Compensating DifferentialsCompensation Management

Prepared By

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Manu Melwin JoyAssistant Professor

Ilahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – manu_melwinjoy@yahoo.com

Wage differentials

• The wage paid to workers

varies greatly. These wage

differentials are mostly the

result of differences in

worker ability and the

workers' effort in performing

the job.

Wage differentials• There are also wage

differentials across occupations, because of differences in the demand and supply of laborers for particular job or occupation. These differences arise primarily because of differences in the amount of education or training required and in the desirability of the job itself.

Compensating Differentials

• Some jobs pay more

because they are less

desirable. They may be

hazardous, dirty, and

employment may be

sporadic or seasonal.

Compensating Differentials• For instance, construction

pays more than retail sales because of these compensating differentials, which are nonmonetary differences between jobs where higher or lower wages are paid because of differences in the desirability of the job itself.

Compensating Differentials• Most retail jobs take place in air-

conditioned or heated stores where the worker can wear nice clothing, stay clean, engage in friendly conversations with customers, and expend little physical effort. By contrast, construction workers may perform hazardous work, will become dirty during the job requiring them to spend additional time cleaning up afterwards, and will often have to work long hours to get the job finished, and they may not get work during the winter months. Hence, to attract enough workers to construction, the industry has to pay more.

Compensating Differentials

• In many cases, status or

power, or the lack thereof,

may also be a compensating

differential. After all, you

never hear a kid saying I

want to grow up to be a

garbage collector.

Compensating Differentials• On the other hand, much

more money is spent to elect someone to the presidency of the United States than they will ever earn at the job, and many lawyers make more than Supreme Court justices, yet few lawyers would turn down an appointment to the Supreme Court.