The concept of “fair wages”

This is a concept that needs a great deal of contemplation!

I am sure there are many of us who cannot quite determine how we get paid and that certainly results in disconcerted feelings of unfairness.

Hopefully this essay will provide some food for thought in understanding the causes of these feelings.

Let it be known that global pay systems are usually based on three principles; 1) paying for the job – this is the traditional pay system with salary grades, classifications and pay ranges, and other obfuscations, 2) paying for skills – this system pays for now what are called competencies which days gone by were called knowledge, skills and abilities, you get paid whether you actually contribute or not, 3) paying on the basis of purely the market. Find out what your organization’s pay system is all about within the context given above. If an organization pays for the job, more often than not this organization is traditional, rigid and bureaucratic. Paying for skills, knowledge or competency is actually great, but there is a certification process involved, and this system requires a lot of administration. Paying on the basis of purely the market is the most equitable methodology because it focuses the pay system directly into the economic dimensions of employment. Such a system requires that your organization has access to market data and that the data is believable and acceptable. In addition to the methodologies to determine base – or what I call “come to work pay” – there are merit systems that pay incremental increases to cover the “cost of living” and job performance as laid out by senior management. Other types of programs include bonuses, cash profit sharing and long term cash bonuses, milestone bonuses and employee referral payments.  Then there stock or other equity related compensation programs for some or all employees. This is also a good practice and in the dotcom era made a lot of employees millionaires. Greed motivated executives take home astronomical sums of money courtesy of these equity based programs. All of these are organizational behavior scenarios which one can learn to navigate through. But whether you are paid equitably or not is quite subjective and it depends on your concept of “felt fair pay”. So compare your pay with others in a similar position within your company or with others in other companies holding similar positions as you and then you can determine whether you are paid fairly or not. Fairness also depends on whether you understand the processes and methods to determine your starting pay or even when an organization doles out annual increases or bonuses or any other compensation scheme. Fairness depends on what, how and why you are paid. Research evidence shows that if employees do not know the what, how and why of their pay system as it relates to them then the employee’ pay perception does not equate fairness.

—Akerlof and Yellen (1990),  building on work from psychology, sociology, and personnel management, introduce “the fair wage-effort hypothesis”, which states that workers form a notion of the fair wage, and if the actual wage is lower, withdraw effort in proportion, so that, depending on the wage-effort elasticity and the costs to the firm of shirking, the fair wage may form a key part of the wage bargain.

—A crucial point (as noted in Akerlof 1982) is that notions of fairness depend on the status quo and other reference points.  — —Experiments (Fehr and Schmidt 2000) and surveys (Kahneman, Knetsch and Thaler 1986) indicate that people have clear notions of fairness based on particular reference points (disagreements can arise in the choice of reference point) — —Thus for example firms who raise prices or lower wages to take advantage of increased demand or increased labor supply are frequently perceived as acting unfairly, where the same changes are deemed relatively acceptable when the firm makes them due to increased costs (Kahneman et al) — — In other words, in people’s intuitive “naïve accounting” (Rabin 1993), a key role is played by the idea of entitlements embodied in reference points (although as Dufwenberg and Kirchsteiger 2000 point out, there may be informational problems, eg for workers in determining what the firm’s profit actually is, given tax avoidance and stock-price considerations) — —.

So in summary whether “fairness” exists in a pay system depends on all the following factors:

1. Whether the pay processes are understood by the various stakeholders.

2. Fairness is directly correlated to the “secrecy” of the pay system. The more secret the pay system the more unfair is the perception.

3. Also “fairness” depends on an individual’s personal comparators or reference points.

4. Finally, recent research shows that “fairness” is part and parcel of how an employees perceives the pay system as “appropriate” to the individual’s needs.

Thus an organization’s pay system needs to devote more time on the employee “demand” side of the pay equation.

The Organizational Pay System – Principle versus Practice – A Wide Chasm

It is my contention, after spending almost forty years in the pay management business, that most organizational pay systems although fairly well intended are mostly mythical beasts that in practice suffer from implementation malaise.

In this piece I am going to lay down the framework of some of the following essays that will follow in this blog further elaborating on the primary premise that has been stated in this essay.

Internal equity is a stated core objective of any pay system. Internal equity means that within the organization the intention is to pay employees according some logic based on the work being done and the value of that work to the specific organization. Well this a valuing system. And as such it is quite subjective and is thus fraught with confusion and mistrust. Systems and structures used to achieve this internal equity principle does not necessarily reduce the subjectivity. Rather these systems are at best rational and cannot be scientific. Human judgement and biases do play a big role in the distortion process. This is one area where the chasm between theory and practice is wide. More on this in a future blog.

The stated pay system principle that is often widely adopted is pay for performance. Although well intentioned, in practice this principle rarely achieves its stated purpose. This is because here again human judgement with all its biases quite often raises its ugly head. More on this in a future blog.

The principle of market competitiveness is an important structural principle of a pay system. But suffice it to say, here again gathering and validating believable market data for their use in pay systems is always questioned in both the positive and negative directions if the data does not say what the recipient wants to hear. More on this in a future blog.

Special interest thinking dominates the pay ethos thus creating all kinds of aberrations in the pay system. Executive Pay, allowances, perks, equity plans, adders, differentials all tend to create a great deal of confusion and controversy and as such widening the chasm between principle and practice. More on this in a future blog.

Another widely sustained principle in pay systems is variable pay, as formulated through bonus and incentive arrangements. Although in principle this is very sound thinking but in practice the system wilts under the pressure of management discretion and the realities of continuing talent management challenges.

Then there is the deep chasm created between the difference between principle and practice of equity compensation. Sharing ownership with managers and employees is a noble principle of effective reward management. But that principle suffers from the vagaries involved in the actual practice and operation of these plans. More on this later also.

Finally, see my essay on structural poverty in the design of the pay systems. Here is another big reason for the huge chasm between principle and practice. A blog on this to follow.

Thus I want to end this introductory essay with a quote from one of favorite books (People Specialists – author Stan Herman – unfortunately the book is out of print). In this quote the author very appropriately explains what one can expect from pay systems after all:

“The point is that there are some things that compensation administration can be expected to do and other things that it cannot. It can help establish a limited and transient orderliness in the way people get paid. It cannot structure a sublime and everlasting order where everybody’s pay is self-evidently equitable and proper in comparison to everybody else’s pay.”

“The quest for a neat correlation between work and reward is a natural one which fits nicely with most people’s idea of the way things ought to be. But the fact that they ought to be does not mean they are. Money value determinations are not the products of fine, dispassionate measurements made in the dust-free, dehumidified atmosphere of a laboratory. Rather they are continually buffeted and rebuffeted in the turbulent environment of the messy outside world, and not merely on a supply and demand basis, either.”

But all is not lost there is very new thinking as to how to really mitigate the chasm and create greater harmony between principle and practice in pay systems. 

There is power point presentation in my website (www.biswasandassociates.com), in the reference page that  explains this new thinking. Those interested can look up the reference.

Yet another post on Wage Theories…

Here are some additional theories….

The Wages Fund Theory –

This theory was developed by Adam Smith (1723-1790). His basic assumption was that wages are paid out of a pre- determined fund of wealth, which lay surplus with wealthy persons – as a result of savings. This fund could be utilized for employing laborers for work.  If the fund were large, wages would be high; if it was small, wages would be reduced to the subsistence level. The demand for labor and the wages that could be paid them were determined by the size of the fund. 

The Surplus Value Theory of Wages – This theory owes its development to Karl Marx (1818-1883). According to this theory, the labor was an article of commerce, which could be purchased on payment of ‘subsistence price.’  The price of any product was determined by the labor time needed for producing it. The laborer was not paid in proportion to the time spent on work, but much less, and the surplus went over, to be utilized for paying other expenses. —Marx himself considered his theory of surplus-value his most important contribution to the progress of economic analysis. It is through this theory that the wide scope of his sociological and historical thought enables him simultaneously to place the capitalist mode of production in his historical context, and to find the root of its inner economic contradictions and its laws of motion in the specific relations of production on which it is based .

The Residual Claimant Theory - §Francis A. Walker (1840-1897) propounded this theory. According to him, there were four factors of production business activity, viz., land, labor, capital and entrepreneurship. Wages represent the amount of value created in the production which remains after payment has been made for all these factors of production. In other words, labor is the residual claimant.

The Marginal Product Theory of Wages- —This theory was developed by Phillips Henry Wicksteed (England) and John Bates Clark (USA). According to this theory, wages are based upon an entrepreneur’s estimate of the value that will probably be produced by the last or marginal worker. In other words, it assumes that wages depend upon the demand for, and supply of, labor. Consequently, workers are paid what they are economically worth. The result is that the employer has a larger share in profit as has not to pay to the non-marginal workers. As long as each additional worker contributes more to the total value than the cost in wages, it pays the employer to continue hiring; where this becomes uneconomic, the employer may resort to superior technology.

 The Subsistence Theory of Wages - —This theory, also known as ‘Iron Law of Wages,” was propounded by David Ricardo (1772-1823). This theory (1817) states that: “The laborers are paid to enable them to subsist and perpetuate the race without increase or diminution.”. —The theory was based on the assumption that if the workers were paid more than subsistence wage, their numbers would increase as they would procreate more; and this would bring down the rate of wages. If the wages fall below the subsistence level, the number of workers would decrease – as many would die of hunger, malnutrition, disease, cold, etc. and many would not marry, when that happened the wage rates would go up. In economics, the subsistence theory of wages states that wages in the long run will tend to the minimum value needed to keep workers alive. The justification for the theory is that when wages are higher, more workers will be produced, and when wages are lower, some workers will die, in each case bringing supply back to a subsistence-level equilibrium. —The subsistence theory of wages is generally attributed to David Ricardo, and plays a large role in Marxist economics. —Most modern economists dismiss the theory, arguing instead that wages in a market economy are determined by marginal productivity.

 The Bargaining Power Theory of Wages - —John Davidson propounded this theory. Under this theory, wages are determined by the relative bargaining power of workers or trade unions and of employers. When a trade union is involved, basic wages, fringe benefits, job differentials and individual differences tend to be determined by the relative strength of the organization and the trade union.

 The Behavioral Theory Of Wages - —Many behavioral scientists – notably industrial psychologists and sociologists like Marsh and Simon, Robert Dubin, Eliot Jacques have presented their views or wages and salaries.

 Briefly such theories are:

 The Employee’s Acceptance of a Wage Level – This type of thinking takes into consideration the factors, which may induce an employee to stay on with a company. The size and prestige of the company, the power of the union, the wages and benefits that the employee receives in proportion to the contribution made by him – all have their impact.

 The Internal Wage Structure – Social norms, traditions, customs prevalent in the organization and psychological pressures on the management, the prestige attached to certain jobs in terms of social status, the need to maintain internal consistency in wages at the higher levels, the ratio of the maximum and minimum wage differentials, and the norms of span of control, and demand for specialized labor all affect the internal wage structure of an organization.

More on the pay theories….

Here is more on the pay theories:

Equity Theory - argues individuals compare the ratio of their outcomes (such as rewards) and inputs (such as effort, performance) with others’ ratios. Those who find their ratio is not equal to those similar to them feel inequity, and take action to reduce it. The strength of motivation is associated with the magnitude of inequity, and the bigger the inequity the greater is the motivation to reduce it. In a compensation context, if employees perceive underpaid, they react  negatively and organization performance will be diminish. Equity theory generally looks at compensation in terms of how much is paid rather than how it is paid. Indeed, we do not have any study that discusses pay mix from an equity theory perspective.

Person- organization fit model states that certain pay characteristics (high pay level, flexible  benefits, individual-based pay, and fixed pay) are more attractive to job candidates. —Pay systems have significant influence on attracting job candidates. —Individuals are risk averse. The greater the relative importance of fixed pay the more effective in attracting job candidates.  The higher the level of total pay the more effective in attracting job candidates.

Prospect theory • Individuals choose risk-averse behavior when the outcomes are framed in terms of potential gains, whereas they choose risk-taking behavior when the outcomes are framed in terms of potential loss. Individual perceptions change their behaviors. People change their attitudes toward risk. Incentives work more effectively when it is framed in terms of positive rewards. Not only the relative importance of incentive pay, but also the market position of total pay, influences employees’ attitudes and organizational performance.   

The theories

Over these many years imminent personalities have presented a rich array of original theoretical thinking on the subject of pay. A serious discourse on the subject of “our pay ethos” cannot really proceed without a review of these many theories that provide us insight into this all encompassing element of our lives.

This post will attempt to give a brief description and view point on each of these many theories. Because any in depth understanding of a subject requires contemplation on the many theoretical framework of thought on the subject under study.

First here is the compendium listing of these various theories: Agency Theory; Efficiency Theory; Expectancy Theory; Equity Theory; Person-Organization Fit Theory; Prospect Theory; Subsistence theory; Wages fund theory; Surplus value theory of wages; Residual claimant theory; Bargaining theory of wages; Marginal productivity theory and Behavioral theories.

Next follows a brief review of each of these theories:

—Agency Theory- addresses how an optimal contract is achieved in situations in which principals delegate work to agents in exchange for rewards. Organization structures and human resource practices are developed to achieve an optimal contract under agency problems. Principals choose either behavior-based contract or outcome-based contract considering the cost involved with the contracts. Outcome-based pay aligns the interests of agents to those of principals. Principals engage agents to perform some service in exchange for rewards. —Agents are self-interested and rational. There is goal conflict between principals and agents. There is difference in the attitudes toward risk between two actors (agents are more risk averse). —Incentive alignment / outcome-based pay encourages the agents to work hard for achieving desired outcomes. The relative importance of incentives affects employee motivation and organization performance . 

Efficiency theory – states —market position of pay matters. Above-market pay level is associated with higher quality of employees, lower turn-over, and greater  effort. Above-market wage is associated with increased efficiency, lower labor cost and employees’ greater efforts to achieve organizational objectives. Above market wage attracts high quality applicants. Individuals compare their pay with external job opportunity. The higher the level of each pay forms  measured in their market positions the better the organization performance. In spite of mixed empirical evidence about the effects on organization level performance efficiency wage theory essentially discusses the higher the market position the better the organization performance.

 

Expectancy Theory - depicts motivation as a multiplicative function of 1) expectancy that is that the probability that effort leads to specific performance. 2) instrumentality is that the probability that the performance leads to specific outcome and then 3) the valence, the value of the specific outcome.

 

—The implication of this theory is that employee compensation system motivates employees most effectively when employees believe “they can do what it takes to earn money and when they value money as a reward”. As long as employees value money, the greater the pay level (valence), the greater is the motivation effects of the compensation system and the better organization performance. Individuals’ subjective estimates on the three perceptions presented above determine the  behavior.

   

More posts on the theories will follow…….. 

 

Why do I use the word “ethos” in this blog?

Since I started writing this blog many people have asked me why I use this word “ethos” in the context of “pay”. So here is the answer.

—Ethos forms the root of ethikos (ἠθικός), meaning “moral, showing moral character”. To the Greeks ancient and modern, the meaning is simply “the state of being”, the inner source, the soul, the mind, and the original essence, that shapes and forms a person or animal (from wikipedia).

  

Ethos, according to The Oxford English Dictionary, is defined as “the characteristic spirit, prevalent tone of sentiment, of a people or community. Originally the word has its roots in the Greek word ‘etho‘ or “to be accustomed to.”  It refers to accepted standards, rather than what is more modernly thought of as character unique to a certain individual. The word also means  ‘’a habitual gathering place.” A place where one might gather often, the opportunity for developing communal or common values. These types of values are those which are established in the meaning of ethos.

Thus I find the word appropriate in the pay context. Why, because —pay in our lives is all encompassing. —It affects our economic, sociological, cultural, environmental,  psychological, familial, physiological, emotional and spiritual lives and more. Thus understanding the concept of pay and how to manage the administration of pay systems requires an understanding of the words used, the theories, the issues, the principles – the context – the ethos! — For our livelihoods we are loyal/disloyal, committed/not committed, respectful/disrespectful, dedicated/not dedicated, motivated/not motivated and on and on. Every single human emotion. —It almost touches our souls.  Thus our Ethos!  Thus the use of the word!  

 

Ideas surrounding a societal wage floor

There are critical differences between the concepts of a  minimum wage, a living wage and a subsistence wage. Let us explore the differences here:

• A Minimum Wage – The lowest wage, determined by law or contract, that an employer may pay an employee for a specified job and may fail to meet the requirements of a living wage.
• Living wage is a term used to describe the minimum hourly wage necessary for a person to achieve some specific standard of living. This standard generally means that a person working forty hours a week, with no additional income, should be able to afford a specified quality or quantity of housing, food, utilities, transport, health care, and recreation.
• Subsistence wage is the lowest wage upon which a worker and his family can survive – a wage so low that it is barely enough to live on.According to Lassalle, wages cannot fall below subsistence level because without subsistence, laborers will be unable to work for long

Here are further elaborations on these concepts from a social justice point of view: as propounded by scholars and the Catholic Church: 

—“If a worker receives a wage sufficiently large to enable him to provide comfortably for himself, his wife and his children, he will, if prudent, gladly strive to practice thrift; and the result will be, as nature itself seems to counsel, that after expenditures are deducted there will remain something over and above through which he can come into the possession of a little wealth.. ”

—“Wealthy owners of the means of production and employers must never forget that both divine and human law forbid them to squeeze the poor and wretched for the sake of gain or to profit from the helplessness of others.”

—“As regards protection of this world’s good, the first task is to save the wretched workers from the brutality of those who make use of human beings as mere instruments for the unrestrained acquisition of wealth.”

—“Care must be taken, therefore, not to lengthen the working day beyond a man’s capacity. How much time there must be for rest depends upon the type of work, the circumstances of time and place and, particularly, the health of the workers.” 

In spite of the above call for social justice there remains still today across the world many places where exploitation through “human trafficking” remains a severe concern.

There are supporters and critics of the idea of a living wage and its effects on the economy.

The critics argue that implementing a living wage establishes a wage floor, which will harm the economy. They believe that companies will choose not to hire the same number of employees at such high levels of pay. This creates higher unemployment, resulting in deadweight loss, as people who would work for less than a living wage are no longer offered employment. —Supporters of the living wage, on the other hand, argue that benefiting employees will also help the company. If employees are more satisfied earning a living wage, there will be less employment turnover. This reduces expensive recruitment and training costs for the firm. They also argue that the higher wage will boost morale. Employees with high morale are expected to have higher productivity, allowing the company to benefit from increased worker output.

All in all these above stated wage standards today across the world are not adequate for the average human being to live a decent life. The living costs, especially of the essential necessities of a decent life are regularly trending upwards. One earner or one job situations are becoming scare to make ends meet.

So a esoteric debate around economic philosophy is mute in the real world. A majority of the world’s population are still on income hovering at the subsistence level and below. Certain areas of the world are suffering more than the others. The irony around modernity is that the rate of growth of technological advances, globalization, communication systems, medical sciences etc. is much greater than rate of improvement of the living conditions of a majority of the world’s population. While a portion of the world’s population sees a rapid increase in living standards, the largest proportion of the world’s population live under  a  system of “wage slavery”.

Look for an essay on the concept of “wage salary” in a future essay on this blog.

  

 

Commonly Used Words in the Corporate Context

After having written two essays on all the words that are currently used in many different contexts in the pay ethos, I have found that the most commonly used words in the organizational context are:

• —Base, Basic, Fixed, “Come To Work” – this describes the “fixed” part of your pay. This element is mainly provided to employees to come to work and do the work by using the required skills, knowledge and abilities.
• Incentives or bonuses – given to you for achieving time bound goals and objectives. Words such as incentive targets, objectives (bonus able objectives), measurements, ratings are all contextual terms used here in most organizations
• Allowances – not ‘benefits” are used here.  Housing allowance, transportation allowance and education allowance are common. These types of allowances are widely used in various countries
• Adders to base – are common in the US. Overtime pay, call-back pay, on-call pay are common elements and are provided for work that is done beyond normal work hours
• Risk Benefits – medical, disability and life. These benefits are provided to employees in lieu of cash to mitigated the various life risks for employees and their families
• Retirement, Savings benefits are commonly found in organizational settings to assist employees with their post-employment lives
• Equity Participation – this element in the past had been mostly provided to senior executives to motivate them to increase share-holder value. This component of pay has seen the most contextual fluctuations during my many years in this business. There has come to being many versions of these plans (non-qualified stock options, incentive stock options, restricted stock options). This topic is a much discussed topic in all realms. Accounting, tax and legal implications surround these programs. More recently issues of Executive Compensation Excesses, Insider trading, Ownership Culture, Stock Option pricing, dilution, over-hang and plethora of issues, concerns, debates, and legal mumbo jumbo has almost clouded the pay ethos with total confusion. This element has spawned specialists, legal experts, associations, interest groups and what not around this one element of the pay ethos. In my opinion, the over-riding factors that surround this element is, 1) whether these programs have any value if distributed all across the whole employee population, even to the lowest employee levels and 2) the over-riding issue in my mind, is whether the organizations that distribute stock options to wide variety of employees, hoping that this distribution of stock options will make all levels of employees as if they are owners do indeed achieve an “ownership culture” (watch for an essay on this subject on this blog)
• Perquisites – here the mind will indeed be boggled for the common person. Many Fortune 500 companies provide executives a wide variety of perks. This practice is wide spread around the world. Most common are first class travel, private jets (do not forget that the automobile executives in the US showed up to Capital Hill to beg for the tax payers money in company provided private jets – what a joke!), country club memberships etc. etc. Why may I ask are these elements provided to these senior executives? What is the rationale? Is their any direct correlation between organizational performance and the granting of these perks to executives? Now is the time to question the existence of these pay elements widely in all circles of our society. Reasonableness should a key determinant.

More Thoughts on the Words!

Continuing with the understanding the words that often cause confusion let me now define a few more terms:

ALLOWANCE:

• —the amount of something that is permitted, esp. within a set of regulations or for a specified purpose
• — a sum of money paid regularly to a person, typically to meet specified needs or expenses
• an amount of money that can be earned or received free of tax : a personal allowance
• Examples housing, education, hardship, transportation

BENEFITS:

• —Employee benefits are benefits in kind (also called fringe benefits, perquisites or perks) are various non-wage compensation provided to employees in addition to their normal wages or salaries
•  Where an employee exchanges (cash) wages for some other form of benefit, this is generally referred to as a ‘salary sacrifice’ arrangement
• —In most countries, most kinds of employee benefits are taxable to at least some degree
• Some of these benefits are: group insurance (health, dental, life etc.), disability income protection, retirement benefits, daycare, tuition reimbursement, sick leave, vacation (paid and non-paid), social security
• The purpose of the benefits is to increase the economic security of employees

PERQUISITES:

• —The term perqs or perks is often used colloquially to refer to those benefits of a more discretionary nature
• —Often, perks are given to employees who are doing notably well and/or have seniority
• — Common perks are company cars, hotel stays, free refreshments, leisure activities on work time (golf, etc.), stationery, allowances for lunch

AND FINALLY, INCENTIVES AND BONUSES:

• —A thing that motivates or encourages one to do something
• —In economics and sociology, an incentive is any factor (financial or non-financial) that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives
• —A payment or gift added to what is usual or expected, in particular
• An amount of money added to wages on a seasonal basis, esp. as a reward for good performance : big Christmas bonuses

In the last two essays, I have defined all the words that are used in practice in a very confusing manner to contextualize our pay ethos. Therefore, in my opinion, it is important to clearly understand the meanings and definition of these words, before one starts a serious discussion about the confusion that abounds in our pay ethos.

Most of these definitions and meanings have been derived from a wikipedia research effort.

 

It helps to understand the words!

As I step into the shadows of my working life I find myself pondering the beginnings. Dr. Steven Covey tells us in his highly acclaimed “Seven Habits of Highly Effective People” that often when we are at the end , we then take the time to understand the beginning. So this is what I am attempting to do in this essay.

In doing so, I did some research (in wikipedia) into the true meanings of the lexicon of words that have been an integral to my working world. These words are: Wage, Salary, Compensation, Pay, Remuneration and Rewards 

Here is what my research shows:

WAGE:

• A fixed regular payment typically paid on a daily or weekly basis, made by an employer to an employee, especially to a manual or unskilled worker
• In economics wage is the part of total production that is the return to labor as earned income as distinct from the remuneration received by capital as unearned income
• A definitional form states that wages are given to workers and not to employees
• The implication is that the word wage is used to define the money a worker receives in exchange for labor – physical labor
• There seems to be a connotation that wages are given in exchange for brawn not brain (physical strength in contrast to intelligence)

SALARY:

• A fixed regular payment, typically paid on a monthly or biweekly basis but often expressed as an annual sum, made by an employer to an employee as opposed to a worker – a professional or a white-collar worker
• A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with wages, where each job, hour or other unit is paid separately, rather than on a periodic basis
• The distinction between salary and wages flow from the fact that salaried employment, in part because the effort and output of “office work”, was hard to measure in hourly or piecewise terms, and in part because they did not necessarily draw economic benefit from share ownership.

COMPENSATION:

• The money received by an employee from an employer as a salary or wage
• Therefore, the word compensation has been used as an encompassing word covering both  wages and salaries
• But the pure definition of this word is money awarded to someone as a recompense for loss, injury or suffering
• Something that counterbalances or makes up for an undesirable or unwelcome state of affairs   
• In psychology this word means – a strategy whereby one covers up, consciously or unconsciously weaknesses, frustrations, desires, feelings of inadequacy or incompetence in one’s life through the gratification or excellence in another area
• Compensation can cover up either real or imagined deficiencies and personal or physical inferiority 
• Thus, if one really analyzes the context of this word one can see it does not really fit the context in which it is currently used

PAY:

• This is the term we are actually interested in studying in this blog
• This term  explains the giving of someone money that is due for work done
• Or in other words it explains the giving of a sum of money in exchange for work done
• It also explains the yielding or providing someone with a specified sum of money
• It also alludes to giving what is due or deserved
• The notion of payment arose from the sense of pacifying a creditor
• I want to pay him for his work REWARD, reimburse, recompense, give payment to, remunerate.
• Thus, in the modern world this concept needs to be considered. It is not just wages or salaries that are being provided, organizations are paying their human resources – they are rewarding,  they are remunerating
• The concept here that we need to consider here is that because of the above mentioned factors the word pay should include both the perspectives of the giver and receiver of PAY. This is a psychological transaction as much it is an economic transaction. Both the supply (what the organization wants to provide) and the demand (what the employee -who is the creditor being pacified) side of this equation needs to be considered
• I contend that all too often organizations – both private and non-private only look at the supply side and ignore the demand side (what the employee wants) and thus pay remains one the most emotionally disturbing work dimensions

REMUNERATION:

• One will receive adequate remuneration for the work one has done i.e. a payment, pay, salary, wages; earnings, fee(s), reward, compensation  recompense,reimbursement; formal emolument(s).
• Thus, this word is an all encompassing word

REWARDS:

•  A  thing given in recognition of service, effort, or achievement
• Today, the idea of the usage of all the words explained above continues to evolve as part of a system of all the combined rewards that employers offer to employees. Salary (also now known as fixed pay) is coming to be seen as part of a “total rewards” system which includes variable pay (such as bonuses, incentive pay, and commissions), benefits and perquisites (or perks), and various other tools which help employers link rewards to an employee’s measured performance
• Tieing it into performance is where , in my opinion, the crux of the problem lies!!!!

A contrarian viewpoint that seeks to challenge the status quo on this matter.Thus we land up “punishing with rewards”.  More essays to follow in this vein….