Significance of Labor markets and

its role in the area of compensation

systems
 GROUP MEMBERS
SHARAD SHARMA

YASIR YOUSUF

NIKHIL CHOUDHARY
 Significance of Labor Markets

• Approximately
3/4th of National
Income goes to
Labor.

• Demand for
Labor differs
from that for
consumption
goods.
THE GENERAL WAGE LEVEL
Ø REAL WAGE.

Ø WORKERS BETTER OFF THAN

THEY WERE 100 YEARS AGO.
 LABOR QUALITY

qEarnings
Benefit from
Education
and
Experience.

qEarnings
profiles of
men show
that earnings
rise with both
LABOR SUPPLY
 Compensation &
Measurement
Wage is a basic compensation
for paid labour, and the
compensation for labour per
period of time is referred to as
the wage rate. The two terms
are sometimes used
interchangeably.
Other frequently used
terms
•Wage = include:
payment per unit of time
(typically an hour)
•Earnings = payment accrued over a
period (typically a week, a month, or a
year)
•Total compensation = earnings + other
benefits for labour
•Income = total compensation +
unearned income
•Labor can be measured in terms of
 Compensation
Management
• Payroll involves large sums of money
• Pay systems are therefore an integral
part of the business strategy
• The pay debate as to whether the
best way of rewarding service is
through pay is far from settled.
 Demand for labour and
wage determination

• The employer's cost of production is

the wage, in which the business or
firm benefits from an increased
output or revenue.
• Wage differences exist, particularly in
mixed and fully/partly flexible labour
markets.
 Objectives of
compensation system
• A large sum of money is invested in
people
• Design rests on what the company
achieves.
• System needs to attract good
employees by structuring packages
that tempt people to do the job
 Achievement of the
objectives are determined
by :
• Labour market forces
• Collective bargaining
• Government legislation
• Top managements philosophy
regarding pay
• Top managements willingness to
recognise ability and effort
 Traditional Pay Systems
• Traditionally people were paid
primarily through base salaries
determined by specific job, the need
to maintain a certain level of internal
pay equity an the need to pay
externally competitive salaries.
• Employees were not encouraged to
develop skills.

This had to
change
 Emerging Pay Systems
• Pay for knowledge and skills
• Pay for competencies
• Performance based pay
• Incentive pay systems
• Broad banding = employees might
spend most of their careers in a
single band moving laterally
Arms sales (agreements), by Supplier, 2000-2007 (in
billions of constant 2007 U.S. dollars) Supplier Total
Sales in US Dollars (billions) Percent of total sales
Source: Richard F. Grimmett, CRS Report for
Congress;

United States 134.835 38%

Russia 67.549 19%
France 32.096 10%
United Kingdom 26.425 8%
China 12.547 4%
Germany 13.859 4%
Italy 7.045 2%
Other European 39.024 11%
Others 22.523 7%