What Is a Justified Wage?
A “justified wage” is money based on how the market works, work experience, education, and skill. A fair wage is high enough to get people to work for it but low enough that companies can still afford to hire them. The difference between what a worker is worth and the legal minimum wage may depend on several things, such as the jobless rate and the state of the business.
Understanding a Justified Wage
A fair wage considers both the supply and demand of workers and factors that are more social and culturally important, such as work experience, schooling, skills training, and the type of job. A wage is fair if it is generally acceptable and good for business.
For example, a worker at a fast food chain with two years of training might be worth about $10 an hour. The same two years of training might earn an investment banker in a big city like New York more than $150,000.
To keep up with the high jobless rate and slow business during a recession, these workers may see their pay drop to just above the minimum wage. After the Great Recession, many investment banks said slow economic growth was a good reason to lower pay.
Justified Wages for Workers, for Example
When figuring out a fair wage, companies may look at how much other workers make and how long they’ve worked for the company. One present worker, for example, has ten years of experience and makes $65,000 a year. With this knowledge, management decides that another worker should be paid $60,000 because they have eight years of experience.
When setting a fair price, management may also look at other things, like the employee’s duties and how much money they make. For example, the fees a stockbroker writes could be enough to cover their salary. When employees get paid reviews, they can help determine what a fair wage is by discussing how they add value to the company.
Justified Wage for CEOs, for example
A company’s board of directors usually thinks about the following things when deciding how much to pay the CEO:
Leadership: How does the CEO lead? Can they bring the top management team together and set a good standard during change? A CEO’s pay might be fair if they can get their employees to work hard.
Strategic Ability: Does the CEO do an excellent job of allocating resources? Do they go into new areas that will help the business grow and bring in new customers? For instance, the board of a global business might decide that a CEO’s pay is fair based on how well the company has entered new markets.
Network: The right amount of pay for a CEO might depend on how well network links are used. For example, are they able to get top leaders to leave competitors? A CEO may be able to get a better salary if they know people who can help them get new customers and providers.
Conclusion
- A justifiable wage is the right amount of money to pay a worker considering both market and non-market factors.
- It’s usually more than the minimum pay and lets businesses actively look for and hire workers.
- To set a fair wage, you need to look at the type of work, the skills needed, experience, job tasks, and the state of the business.
