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Wage Board | Meaning, Functions, Nature, Working, Importance, Limitations & Establishing Pay Variable

Wage Board

What is Wage Boards ?

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 regarding the question of wages. The above recommendation, 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 more acceptable machinery as it gives the parties a more responsible role in reaching decisions.

The first Wage Board was appointed for the cotton textile industry in March 1957, and subsequently Wage Boards were also appointed for sugar, cement, tea, coffee, rubber plantation, iron, and steel industry, etc. It is a statutory body established by the government to handle the disputes relating to the employers or the employees.

Constitution/Structure of Wage Board 

Wage Board 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 appointed 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 the 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.

Nature of Wage Board

Nature of Wage Board is as follows :

1) Tripartite in Character : 
Wage Boards are tripartite in character in which representatives of workers, employers and independent members participate and finalize the recommendations.

2) Statutory and Non-Statutory : 
Except for the Wage Boards for journalists and non-journalists newspaper and news-agency employees, which are statutory Wage Boards, all other Wage Boards are non-statutory in nature. Therefore, recommendations made by these non-statutory Wage Boards are not enforceable under the law.

3) Protect Workers from Exploitation : 
Wage Boards are charged with the duty of seeing that the fair wages fixed for any particular industry are not very much out of line with wages in other industries in the region because wide disparities inevitably lead to movement of labour and consequent industrial unrest not only in the industry concerned but in other industries as well.

4) Operates in its Own Sphere : 
Wage Boards were set up for individual industries as no two industries were exactly alike in respect of size, capital invested workers employed place in regional/national economy, goods produced and their utility to general consumers, financial capacity, export-oriented nature, etc., and as there could be no general prescription in regard to formulation of wage structure. Bach Wage Board operates in its own sphere depending upon the special characteristics/features of the industry. covered.

Functions of Wage Board 

The functions of Wage Board may roughly be classified into two categories - primary and subsidiary - though it is difficult to draw an exact demarcation line between the two :

1) Primary Function : 
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 recognized organisations of employers and employees, by mutual agreement, may refer to the Wage Board any other matter for determination. The Wage Board shall follow such procedure as may be prescribed; provided that wherever the Appropriate Government has not prescribed any procedure, the Wage Board may evolve its own procedure.

2) Subsidiary Functions : 
Subsidiary functions of Wage Board relate to allied problems such as hours of work, holidays with pay, provision for adolescent, sub-standard workers, etc. 

Working of Wage Board

Although Wage Boards are set up by the government, the basic reason for their establishment is the pressure brought to bear on the government, by the trade unions, industrial federations and national organisations on the one hand after the employers' formal or informal consent on the other. Pressure has been used for the appointment of Wage Boards for the jute industry by the fate workers association and for the coal mining industry by their trade union.

The formation of Wage Boards in other industries has been the result similar demands and pressures on the part of trade unions such as plantations, iron and steel, engineer, sugar electricity. The government cannot appoint members of the Wage Boards in an arbitrary way. Independent members can be appointed only with the consent of employers and employees.

The representatives of employers on Wage Boards are the nominees of the employer's organisation and the worker's representatives are the nominees of the national organisation of trade unions of the industry concerned. However, before their actual appointment, a great deal of negotiations takes place not only between the above two main party's interests but also among different groups representing particular interests. Item to be included for the consideration of the Wage Boards are the outcome of the negotiations between the parties. The issues are unanimously determined by trade unions and employers; but these invariably relate to gratuity, bonus, and hours of work and grant of interim relief. The quantum of interim relief is also decided by negotiations and bargaining which have some time resulted in temporary deadlocks. Working of Wage Board involves following three steps : 

1) Collection of Data : 
The first step is to prepare comprehensive questionnaires designed to collect information on the prevailing wage rates and skill differentials, means of assessing an industries paying capacity and workloads, prospects for industry in the immediate future, and regional variations in the prices of widely consumed consumer goods. The questionnaire is sent out to labour unions, employers associations, interested individuals, and academic organisations and government agencies.

2) Give Public Hearing : 
The second step is to give a public hearing at which leaders of labour unions and employers associations, not represented on the board, as well as others interested in the industry in question are given a verbal or oral bearing on issues dealing with wages, working conditions and other items.

3) Organise Secret Sessions : 
The third step is to organize secret sessions at which members of the board make proposals and counter proposals regarding the items covered under the terms of reference. In the case of failure to reach a unanimous decision on the issues, each party has the right to veto the others decision. The role of independent members on the board is limited to conciliation and mediation; they try to prevent deadlocks by promoting communication between labour and management representatives. They also offer. advice and suggestions to the parties, but the final decision must result from the party's give and take attitudes and compromises. The decision unanimous recommendations is written down in the form of a report and submitted to the government, which usually accepts unanimous agreements, although it may modify any provisions thereof. Then the report is to be compiled with by the parties. The government has no legal powers to enforce the board's recommendations. It tries to persuade the parties to narrow their differences and aim to unanimity. Wage Boards take their own time in the submission of reports. Some of the Wage Boards constituted in 1964 did not submit reports even by 1969, e.g., heavy chemicals, fertilizers, engineering industries and ports and docks. The average time taken by Wage Boards in the finalization of their deliberations varies from 3 years to 5 ½ years.

Importance of Wage Board

Wage Board is important due to following reasons :
  • It standardizes wage structure throughout the industry concerned. 
  • It determines which categories of employees (manual, clerical, supervisory, etc.) to be brought within the scope of the wage fixation.
  • It works out a wage structure based on principles of fair wages as formulated by the Committee on Fair Wages. 
  • It evolves a wage structure based on the requirements of social justice.
  • It evolves a wage structure based on the need for adjusting wage differentials in a manner to provide incentives to workers for advancing their skill. 
  • It aligns the wage settlements with the social and economic policies of the government.
  • It provides better climate for industrial relations. 
  • It represents consumers/public interests.
  • It works out a system of payment by results.

Criticisms / Limitations of Wage Board

Major criticisms leveled against the Wage Board are as follows :
  • 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 utilized for wage determination.
  • Recommendations given by Wage Boards are sometimes non-implemented or even unanimous.
  • The question of linking wages with productivity has not been considered seriously by any of the Wage Boards.
  • Wage Boards suffer from serious and lengthy procedural delays.
Bipartite Committee was set-up on the advice of the 27 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 that emerged was, after the constitution of a Wage Board for a particular industry disputes relating to matters before the board, should not be referred to adjudication.

Establishing Pay Variable

Strategies for Establishing Pay Variable

Few companies have the opportunity to design a variable pay strategy from scratch, free of competitive dynamics and established precedents : 

1) Match the Company's Business Model and Culture with the Variable Pay Programme : 
The best variable programmes are those that reflect a company's specific business model and culture, rather than those which are modeled on "leaders" or bench-marked against "best-practices". Designing successful variable pay programme is all about identifying the right performance measures, and rewarding them in the right combination. Common practices apply performance metrics that are focused on operational excellence, profits or revenue. Programmes with good performance go further by adding measures around long-term thinking, teamwork, building human capital and customer loyalty. These programmes reflect the need to find an effective balance between short and long-term metrics, between corporate and individual performance, and between financial, operational, customer and human capital metrics. One approach for finding the right combination is to balance competing stimuli and risks. If a bonus scheme fails to pay out in a bad year, employees can become disengaged at a time when the company needs them most. Conversely, a bonus scheme that pays out regardless of corporate performance will not drive discretionary effort.
The challenge for companies is therefore not only identifying the right measure, but the right targets - should the target be absolute or relative? Should pay-out be in line with this year's budget or with last year's performance? Should average performance be rewarded or only excellent performance ? The answers to these questions are gained by examining a company's business model and work culture. A one-size fit all strategy never works. Overall variable pay objectives must be adjusted by an employee group's impact on performance, and then tailored to employee demographics.

2) Account for Impact on Performance : 
Performance is maximized by focusing on the controllable. Since employees do not design their own variable pay, the effect of placing rewards on uncontrollable outcomes is declining engagement. Raising performance thresholds could have a serious impact on employee engagement. This is a particular risk in the current economic environment, since many employees have seen limited or no pay rise and bonus payments over the past ten years, and have also seen the value of their pensions falling. If the variable portion of their pay is made too difficult to earn, there is a danger that they will disengage altogether. As conditions improve, employers will not be happy "just to have a job" and companies will need to retain talent. Companies who effectively combine employee engagement and enablement (empowering employees with the tools and processes to go the extra mile) report significantly improved revenue growth, staff retention and employee performance.

3) Focus on Communication : 
Employees need to understand how the variable plan, and the behavior it promotes, is aligned with business strategy. Further, employees need to understand how their specific actions and the outcomes they create will lead to pay results. Effective communications are personal, frequent and delivered by a manager that have direct understanding of an employee's responsibilities and performance Companies understand this dynamic, and many are beginning to recognize that line managers play a key role in communicating variable pay schemes. The failure of line managers to effectively explain and reinforce variable pay policies is a critical shortfall.
A variable pay strategy will not drive performance of the objectives and link to company strategy are not clear. The message must flow first from the very top, with strong leaders who can set out a coherent strategy and help all employees understand their sole to play in realizing it. It must be further explained and reinforced by lime managers. Leaders at all levels mas rise to the challenge of demonstrating and communicating externally the link between reward strategy and company performance.

4) Mon, Measure and Model : 
Variable pay strategies require diligence. Companies are becoming much more focused on evaluating and measuring the effectiveness of their variable pay policy. This trend will strengthen, as more and more CEOs drive adoption of variable pay strategies, and demand supportable estimates of return on investment from the reward spend. It is also important to look for heads and differences on a market-by-market basis. Ultimately, the effectiveness of variable pay strategy is dependent on its alignment to the company and market context.

Considerations for Variable Pay Plans

Some important considerations for variable pay plans are as follows : 

1) Organisational Strategy : 
The first area of consideration in designing variable pay plan is the organisation's strategy. The objectives and culture of the organisation will greatly influence the type of plan that is appropriate. A good example of this is the different types of plans that would be appropriate depending upon the need and culture of competition versus operation within the organisation. The external environment also influences the type of variable pay plan that is appropriate. A very competitive industry creates an internal environment of stress and pressure that will be reflected in the type of plan that would work. The purpose of the organisation is also a factor. Organisations in social service industries would again focus more on cooperative plans than competitive ones.

2) Organisational Characteristics :
The size of the organisation may affect the chances of success of variable pay plans. A large organisation can typically make the administrative commitment required to support an individual plan. Organisation-wide plans may be more effective in smaller organisations where the connection between effort and performance may be clearer. Also involved is proportion of total costs represented by labour costs. If labour costs are a high proportion of total cos, placing labour cost on a variable-cost basis is worth considerable effort. But if labour costs are a small proportion of total costs, variable pay plans will appear leas attractive to management.

3) Management Attitudes : 
The type of management constitutes a major variable in the success of variable pay plans. Unless management is committed to maintaining the relationship between performance and pay and backs this commitment with the necessary administrative expenditures and organisation of work an individual variable plan can fail or become obsolete very quickly. Management attitudes will depend in part on the nature of competition in the industry and on business conditions, but the real variable is the trust management has in employees to guide and direct their own activities. This is true of both individual and organisation-wide variable pay plans.

4) Jobs to be Included: 
Neither all people nor all jobs should be placed under a variable pay-plan Jobs particular vary in appropriateness for the use of variable pay. Further, the diversity of variable pay plans and the inconsistencies in effectiveness of those in operation suggest that there are conditions under which a particular plan is applicable. There are certain conditions that make for the success or failure of variable pay plans in general, but the job itself dictates whether or not it is a good candidate for a variable pay-plan.

5) Job Conditions: 
The kind of work being performed is a major contributing factor in choosing which variable plan, if any, is the most applicable. A plan suited to highly repetitive, standardized, short-cycle manual operations is unlikely to fit a less structured work environment. Highly variable, non-standardized work may make incentives unworkable. The major job variables that need to be examined in determining the applicability of incentives are : 
  • Standardization of the job,
  • Repetitiveness of the operations, 
  • Rate of change in operations, methods, and materials, 
  • Control of the work pace,
  • Measurability of job outcomes.

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