Pay commission:
Wages and allowances of Central and state government employees are determined through the pay commission appointed by the appropriate government So far the Central Government has appointed five pay commissions. The dispute arising out of pay commission awards and their implementation are decided by commissions of inquiry adjudication machinery and the joint consultative machinery.
An important component of employees’ earnings besides salary, is bonus. Starting as an adhoc and exgratia payment, Bonus was claimed as dearness allowance during World war II . In the course of labour history, it has metamorphosed from a reward or an incentive for good work into a defendable right and a just claim. Subsequently under the Payment of Bonus Act 1965 it secured the character of a legal right.

The dictionary meaning of bonus is extra payment to the workers beyond the normal wage. It is argued that bonus is a deferred wage payment which aims at bridging the gap between the actual wage and the need based wage. It is also said that bonus is a share of the workers in the prosperity of an organization. The third argument is that bonus is primarily a share in the surplus. But it is only incidentally treated as a source of bridging the gap between the actual wage and the need based wage.
The payment of bonus act 1965:
The act defines an employee who is covered by it as one earning Rs 2,500 pm. (w.e.f. 1.4.93) basic plus dearness allowance
And specifies the formula for calculating the allocable surplus from which bonus is to be distributed. The minimum bonus to be paid has been raised from 4 per cent to 8.33 per cent (w.e.f. 25.9.75) and is sought to be linked to increased productivity in recent times through collective bargaining. The workers through their representative union, can negotiate for more than what the Act provides and get the same ratified by the government if necessary. In the absence of such a process, the Act makes it mandatory to pay bonus to employees (who have worked in the unit for not less than 30 working days in a year) following a prescribed formula for calculating the available surplus. The available surplus is normally the gross profits for that year after deducting depreciation. Development rebate / investment allowances / development allowance direct tax and other sums referred to in Sec 6. The Act applies to every factor or establishment in which 20 or more persons are employed in an accounting year. Currently the position is such that even if there is a loss, a minimum bonus needs to be paid treating the same as deficit to be carried forward and set off against profits in subsequent years ( Sec 15). The Act is proposed to be changed since the amount of bonus, the formula for calculating surplus and the set of provisions have all been under serious attack from various quarters.
Wage Differentials:
Wage differentials perform important economic functions like labour productivity, attracting the people to different jobs. Since most of the workers are mobile with a view to maximizing their earnings. Wage differentials reflect the variations in productivity, efficiency of management, maximum utilization of human force, attracting efficient workers, maximization of employees commitment, development of skills, knowledge utilization of human resources etc. Maximization of productivity can be fulfilled through wage differentials as the latter determines the direct allocation of manpower among different units, occupations and regions so that the overall production can be maximized. Thus, wage differentials provide an incentive for better allocation of human force — labour mobility among different regions and the like.
Source: HRM