CHAPTER 7 WAGES AND SALARY ADMINISTRATION

OBJECTIVES:
After this lesson, you should be able to:
1. Enumerate the different theories of wages;
2. Explain the significance of wages to the worker, labor and labor relations, to the natural
economy, and to society;
3. Discuss the procedures of a wage and salary survey;
4. Compare the procedures of a wage and salary survey; and
5. Deduce the advantages of the wage and salary structures.

The Role of Human Resources in the Payment of Salaries

One of the most important functions of Human Resources is payment of the proper salaries and
wages to all company employees. The pay that the employees receive from their employer is the very
reason for their being in the job. The pay provides them with strong incentive to do their jobs well and the
rate of pay indicates their status in the company. The pay determines the standard of living and their
positions in the community where they live. It must be commensurate with their efforts and contributions
to the company’s profitability index. The determination of the proper level of pay is the foundation of
effective employee and employer relationship as satisfied worker will stay longer in the company and
develop a working team be beneficial to both parties. One way to retain competent employees and keep
their morale high is to plan salary levels so as to establish uniformity of pay in relation to the job in the
company and those in other business establishments in the community.

The function of the payroll in a company is usually the wage and salary administration and it is carried
out by the Human Resources Department. The most important duty of the Human Resources is to set
wage scales high enough to attract better employees and contribute to the level of profitability that will
sustain continuous profitable operations. The level of pay must not impair profits, however.

Theories of Wages
Wage theories deal with the payment of labor employed in competitive enterprises. Wages
represent the payment of one factor of production that is manpower. Profits and capital could not be
attained without the manpower that have to be paid according to their contribution or are the shares paid
for the value of land, capital, and profits.

1. Classical Wage Theory

This theory is based upon the fundamental concept that labor is a commodity and we have to pay
the price according to supply and demand. The greater the supply, the lower the price and the greater the
demand the higher the price. The price of labor, which is called wages, is necessary to keep the laborers
to subsist and to perpetuate their race. Wage should not fall below subsistence level. When the supply of
labor reaches below the industrial requirement, there will be a competitive bidding among employers and
therefore there will be a consequent rise in wages. When the price of labor is below the natural price, the
condition of laborers is to most wretched. When this happens, the laborers could be deprived of those
comforts, which customs render as absolute necessities.
2. The Just Wage Theory of St. Thomas Aquinas
A just wage is described as wage which permits the recipient worker to live in a manner in
keeping with his position in society. This doctrine is related to social organization based on the status of
the individual in the social organization. According to this theory, the worker’s cost of living should be
considered first in the cost of production. Wages are responsible for allocating labor to various
occupations.

This theory is the basis in the implementation of minimum wage laws. While it could not be
consistent with the minimum requirements for decent living in the social organization, it responds to the
basis requirements for subsistence living. The creation of the Tri-partite Board composed of Labor,
Management and the Department of Labor is the answer to the study of the implementation of just wages.

3. The Wage Fund Theory

The wage fund theory expounded by John Stuart Mill and his followers is based on the
Malthusian theory of population and the law of diminishing returns. This theory holds the idea that the
working capital of the nation provides a fund from which wages can be paid. The fund is to be divided by
all the workers proportionately. When a certain group gets a greater share of the total fund, the rest in the
group will have less to share. An increase in the wages of some through collective bargaining or any other
pressures will adversely affect the wages of others.

Under this theory it would appear that it is futile to attempt to increase wages. It would appear
that when you increase the wages of other workers in the company it would redound to decrease the
wages of the other sectors, because the portion of the corporate wage fund goes to the selected sectors in
the organization. A comment under this theory is that the fund should be elastic for all the other factors of
production such as capital, maintenance, materials and labor. It should be elastic enough to meet the
economic conditions prevailing at the time and the conditions of the corporate economy.

4. Bargaining Theory of John Davidson

The bargaining theory proposes that labor is a commodity like anything that could be bought at a
price by the user. As a commodity, it carries with it a price that is determined by the bargaining process
between carries with it a price that is determined by the bargaining process between the buyer and seller.
The sellers of labor are the workers and the buyers are the users or the industries that utilize their services.
The labor sets the limit of the value of their services as conditioned by the utility of reward. Such reward
is conditioned by what their money can buy with the wages in the light of their actual standard of living.

This bargaining theory brings about the organization of labor unions. These unions bargain with
the management for their services. The management then sets the discounted value of labor based on the
value of output in question, while labor demand the living wages that they think is enough to sustain a
decent living condition. When management sets a rigid limit on the funds available for labor as it affects
operating cost and profitability; on the other hand, labor insists on living wages for their effort. The
resultant condition is either a strike or a lockout.

5. The Marginal Productivity Theory

The marginal productivity theory offers the best explanation of the wages in modern industry.
The supply of labor in any given economy on the whole depends upon the total number of individuals
who want to work and are available for work. Workers’ mobility, which is the transfer from one company
to another due to opportunities in the other company, affects the structure of wages in the industry. It is
not only the difference in wages that makes the employee transfer to another company. Better
opportunities for advancement, more benefits, better working environment, or even the corporate
atmosphere are other factors that affect mobility. In this juncture, it may be surmised that mobility is not
judged by the amount of movement but the degree to which existing job differences call for worker
movement.

The hiring of added labor force, or the transfer of one employee to another company at a
particular wage is based on the assumption of the company that the added labor will contribute to the
increase in production output or the increase in the quality of the product. While such assumptions may
have bearing to a certain extent, any increase in manpower tends to decrease the value of the marginal
product as the number of workers increases. In our developing economy where manpower is in great
supply against demand, competition in the labor market is seldom felt by the industry except in some
critical positions where specialization is in great demand.

6. The Purchasing Power Theory

The purchasing power theory tries to establish the relationship between wages and the level of
economic activity. The level of economic growth is dependent upon the saving generated because the
increase in wages creates a surplus that propels growth. The more income the workers get, the bigger the
purchasing power for the workers, then this increases consumption of goods and services. Increased
consumption of goods generates employment opportunities.

7. Labor Theory of Value

Karl Marx propounds this Theory of Labor. This gives credence to the value of labor. It
emphasizes that labor is in the source of all products and that without this important component, there
could be no goods for human consumption. Every good that is produced could be traced back to the
participation of the worker and, therefore, labor must get the greater share of the profits. This is the
philosophy of some organized labor groups who are more active in the greater share of the profits of
company operations. These labor unions have the notion that profits are the surpluses of the other factors
of production, and are pocketed by the capitalist businessman making them amass wealth.

Profits should be shared with labor as they create the goods that generate these surplus incomes.
Economic activity is created by capital, by the surplus profits that create investments. When employer’s
contentions run counter to the activists’ group of labor unions, this can create labor unrest that is
detrimental to both labor and management and even to economic growth.

8. The Standard of Living Theory of Wages

A recent development in the labor market is the theory of living wages that meant that wages
should be based on the cost of living. The cost of living is dependent upon the economic needs of the
family for the basic necessities of life for food clothing and shelter. While the philosophy is economically
sound for the improvement of the living conditions of the labor force, it is counterproductive due to the
forces of global economic activity. Our productivity index has to cope with increased competition in the
global market and our products must be at par in quality and price.

Any increase in economic growth would redound to increased wages. Nevertheless, an increase in
income would mean more consumption. More consumption increases the prices of goods and thus living
wages also need to be increased proportionately. There could be no end to this argument. It is the
government, labor and management that must sit together to determine the level of living wages if
possible, by industry and by region.
Wage and Salary Surveys
Once the worth of a job has been established, using one of the job ratings systems, the actual
salary to be paid for each job must be determined. A major factor in making the determination is the wage
survey. Since salaries paid by other companies have an effect on employment, morale and turnover rate,
close attention is paid to the salary that is prevailing in the community and industry for specific jobs.

Most companies participate in wage and salary surveys or they conduct their own surveys.
Informal surveys may be conducted through telephones and informal interviews. Formal salary and wage
surveys use questionnaires based on benchmark jobs that are also present in other companies and
industries. In the formal survey method, the Human Resource Department prepares a set of questionnaires
incorporating common jobs present in the company and is comparable with other jobs in other industries.

Procedure in Conducting Wage and Salary Surveys

Before embarking on a wage and salary survey, the human resources department should study the
wage and salary data that are already available. In any request for survey data, it should be recognized
that job title alone is not good enough for matching jobs. Each job title should be accompanied with one
paragraph job description so that it is possible to accurately compare jobs. In addition to the base salary,
the information should include data on shift premiums, overtime payment practices, and methods of wage
payment. Some surveys also include questions on paid holidays, vacation policies, pension benefits,

Defining the labor market

List of Key Job Positions

Detailed Description of Jobs

Collection of Salary Data

Compilation of Salary Data

Results of Survey
group health cards, and life insurances and additional leave pays. These data are needed for more analyses
of the total pay structure and its relation to other company benefits.

The following are the steps in conducting the survey:

1. Defining the labor market. Establishing the boundaries of the pertinent labor market is the most critical
step in the survey procedure. It involves the selection of the industry the region of area, or the firm to be
included in the survey.

2. List of key jobs and positions common to most firms in the survey. This will ensure a representative
sampling of the jobs that will be selected as universal for particular wage or salary survey.

3. A detailed description of the key jobs and positions that are to be included in the survey and that is
common to most firms or industries. Key jobs are labor grades that are comparatively stable in duties and
responsibilities. These are occupations that are common in most industries and scattered through the
ladder of labor classification and commonly familiar to most people in the industry.

4. Collection of accurate wage and salary data. This may be done through a set of questionnaires and
supplemented by interviews to get the accurate information. This information must be able to pinpoint the
problem area that has to be addressed by the compensation level, compensation structure, and the terms of
payment plan.

5. A compilation of the wage and salary data for each job. This data gathered will provide management
with the opportunity of arriving at the arithmetical average, the median, and the range or rate paid and the
supplementary wage data.

6. Presentation of the results of the survey. The results are properly evaluated and HRD prepares the
corresponding recommendations to the management of the most appropriate action to take relative to the
revision of the current wage structure. Participating companies are also provided with the summary of the
findings to foster continuous cooperation.

After the organization completes the salary survey and finds out what
the prevailing salaries are in the community for comparable jobs, it must then
make several decisions:
1. Whether the company should pay salaries above, below, or the same level, as the others in the
same industry in the community are paying for the same jobs.
2. Whether the company should pay a single rate for each job, or slot the jobs into ranges or grades
which would provide room for merit increases.
3. How many pay grades or salary ranges to use, and how wide each pay grade should be (from the
minimum of the grade to the maximum).
4. What is the range of the amount in terms of money value that should be allotted for each salary
grade.

Although there are no set rules for making these decisions, one tool that is often used to simplify the
process is the use of two-dimensional graphs, also known as data trend graph. When the graph is used
with the point system, the values of points for key jobs in the industry are plotted on the horizontal line of
the graph. On the vertical line of the graph, the ranged of pay is plotted, with the lowest pay at the bottom.
The survey data for any job is then plotted according to the evaluation points and grades. Eventually all
the pay survey data should be plotted.

An examination of the graph will indicate the trend of the data plotted. A line is drawn to
indicate this trend, using one of the following techniques:

1. Eye Inspection – The line is drawn freehand so that about the same number of data points fall
above the line. It follows the general trend of the data. This technique is the least scientific and
 reliable as this does not require scientific computations. It is more of a judgmental analysis that is
used only by experts in the field of job evaluation.
2. The Least Squares – This uses the statistical formula; the trend line will normally follow a
straight path. It presents more accurately the relationships between the peso or money value and
the points for the key jobs.
3. The Second Degree Curve – Using another statistical formula; the trend line normally take the
form of a curve, and may more accurately indicate the trend of the data.

The trend line should correctly reflect the trend of the data collected so that competitive pay rates and
ranges will hold throughout the structure. If the ranking method is used, the rank number or grade can be
substituted for points on the horizontal of the graph.

A similar graph should then be drawn to reflect the relationship between internal existing rates and
job rating points. A trend line should be established and drawn. This trend line should be established and
drawn. This trend line should be compared with the outside-survey trend line. In this way, management
can see how salaries compare with those outside the company. Then the decision will have to be made
whether to pay below the survey trend line, meet it, of pay above it.

In deciding whether to match a survey trend line, management faces a conflict between personnel and
economic forces. If the company pays above the survey trend line, its ability to compete may be
endangered, as the labor cost will be higher than the same industry, thereby added cost of production will
be added to the cost of the product. If the company pays below the trend line, its ability to hire capable
employees may be affected, or this will cause personnel turnover. To reconcile these two conflicting
forces, management may decide its own slope line that should be about the same as the result of the
survey.

Another important decision is whether hourly paid occupations should be assigned a single rate or a
range of rates. For production or maintenance workers, must organization pay one standard rate for all
jobs in the same grade. That is especially true when an operation is so standardized that it is difficult to
determine accurately the contribution of works. A single rate for each job has the advantage of
eliminating favoritism.

The Development of Wage and Salary Structure

The design and operation of wage and salary structure is the concern of management and
employees. Wage and salary structure are the hierarchy of jobs to where the pay rates are attached. The
positions are allocated in pay grades according to the job evaluation results and its relations with the pay
system derived from the results of the salary survey. The jobs are ranked in ascending to descending order
according to their importance and based on the points or rank earned in the job evaluation program
conducted by the HRD and the committee created for the development of a more responsive pay system.

The following are the advantages of the wage and salary structure:
1. It affects the workers’ earning and standard of living.
2. It eases the recruitment and maintenance of an effective labor force.
3. It develops employee morale and increases work efficiency.
4. It represents cost and competitive advantage in the industry.
5. It helps in preparing budgetary allocations and eases computation of salary adjustments and as an
aid in short term and long-range plans.
6. It eliminates pay distortions and inequities in employee compensation.
7. It establishes an equitable salary range for various jobs.
Wage Structure Design
The design of the wage and salary structure is the establishment of job classes and rate changes.
All jobs within a class are treated in the same way for purposes of economical administration. Pay
structure ranges should be used in developing a schedule for both rank-and-file employees, technical and
managerial positions. In some companies, they have a separate structure for hourly and daily paid
employees and a separate salary structure for regular paid jobs. The managerial pay systems are
separated, and are based on rank, depending on their assignments and contributions to the company’s
profitability index.

The number of pay ranges in pay structure depends on the company and on the number of such
structures in the company. If a company has a single salary structure then, there should be many pay
grades. If the organization has still another for supervisors and managerial employees then there should
be a moderate number of pay grades in each structure. There is no standard number of pay grades per
structure for any industry or company. This depends on the number of job classes the greater the number
of pay grades in the salary structure to give credence to differences in duties, responsibilities and other
factors of variances as determined by the job evaluation program.

The same could be said for the width of the salary grade. There is no standard guide as to the
spread of pay grades. For hourly jobs, the spread from the minimum to the maximum may vary from ten
percent (10%) to twenty (20%), while for salaried jobs, the spread may vary from 15% to 75%. The
typical spread for salaried jobs is 33% from the minimum to the maximum of the grade. (See Sample
Computation).

Once the pay structure has been determined, the next step is to assign employees to their proper
job classifications. If the jobs are properly evaluated and were developing before the implementation of
any structure, most existing salaries should fall within the salary range established for their jobs. When
employees’ salaries fall below the minimum of the pay grade for that job, then it is called green circle
rate. When that occurs, the decision to bring salaries to the minimum of the grade should be based on the
employees’ performance. If the employees are on training stage, their salaries should perhaps be below
the minimum of the grade until they can fully meet the requirements of the job. When the employees meet
the job requirements then they are brought up to at least the minimum of the pay grade.

Another reverse situation is when the employee with high seniority, is either so competent or has
received so many increases that his salary is above the maximum of the pay grade. This is called red
circle rate, which can be handled in two ways:

1. Review performance of the employee. If the employee is doing superior work and is capable of
performing higher tasks or responsibilities and has displayed potentials for promotion, then he
has to be promoted and given the salary grade corresponding to the new assignment. He should
be under probation in the new assignment for at least 3 months before he is assigned to the new
pay grade.
2. If the performance review reveals that the employee is not worthy to be promoted and such salary
increase was discretely earned for some obvious reasons, then the employee will not get normal
merit increase due to the implementation of the new structure. As the range moves up due to cost
of living index and the salary plan is revised accordingly, then his salary probably will still fall
within the range and then he could be entitled to future adjustments if deemed necessary.

In order to remain competitive, a salary structure should be reviewed every two or three years
depending on the inflation rate prevailing in the country brought by economic factors or internal
factors such as improved productivity and profitability.
Methods of Wage Payment
The main purpose of a formal wage and salary management plan is to have a systematic method
of payment to ensure that employees receive a fair wage and salary for the work they perform. Up to this
point, we have examined how these wages are determined, or how much the employees should be paid for
the work they perform. Now we will examine the methods of determining how salaries are paid. Two
organizations may have similar salary structures for their jobs, yet may use different methods in
computing the employees’ salaries. Salaries may be the same, but one company may pay its employees on
an hourly basis, and the other company may pay on hourly basis plus piecework.

There are two methods of paying salaries:

1. By the Time Worked – earnings do not fluctuate with the amount of work performed or with the
quality of output. In this method, wages are computed in terms of unit of time. It is common to pay
workers by the day and the term day-work was adopted. Day-work methods of pay usually include
weekly, or biweekly, or monthly bases. Paying by the time worked is called Non-incentive wage plan
because the method of calculations will not immediately result in more money. No matter how hard
an employee works during an hour, the pay be computed by hourly rate and no more. Wages under
this plan are computed by multiplying the number of hours worked by the rate per hour, as follows:

HxR=W

In which: H – Hours actually worked

R – Rate per hour in pesos
W – Total wages earned

Payment on the basis of time worked is more satisfactory under the following conditions:

1. Employees have little or no control over how much work they produce.
2. There is no clear-cut relationship between the effort made to produce the work and the amount of
work produced.
3. Work delays occur often and are beyond the employees’ control.
4. Quality of work is very important.
5. Units of work produced cannot be distinguished and cannot be measured.

2. By the Amount of Work Produced – earning depends on how much work the employee completes or
on a related factor, such as the quality of work. This method of paying wages is called an incentive
wage plan. The most common incentive plan is called piecework. Piecework salaries are determined
by the number of pieces produced or completed, and each place is assigned a piece value that is called
piece rate. Time study sets the acceptable number of pieces an employee can produce at a given time
taking into consideration the acceptable quality of work performance. An industrial engineer studies
jobs and he is tasked to develop methods of performance, revising the flow of work, changing
materials and equipment so that better work systems are developed.

There are times that rates are based on past experiences on similar jobs or on guesswork. The formula
for computing salaries under piecework is as follows:

NxU=w
In which N = Number of units produced
U = Rate per unit in pesos
 W = Wages earned per day or per week

Guaranteed piecework occurs when employees are paid their days’ -work when the work distortion is
not caused by the employees’ lack of power, or some other factors beyond the control of the workers.

Payment by piecework is satisfactory under the following conditions:

1. When a unit of completed work can be measured easily;
2. When there is a clear relationship between a workers’ effort and the results of his effort;
3. When the quality of work is less important than quantity, of when quality standards are uniform
and measurable.
4. When the flow of works regular, breakdowns are few, and jobs follow a standard procedure, with
few interruptions.

Wages and Salary Policies

The company or any organization must have a clear-cut wage and salary policy. These policy
guidelines will help the organization have better relationships with employees and develop a more
comprehensive employee financial planning program. The wage and salary policy must appeal to all
employees and stimulate them to greater efforts.

These characteristics include the following:

1. The wage and salary plan must be easily understood. Every worker wants to know how his
company wage plan works. To keep employees in the dark as to how their earnings are
determined could lead to distrust on the management and fear that they are not getting paid
for what they have earned.
2. Salaries in the wage plan should be easily computed. Most employees like to compute, from
to time, what they are earning, and to make sure that the salaries are correct. Therefore, a
wage payment plan should be simple enough to allow quick calculations. The methods of
wage payment must be explained during the orientation program and employees must be
made to understand that wages are related to employees’ effort and productivity and based on
a wage plan that related to duties and responsibilities of the positions and other factors
considered in the job evaluation program.
3. Salaries should be made relevant with efforts. Standards should be set and can be reached by
good workers. Standards should be set so as to challenge a worker, making him reach for
extra effort. Once he has achieved the standard, he should be rewarded for his effort with
increased earnings.
4. Incentive wage plans should provide payment for incentive earnings to employees soon after
they have been earned by efforts exerted to reach standards. In this way, the reward or
penalty is fixed in their minds in relation to the work they do. Obviously, it would be too
costly and unwieldy to prepare a payroll for every day. A weekly payment of wages is most
reasonable.
5. The method of payment should be stable and unvarying. Frequent changes in wage payment
plans may lead workers to think that management is trying to confuse and or even chase
them. It is important to choose a plan that will fit the needs of the organizations so that the
necessity of frequent subsequent changes is eliminated.

Moral Renewal in the Workplace

1. Know that leaders have limitations.
 Steven Berglas of the Harvard Medical School believes that “people who achieve great heights
but lack the bedrock character to sustain them through the stress are headed for disaster.”
He predicts that one or more of the four could result when a leader does not have the requisite
character – arrogance, aloneness, adventure-seeking or adultery.
2. Choose Character.
John C. Maxwell is right in his observation that, “We have no control over a lot of things in life.”
We don’t get to choose our parents. We don’t select the location or circumstances of our birth and
upbringings. We don’t get to pick our talents and IQ. But we do choose our character. In fact, we
create it every time we make choices.”
3. Walk the talk.
Integrity is important in the workplace. In fact, many employers prefer to have employees
with integrity first, then, skills second. Skills can be taught but integrity is in one’s character.
4. Avoid Compromising.
While life is not black or white but shades of gray, there are instances when you have to
choose between the right and wrong. A wrong can never be right even if a compromised reached.
5. Use the name measures on yourself.
You want a leader who is not immoral, corrupt or incompetent. Exact the same measure
or standards on yourself Be as harsh on yourself as you are in judging others. That you are just a
follower is never an excuse for being lazy, incompetent, or immoral.
6. Face the mirror.
If you want one less scalawag in the workplace, reform yourself. Look for areas for
improvement. Exact the same measure or standards on yourself. Be as harsh on yourself as you
are in judging others. If you have the guts, ask somebody you trust to tell you what is wrong with
your character.
Take feedback positively as a gift for your improvement. Don’t rationalize but instead
work at developing a better you.
7. Show the mirror to your leader.
If you want honest and concerned leaders, you might just have to show them the mirror,
too. Some of them might have blind spots and can’t see their mistakes, shortcomings, and
transgressions.
Remember that tyrants happen only when the led blindly accept tyranny or do not do
anything about it. To make leaders honest, they must know that hey are also being watched and
evaluated, and that positions and possessions are only temporal and ephemeral.
8. Don’t just admit mistakes; correct them.
People who do not know that they are wrong cannot be corrected. The first step towards
any form of renewal is admission that there is a need for correction.
Humility to admit mistakes is great but not enough. There must be correction. Even the
Bible mains still-necked after many retakes will suddenly be destroyed – without remedy.
9. Have an improvement plan.
Do not leave to chance the matter of improving yourself. Moral renewal does not happen
by accident. You must exert deliberate effort to mend the cracks in your character.
Task yourself to show improvement. Have reasonable milestones that you must monitor
and check regularly. Then, celebrate your little victories. But do not boast about your
achievement if humility is the virtue you are trying to instill in yourself.
10. Rebuild and don’t slide back.
Set your mind toward the future. Stop going back to your past, except to see how much
you have progressed. Let your guideposts be milestones in the future and not how you were
before.
 If you have improved in a facet of your character, make sure that you don’t slide back. Be
not like the dog that eats his own vomit.
Never underestimate what ordinary people can do, especially when they heed the call of
one leader who was killed in Dallas, almost four decades ago. “…ask not what your country can
do for you; ask what you can do for your country.’’

Other Information Related to Wages

Labor and Wages
The type of job one does and the financial compensation he or she receives are very important in our
society. Job type is linked to status as is wealth. While the type of job one performs is arguably more
important status wise then wealth, both are important to Americans.

In the past we use other descriptions to classify workers. The terms blue collar or white collar
employees were used to describe the type of vocation.

Blue Collar – Manual laborers

White Collar – Office workers
Pink Collar – Jobs associated with women like nursing, secretarial, etc.
This, being a rather a sexist term, is no longer used.

Today we classify our work roles into three categories called labor grades. These labor grades are
described below:

Skilled Labor – These are workers who have received specialized training to do their job. They have
developed and honed a special skill and may or may not need to be licensed or certified by the state.
Some examples of skilled laborers are: carpenters, plumbers, electricians, business executives and
managers, artisans, accountants, engineers, police, mechanics, etc. These may be blue or white collar
workers.

Unskilled Labor – These are workers who have received no special training and have few specific skills.
As our society has grown into an increasingly technological one, the members of this group have
developed more and more skills. A mechanic, for example, used to be considered unskilled labor. Today
that is no longer the case. Mechanics require a great deal of skill and training to work with today’s
modern engines. Examples of unskilled laborers are construction workers, sanitation and custodial
workers, painters, factory assembly line workers, etc. These are blue collar worker.

Professionals – Arguably the elite of the labor grades, these are those workers who need an advanced
degree to do their jobs. The tree primary groups of professionals are doctors, lawyers and teachers. These
are white collar workers.

These labor grades are often said to be non-competing labor grades because workers rarely move
from one grade to another and do not compete salary wise with each other. There are reasons why they do
not compete with each other. The cost of education and training may be a significant obstacle. They might
lack the opportunity to make such a move and they might also have a lack of initiative.

Theories of Wages and Salaries

 There are two key theories that explain why salaries are the way they are in a particular field. These
two theories are:

 Traditional Theory of Wage Determination – In this theory the law of supply and demand dictates
salary. These days programmers are in short supply and are in great demand, thus, they will command
a higher salary. Likewise, doctors and lawyers whose specialized skills people need command a high
wage. If you looked at the bill my electrician gave me you would know he is in demand!

 Theory of Negotiated Wages – Those employees who work in unions where the union negotiates
salary on behalf of all workers fit into this theory. Since I am a teacher my salary is set by collective
bargaining with my union. I may be the best teacher in the world sought after by many students and
parents but it wouldn’t matter.

Sample of a Wage Survey

What is a Wage Survey?

Working with employers, Saskatchewan Labour, the Saskatchewan Workers’ Compensation Board
and Hu man Resources Development Canada have gathered information from almost 800 provincial
employers about wages for more than 240 occupations.

The wage analysis for these occupations and workplaces provides information on:

 number of employees,
 low and high wages, and
 average wages.

Further breakdowns for each occupation are provided by:

 gender,
 union/non-union, and
 part-time/full-time.

Why we do it

The Saskatchewan Wage Survey includes a wide variety of employers and occupations.

Wage analysis for different occupations is a valuable planning tool for new and existing businesses,
for collective bargaining, for people choosing a career and for school and other counselors advising
students and other job seekers. Such information needs to be updated often to ensure it remains accurate.

Other information for Saskatchewan occupations if available from other surveys and federal census
data. This data includes more occupations than the Saskatchewan Wage Survey, but are updated
frequently.

Who is surveyed
 The Saskatchewan Wage Survey was sent to a random sample of 2,000 employers drawn from the
35,000 Saskatchewan employers subject to the Workers’ Compensation Act. (this leaves out federal and
provincial government employees, although several provincial Crown corporations are included).
Random sampling, though, does not allow for targeting of specific occupations. Hence, the occupations
covered in the survey are very much dependent on which employers respond.

Completed survey were received from almost 800 employers, or about 40% of those surveyed. A 40%
rate is considered significant for this type of survey.

What is the survey done

Current plans are to conduct the Saskatchewan Wage Survey every two years. When surveys are
received, Saskatchewan Labour staff answer employers’ questions, validate and enter the information
received, and complete the wage analysis. Results are posted on this website as soon as possible after the
data are compiled.

The 2002 Wage Survey provided wage information based on the last normal pay period before June 1,
2002.

Available occupations
When wage information from multiple occupations is shown, the occupations appear in alphabetical
order in the report organized alphabetically, and in National Occupational Classification (NOC) order in
the report organized by NOC listing.

About the Results

The Saskatchewan Wage Survey results show hourly wages for each occupation with monthly, bi-
weekly, or other payment forms converted to hourly rates. Employers reported the total wage paid
(including commissions) for the last pay period before June 1, 2002.

Saskatchewan Wage Survey results for each job include:

 the number of employers in an occupation for which wages were reported.

 the average (mean) wage for employees doing that job
 the lowest wage for employees doing the job
 the highest wage for employees doing the job
 the lowest wage after the bottom 10% of wages have been eliminated
 the highest wage after the top 10% of wages have been eliminated

Statistical Significance
The Saskatchewan Wage Survey is designed according to accepted methodologies for carrying out
statistically accurate surveys that yield valid results. The statistical significance of each occupation’s
wage rate depends on the number of employers and the resulting employees who were surveyed for that
occupation. Generally, the wage rate reported for an occupation that includes a high number of employees
surveyed is more statistically significant than one for which a smaller number of employees were
surveyed.

For provincial average (“all employees” category – and statistical significance is less for all categories)
a determination was completed of how reliable the listed wage is (in terms of being a true reflection of
what that occupation is paid in Saskatchewan) based on a standard calculation of statistical significance.
The rating for the vast majority of the listed occupations is considered to be very reliable. For a small
number (2 of the listed occupations) the results were acceptable but not as reliable as for the others. These
2 occupations are marked with the note “results less reliable”. Occupations for which calculated wages
fell significantly out of the normal range, and/or for which confidentiality requirements were not met, are
not included in the survey.

Further details of the methodology used for the wage survey are available on request.
Privacy
Survey are screened to protect the privacy and confidentiality of information from individual
employers. To be included in the Wage Survey Results, the following conditions must be met.

1. Enough employers must report wages for an occupation so that it is not possible to identify
individual employers taking part in the survey;
2. No employer surveyed can employ more than 75% of the total employees in a particular
occupation; and
3. No two employers, combined, can employ more than 90% of the total employees in an occupation.

Blank areas in the Wage Survey Results show areas for which privacy concerns could not be
adequately addressed or where there were no reported wages for a specific occupation.

Details on the Government of Saskatchewan’s privacy policy can be found at www.gov:sk.ca/privacy.

Case Study 7
THE UNHAPPY SUPERVISOR

Miss Joan Santos, a computer programmer in Mannadel Corporation for more than 6 years now, was
discussing her salary situation with Mr. Roderick Santiago, her manager. Miss Joan was unhappy because
she did not receive any salary increase last salary evaluation, while some employees who were recently
hired got an increase from ten to fifteen percent.

Miss Joan’s performance has been considered very satisfactory for the last 5 years and previous to this
she got very substantial increases in salary due to the important programs that she made for the
corporation related to accounting and personnel matters. She made a lot of improvements in the
purchasing systems and systematized inventory records in materials management.

The management had recently started a comprehensive job evaluation program and some positions are
aligned within the salary grade approved by the Management Committee, where Mr. Roderick Santiago is
also a member. Mr. Santiago explained to Joan that her salary was already way above the salary grade for
the position evaluated and allocated in the salary plan; hence, she will not get any increase at the moment
until the salary range can catch up to her level in the salary plan. Mr. Santiago also explained that she is
the most senior among programmers and that instead of cutting her salary back to the job range, they are
considering her for an incentive bonus, which is not as substantial as that of her co-workers in the
department who are new in the positions.

Miss Joan is not satisfied with the program explained by Mr. Santiago. The whole night she planned to
file a leave of absence despite the many rush programs assigned to her.

Questions:

1. How would you persuade Joan to accept the decision?

2. Would you have handled the situation differently? Why? How?
3. Is this a valid use of job evaluation result? Why or Why not?

Terms and Concepts for Study:

Salaries Wages
Wage Theory Job Rating System
Salary Survey Salary Structure
Job Classes Pay Grade
Piece Rate Time Work Rate

Review Questions:

1. What is the current Theory of Wages adopted in most industries in the country today? Why?
Explain your answer?
2. As a future manager, which theory will you apply?
3. How will you conduct wage and salary surveys? Discuss the procedure you will implement.
4. What kind of wage payment will you implement as personnel manager?
5. How are you going to implement a Wage and Salary Plan? What are the factors to be considered
in its implementation?