirical studies looked at the trends in collective agreements over the past half
a century. Two surveys undertaken by the Employers' Federation of India during 1956-60
and 1961- 69 revealed that: (a) during 1956-60 one-third to one-half of the industrial
disputes in large firms were settled through collective bargaining. The second survey
covering 111 agreements during 1961-69 revealed that over fifty per cent of the
agreements were for periods ranging from three to five years. Wages is the dominant issue
in almost all agreements. Nearly 50 per cent of the agreements during the 1960s dealt with
retirement benefits. There was no evidence, at that time of management proposals or
managerial rights. This is a post mid-1980s phenomenon as studies of 60 and 200 firms
respectively by Venkata Ratnam (1990 and 1997b).
The sad reality is that: (a) workers can decide which union can represent them without

ever belonging to a union; (b) workers can enjoy the' benefits of collective bargaining
as 'free riders' without joining union/paying union dues; (c) unions can have
collective bargaining rights without the support of the rank and file; (d) even where it
is mandatory to bargain with managements, it is possible to strike deals with minority
unions; and, (e) through collective bargaining, workers interests can be divided
further by offering more to the shrinking 'core' workers who do less and leaving less
to the growing workers in the unorganized 'peripheries' who do more.

Institutional Mechanisms
for Wage Determination

10.5 PAY COMMISSIONS

The pay structure of the Central Government employees is based on the
recommendations of Pay Commissions set up by the Central Government. While
some state governments also broadly follow the recommendations of the Central Pay
Commissions for their employees also a few other state governments set up their own
pay commissions. During the past 50 years, Government of India has set up five pay
commissions. The recommendations of the Fifth Pay Commission, which submitted
its report in 1997, as accepted by the Government are currently in force. Pay
Commissions also cover a wide range of employees in the public sector.
There are significant differences between the methods of settlement of wage disputes
available to workers in the private sector and those concerned Government
employees. The latter are at a disadvantageous position as none of the wage
settlement methods such as collective bargaining, conciliation, adjudication or
arbitration is available to these employees to settle wage claims and disputes.
A Joint Consultative Machinery was set up by the Central Government to discuss
matters relating to welfare of the employees and improvement of efficiency and
standards of work. The scheme provides for a limited extent of compulsory
arbitration on the following subjects: (i) pay and allowances, (ii) weekly hours of
work, and (iii) leave of a class or grade of employees. The Government, however,
becomes the final authority in deciding whether an issue can or cannot go for
arbitration.
Despite these arrangements, the effective method available to Government
employees is that of enquiry by a Pay Commission. The Central Government has so
far set up five Pay Commissions which reported in 1947, 1959, 1973, 1984, 1987
respectively. Most State Governments have also set up Pay Commissions from time
to time.
Pay Commissions which were set up at regular intervals function non-statutorily,
study the problems establishing their own procedures for the collection of data and
information and make recommendations to the Government. Though these
recommendations are given much weightage, the ultimate responsibility lies with the
government whether to accept, or modify or reject some of them.
The First Central Pay Commission recognised that the influence of the law of
demand and supply cannot be wholly ignored in fixing the salaries of public servants.
The fairness and adequacy of the salary proposed must be judged balancing the
interests of the employee, employer and the public. The Commission stated that an
employee must be paid a `living wage'. However, with the Fair Wages Committee's
clarification of the concept of living wage it becomes clear that the living wage
which was recommended by the Commission should actually be the minimum wage.
The Second Pay Commission also referred to the principle that as a matter of social
policy, the lowest rate of remuneration should not be lower than a 'living wage' and
the highest salaries also should be kept down, consistent with the essential
requirements of recruitment and efficiency. The Commission reached the conclusion
that the minimum wage or salary should not salary should not be determined merely
on economic considerations, but should satisfy also a social test' - both because of its
intrinsic validity and because of its bearing on efficiency. Even above the minimum
level Government should remunerate their employees fairly; for those who serve the
State, as well as others, are entitled to fair wages (Second Central Pay Commission
Report).
The first two Central Pay Commissions stressed that the minimum wage must satisfy
a social test and that wages above the minimum should be 'fair'.

17

Compensation Structure
and Differentials

The major requirements of a sound pay system quoted by the Third Pay Commission
included inclusiveness, comprehensibility and adequacy.
Inclusiveness - the pay structure and career pattern adopted for the civil service
should broadly be adopted by autonomous quasi-governmental organisations also.
Secondly, the large- scale appointment of casual, contingency, and work-charged
employees should be discouraged and kept to the minimum.
Comprehensibility - the pay scale proper should provide a true and comprehensible
picture of the total remuneration given to the Government employee.
Adequacy - the pay structure should be adequate both internally and externally.
Individual attributes such as education, training and skill should be taken into account
for internal adequacy. For being externally adequate, the pay structure should provide
for some measure of protection of living standards.
None of the above pay commissions viewed that the Government should be assigned
the role of `model employer' by paying higher wages and salaries. However, it was
observed that the Government must be guided by the objectives and principles
prescribed by the Pay Commission.
Though the feasibility of need-based minimum wage as 'examined by the two Pay
Commissions, they differed in their views on the 15th Session of the Indian Labour
Conference specifications on the minimum wage. The Third Pay Commission viewed
that the minimum wage fixed should be realistic and should match the conditions
prevailing in the economy. The Commission concluded that the adoption of the
minimum remuneration based on the 15th ILC norms at this stage would be
tantamount to a misdirection of resources" (Report of the Third Central Pay
Commission (1973), Vol. 1, p.58).
An important criteria in wage determination in industry is that of comparison. The
First Pay Commission considered that a `fair relativity' should be maintained between
government employees and outside rates. The Second Pay Commission felt that
though fair comparison between rates of remuneration for comparable work could be
adopted, it involves practical difficulties in the application of the principle. The Third
Pay Commission paid considerable attention to fair comparison under the principle of
'equal pay for equal work'. However, there can be no fair comparison between
establishment with a profit motive and a public service motive. The Fourth Central
Pay Commission dealt with the criteria of comparability on how it is not satisfactory
as an absolute factor for fixing the governmental pay structure by comparison with
that prevailing in the private sector. A market price cannot be assigned to the value of
work in the public services. The Commission viewed that comparisons should be
used in determining pay of government employees. As far as possible, the effort
should be to provide comparable emoluments for comparable work.
Capacity to pay is another significant criterion applicable to the remuneration of
Government employees but the method of assessment of Government's capacity is
entirely different from that in the private sector. Since, the Government's capacity to
pay cannot be measured precisely, the Government could pay 'fair wages' to its
employees. The Fourth Central Pay Commission observed that the capacity of the
employer to pay its employee is a factor to reckon an be given due consideration. The
Commission said that the fairness of the payments has to satisfy a double test in the
sense it has to be fair from the point of employees as well as the people they serve.
The Fourth Central Pay Commission (1984; p.84) disagreed with the First and
Second Pay Commissions which rejected the 'model employer principle'. The
Commission expressed that a model employer need not necessarily pay higher wages
than other good employers. "A `model' is above the ordinary or above that which is
the minimum, or higher than what others are content with or what is good enough to
serve their purpose".

18

Another important factor in wage determination is the cost of living. The approach of
most Pay Commissions has been to devise a salary structure with reference to a certain
consumer price index at which the Commission believes that prices may eventually get
stabilised or at any, rate, below which prices are unlikely to fall and to provide for
neutralisation of any rise in the cost of living thereafter through dearness allowance
linked to, and generally varying with, the consumer price index.

The various commissions expressed different views on the subject of dearness

allowance payable to Government employees. The First Central Pay. Commission
observed that the dearness allowance is relevant not only to the needs of the most
vulnerable section of the employees but some of the upper grade employees also
require a measure of relief. The quantum of dearness allowance will be raised,
lowered or discontinued for a rise or fall in the consumer price index. The same
principles would apply to all classes of employees except that when the consumer
price index fell considerably below the existing level, DA was to be discontinued at
different index levels for employees on different pay scales. The Commission
recommended DA to all employees drawing a salary up to Rs. 100).

Institutional Mechanisms
for Wage Determination

The Second Central Pay Commission considered DA as a device to protect the real
income of wage earners and salaried employees from the effects of rise in prices. The
Commission, however, limited payment of dearness allowance to those drawing a
salary of less than Rs. 300) per month. The Third Pay Commission observed that
dearness allowance should be treated as compensation to the wage earners and
salaried employees against rise in prices over the index level to which the pay
structure was related.
After examining the consumption pattern of employees in the higher pay range the
Commission recommended extending payment of dearness allowance to all
employees getting pay not exceeding Rs. 2250) per month.
The Fourth Central Pay Commission also viewed that the compensation should
provide full neutralisation of price rise to employees drawing basic pay upto Rs.
3,500/), 75 per cent .to those getting basic pay between Rs. 3,501 and Rs. 6000 and
65 per cent to those getting basic pay above Rs. 6000 subject to marginal
adjustments. This compensation may continue to be shown as a distinct element of
remuneration.
Doubts expressed regarding the suitability of the Consumer Price Index for Industrial
workers presently being used for purposes of grant of DA to Central Government
employees. It has been argued that this index does not truly represent the
consumption pattern of all Central Government employees and should be replaced by
an index specially prepared for the purpose.
The Fifth Central Pay Commission, which submitted its report in 1996, made some
proposals linking pay revision with work organisation and manpower planning. It
recommended 40 per cent increase in pay and 30 per cent reduction in manpower
over a three year period, new modes of recruitment, including contract employment,
and innovative suggestions on training, performance appraisal, career progression,
transfer policies and accountability. The government accepted the first part of the
recommendations and not the second part.
The problem with pay commissions is two fold: firstly, they are not able to relate
recommendations with the principles they enunciate. Secondly, governments usually
tend to take economic decisions on political considerations.

10.6 WAGE BOARDS

The Wage Boards have a long history in the Indian Industrial Relations Systems. As
early as 1931 the Royal Commission on Labour recommended the setting up of Wage
Boards for determination of wages. It was envisaged in the First Five Year Plan that
permanent Wage Boards with a tripartite composition should be set up in each state
and at the Centre to deal comprehensively with all aspects of the question of wages.
The above reeommendation, however, did not receive adequate attention and the
wage disputes continued to be settled through Industrial Tribunals. The Second Plan
also considered the Wage Board to be a more acceptable machinery as it gives the
parties a more responsible role in reaching decisions. The Fair Wages Committee, the
real authors of the Wage Board Scheme, said that fair wages should be fixed on an
industry-cum-region basis. But the Government has consistently set up a single
industry-wide Wage Boards throughout the country.
The first Wage Board to be set up by the Government was in 1957 in the cotton textile
industry. Since then more and more industries have been brought within the scope of

19

Compensation Structure
and Differentials

20

Wage Boards. The Wage Board were set up: - to provide better climate for industrial
relations; to represent consumers/public interests; - to standardize 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 is tripartite in nature, which
consists of a chairperson, an equal number of representatives of employers and
employees (two members each), and two other independent members (an economist
and a consumer's representative) nominated to the Board. The chairman shall be
appointed by the appropriate Government in consultation with the Chief Justice of
the High Court concerned or Supreme Court of India, as the case may be. Any person
who is or has been or is eligible to be appointees as a Judge of the High Court shall
be qualified for appointment as the Chairman. It has been the practice to nominate a
Member of Parliament to represent the interests of the consumer/public.
The members representing the employers shall be appointed by the appropriate
Government on the recommendation of the most representative organisations of the
employers in the activity. The members representing the employees shall be
appointed by the appropriate Government on the recommendation of the most
representative organisations of the employees in the activity.
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.
PROCEDURE OF THE WAGE BOARD: The Wage Board shall follow such
procedure as may be prescribed; provided that where the appropriate government has
not prescribed any procedure the Wage Board may evolve its own procedure.
CRITERIA FOR AWARD OF THE WAGE BOARD: In evolving a wage
structure, a Wage Board is required to take into consideration the needs of the
industry, the system of payment by results, prevalent rates of wages for comparable
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.
Wage Boards may have been assigned additional tasks such as consideration of the
grant of bonus and framing of gratuity schemes.
AWARD OF THE WAGE BOARD: The award of the Wage board: a) shall be
based on the majority opinion and shall be in writing and signed by the members
including the chaitman. b) shall be final and shall not be called in question by any
court in any manner whatsoever but an appeal may be filed against the award before
the National Labour Relations Commission c) shall come into force with effect from
such date as may be specified therein and if no date is specified it shall come into
force on and from the date on which it is signed. d) shall be binding on all persons
who were employed in the activity on the date on which it is signed and all persons
who subsequently become employed therein and all their employees including the
heirs or successors and assigns of the employers. e) shall remain in operation for a
period of three years and it may be extended for such further period as may be
decided by mutual agreement between the parties.
ENFORCEMENT OF THE AWARD: After the award of the Wage Board hag
come into force every employee of the activity shall be entitled to be paid wages in
terms of the award and every employer of the activity shall be able to pay wages at
rates which shall in no case be less then the rates of the award, provided that if the
wages of an employee are higher than the wages due as per the award he shall be
entitled to continue to draw higher wages, at his option.
The Wage Boards are non-statutory, except the one for working journalists. In some
states, however, there are statutory wage boards for certain industries. As a rule the wage
boards have been functioning with a flexible approach. Each board collects information
by issuing a detailed questionnaire and holds sittings to record the views of the concerned
interests. After an assessment of these views the board makes its recommendations to the'
Government. The procedures adopted by the boards have evoked sharp criticism. The
recommendations of the wage boards are examined by the Government and the

unanimous recommendations are accepted by the parties. In a few cases the

recommendations have been modified, leading to apprehensions about the
government adopting a partisan stand towards employer or employees as the case
may be.

Institutional Mechanisms
for Wage Determination

The major criticism levelled against the Wage Boards has been that :(1) single
machinery for wage fixation in all types of industries will not be suitable and
therefore depending upon the nature of the industry, wage boards. Collective
bargaining or adjudication could be utilised for wage determination. (2) Nonimplemented or even unanimous recommendations. (3) The question of linking
wages with productivity has not been considered seriously by any of the wage
boards. (4) Serious procedural delays. Bipartite Committee was set up on the advise
of the 27th Session of the Standing Labour Committee to examine the problems of
delays in the working of the Wage Boards and securing fuller implementation. One
of the suggestions emerged was that after the constitution of a Wage Board for a
particular industry disputes relating to matters before the board should not be referred
to adjudication.
The National Commission of Labour (1969) also recommended: there need be no
independent persons on the Wage Board the chairman should preferably be appointed
by the common consent of both employers and employees the Wage Boards should
be required to submit their recommendations within one year of their appointment,
the recommendations of a Wage Board should remain in force for a period of five
years unanimous recommendations of the Wage Boards should be made statutorily
binding Central Wage Board Division should be set up on a permanent basis to
service all the wage boards.
WAGE BOARDS RECOMMENDATIONS: In pursuance of the recommendations
of the Planning Commission, the Wage Board System was introduced in March, 1957
with the appointment 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 in respect of 19 industries as shown below. As of April 2000
the fifth Wage Board was set up only for working journalists and other newspaper
employees under the Working Journalists and Other Newspaper Employees
(conditions of service_ and Miscellaneous Provisions Act, 1955.
A. First Central Wage Boards Manufacturing Industries:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
B.
15.
16.
17.
C.
18.
19.
20.

Cotton Textiles
Sugar
Cement
Jute Textile Industry
Iron and Steel
Leather and Leather Goods
Heavy Chemical and Fertilisers
Working Journalists
Non-working Journalists
Engineering
Ports and Docks
Electricity Undertakings
Road Transport
Working Journalists and Non-Journalists, Newspaper Employees
Mining Group
Coal Mining
Iron Ore Mining
Lime Stone .and Dolomite Mining
Plantations
Tea Plantations
Coffee Plantations
Rubber Plantation

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Compensation Structure
and Differentials

Second Central Wage Boards

21. Cotton Textiles
22. Cement
23. Sugar
24. Working Journalists -converted into one man
25. Non-working Journalists - Tribunal on 9-2-1979
Third Wage Board
26. Sugar
27. Working Journalists and Non-Journalists, Newspaper Employees
Fourth Wage Board
28. Mines
29. Working Journalists and other Newspaper Employees
Fifth Wage Board
30. Working Journalists and other Newspaper Employees

10.7 ADJUDICATION
When: Pay Commissions and Wage Boards submit the reports, the Governments
accepts the recommendations with or without modifications. When collective
bargaining and conciliation fail to accomplish resolution of dispute between labour
and management, the cases may be decided through voluntary arbitration or
compulsory adjudication. During the 1970s and 1980s wages in the cement industry
were decided through arbitration. Not any longer. When wage disputes persist
government refers them for adjudication. Though the adjudicators award is normally
binding on labour and management, it is not uncommon for parties to move the
courts over the award of the adjudicator. In such cases the Supreme Court is the final
arbiter. There have been, however, instances where even Supreme Court verdicts had
problems in implementation/enforcement due to ground realities. In such instances
either labour or management, usually the former, makes amends and agrees with the
latter for something less than what the Supreme Court mandated. The dearness
allowance dispute in Raptokas Bret (1992-93) is one such case. While the Supreme
Court ordered the company to .pay double indexed dearness allowance the company
found it difficult and instead wanted to sell the unit. The union then gave up its
demand for double indexed dearness allowance and entered in to an agreement with
the management.
In most industrialised countries, it is realised that interest issues (wages, allowances,
etc.) can not be adjudicated, but rights issues (right to unionise, right to bargain, right
to prior notice, right to consultation, etc,) can be. In India, however no such
distinction is made and both interest issues and rights issues are subject to bargaining
and adjudication. This creates avoidable difficulties in the running of enterprises.

10.8 EXERCISE
1. Read any report of any pay commission or wage board. Examine and report
whether and how the recommendations are based on the principles enumerated.

10.9 REVIEW QUESTIONS

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1.

What is the difference between a pay commission and a wage board?

2.

Discuss why interest issues cannot be adjudicated, but rights issues can be?

3.

Discuss the relative merits and demerits of different methods of wage

determination.

4.

Discuss whether and why collective bargaining is superior to other methods of

wage determination?

10.10 FURTHER READING

Institutional Mechanisms
for Wage Determination

Dayal, Sahab, 1980. Industrial Relations System in India, Sterling: New Delhi.
Employers' Federation of India. (1960). Survey of Collective Bargaining. Bombay.
Employers' Federation of India. (1969). Survey of Collective Bargaining. Bombay.
Fonseca, A J, 1975. Wage Issues in a Developing Economy, Oxford University Press:
Bombay.
Holmstorm, M. (1990). Work for Wages in South Asia. New Delhi: Manohar. ILO,
1984. Payments by Results, ILO: Geneva.
India (Govt. of -.). (1931). Royal Commission on Labour: Report. New Delhi:
Government Printing Press.
India (Government of -), 1969. Report of the National Commission on Labour, A
Government of India: New Delhi.
India (Government of -), 1986. Report of the Fourth Central Pay Commission,
Government of India: New Delhi.
India (Government of-.). 1996. Report of the Fifth Central Pay Commission,
Government of India. New Delhi.
Ramaswamy, E. A. (1990). Indian Trade Unionism: The Crisis of Leadership. In
Mark Holmstorm (Ed.). Work for Wages in South Asia. New Delhi: Manohar.
Srivastava, A. K. (1989). Identification of Collective Bargaining Agent for Industrial
Disputes: History, Practice and Policy Options. New Delhi: National Labour
Institute.
Subramaniam, K N, 1979. Wages in India, Tata-McGraw Hill: New Delhi.
Venkata Ratnam, C S, 1986. Problems of Paying: A Review of the IV Central Pay
Commission, IMI: New Delhi (Mimeo).
Venkata Ratnam, C S, 1989. Emoluments in Public Enterprises : Review of Pay
Committee's Report, Economic and Political Weekly, May 27, 1989, M61-M66.
Venkata Ratnam, C. S. (1990). Unusual Collective Agreements. New Delhi: Global
Business Press.
Venkata Ratnam, C. S. (1997a). Welfare to Moneyfare: A Study of Social Security
arrangements through Collective Bargaining. UNDP/Centre for Development
Studies (Trivandrum) Project Report. New Delhi: IMI. Mimeo.
Venkata Ratnam, C. S. (1997b). Collective Bargaining and Flexibility. Study report
submitted to Labour Law and Labour Relations Branch of ILO. New Delhi: IMI.

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