Compensation Wages Differentials Theories Of Wages

COMPENSATION
What is compensation?
All forms of pay or rewards given to employees and arising from their employment

Types Of Compensation
There are direct financial payments wages salaries allowances incentives Commission bonuses etc.

Indirect payments in the form of financial benefits

employer paid insurance paid leave/holiday Car service Flexible timings

Objectives Of compensation
Recruit and retain qualified employees Increase or maintain satisfaction Reward and encourange peak performance Achieve internal and external equity Reduce turnover and encourang company loyalty

Payment of wages Act 1936 prescribes the method of payment of wages

The term wages in the broad sense means any economic compensation paid by the employer under some contract to his employees for the services rendered by them Payment of bonus Act 1965 requires employers to pay bonus to eligible employees every year. Beedi and Cigar Workers[conditions of employment )Act 1966 requires payment of overtime at double the normal rate[s.18] and One day paid holiday for every six days of work [s.21]

Theories of Wages
Adam Smiths wage fund theory Subsistence theory

Karl Marxs theory

Marginal Productivity theory

Adam Smiths Wages Fund Theory

Adam Smith(1723-90) assumed that employer has a reservoir of funds and utilized them for paying the wages of employees. If the fund was large enough, correspondingly the payment of wages are high and vice-versa. The demand for labour and wages were determined by the size of fund

Subsistence Theory
Also known as IRON LAW of wages . Stated by David Ricardio (1772-1823). It assumes that when they paid more than subsistence level, they might indulge in enjoyment. If wages fell below, number of workers would decrease as many would suffer from malnutrition and diseases. So, wages rate would increase as the number of labourers would decrease.

Karl Marxs Theory

Labour is an article or commodity that can be purchased on payment of price. The price of any product is determined by the time and effort needed to produce it. The labour is not paid in proportion to the time spent.

Marginal productivity Theory

This theory was developed by Philip, Henry, and Clark. It assumes that wages depend on the demand for, and supply of, labour. Hence, labour is paid according to its worth.