Determinants of Intra-Industry Wage Differentials
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The determinants or factors which affect the intra-industrial wage differentials are as follows:
1) Market Position:
When an organisation has market leadership then they maintain profit at above average level. Thus they pay high wages to their employees in order to retain their commitment and performance and also to maintain their leadership position.
2) Size of the Organisation:
Big organisations have greater potential not only to capture the market but also to undertake business disturbances.
With greater technology and scale of operation, these big organisations pay their employees more as compared to other small organisations.
3) Financial Success:
The level of profit of the organisation varies on the basis of their efficiencies. How much compensation an organisation can afford is the most important factor for compensation policy.
When an organisation is earning a good amount of profit then it shares a good portion of profit, whereas the amount of sharing reduces when business is not earning enough profit.
Businesses with good profit have better ability to pay and better cash flow. On the other hand, when an organisation is facing crises or continuous loss, then it even races trouble in paying wages.
But whether an organisation earns profit or it faces continuous loss, in both cases it has to retain its key workers. Thus, as a result it starts wage discrimination among workers because it has to arrange high wage for its key employee.
Here, these organisations also start differentiating! between good and bad performing employees which is reflected in compensation packages.
4) Competitors:
Globalisation and global competition plays a significant role in establishing compensation policies.
Since, mobility among executives and professionals has increased: the organisation needs to match the compensation with international standards. For a local organisation, matching the quality and cost with an international firm becomes crucial.
This compensation could reach to such a high level where this amount can equalise the half of the total fixed cost.
5) Leadership:
An organisation moves the way its leaders guide it. Organisations having proactive and good executives believe that poor employees are attracted with poor offers.
Hence, these executives offer high compensation to their employees. Good organisations give significance to employees dedication towards producing innovative products and services which later results in greater profit.
6) Automation:
When organisations employ automatic machinery and tools, then it needs fewer employees.
When an organisation has more advanced machines, then employees required to maintain different positions must be professionals with high qualifications. These professionals or experts are demanded by various organisations and hence they are paid more.
For example, earlier when organisations were not using computers for maintaining records, then at that time offices had a large number of timekeepers.
These employees were involved in keeping records manually like - when employees came to work, how long they worked and when they left the organisation.
Thus, calculation of salary was also done manually. But after organisations started using computers these timekeepers were replaced with the computerised time recording systems.
7) Compensation Philosophy and Policies:
The set of beliefs and values which organisations have for decisions related to compensation is known as compensation philosophy.
Organisational goals and objectives act as the base for its compensation policies or compensation philosophies because these objectives define the employee's performance, behaviour, organisational structure type of talent which is needed to attract and retain.
Hence, the general approach of the compensation must be consistent and aligned with the strategic objective of the business. With an aim to motivate, attract and retain the talented employees, organisational reward polices must provide monetary and non-monetary benefits.
Compensation philosophy and policies of the organisation tries to attain following objectives:
i) For the Organisation
a) To attract and retain the desired number of workers,
b) To encourage employee to enhance performance standard and realise organisational strategic goals,
c) To put emphasis on organisational values, vision, mission and desired work culture,
d) To emphasis desired behaviour to employee
e) To confirm that compensation is maintained at desired level.
f) To control the organisational cost of compensation,
g) To guarantee the optimum return compensation, and
h) To act legally.