Everything you need to know about the methods of wage payment! The success of an organization largely depends upon the efficiency of labor and the efficiency of labor is considerably affected by the amount of wages paid to them.
Many times the management is of the opinion that the profit of a concern can be maximized only by reducing the wages rates payable to be workers. But this view is not correct.
It should be remembered that low-paid workers’ are usually inefficient that leads to wastage of materials, less economic use of tools, frequency breakdown of machinery and loss of time as a result of which the cost of production goes up, reasonable and fair wage rates allowed ultimately lead to more economic use of machines, tools, materials and time.
Therefore, the importance of the method of wages of wages payment should never be under-estimated.
Some of the methods of wage payment are:- 1. Time Rate Plan 2. Piece Rate Plan 3. Balance or Debt Method.
Additionally, learn about the incentive plans:- 1. Halsey Plan 2. Rowan Plan 3. Taylor’s Differential Piece Rate Plan 4. Gantt’s Task and Bonus System 5. Merrick’s Differential Piece Rate Plan 6. Emerson’s Efficiency Plan 7. Bordeaux Points Plan.
Also learn about the advantages, disadvantages and suitability of the methods of wage payment.
Methods of Wage Payment to Employees and Workers as Studied in Management as well as in Cost Accounting
Methods of Wage Payment – With Merits and Demerits
Method # 1. Time Rate Plan:
This is the oldest and the most common method of fixing wages. Under this system, workers are paid according to the work done during a certain period of time, at the rate of so much per hour, per day, per week, per fortnight or per month or any other fixed period of time.
The essential point is that the production of a worker is not taken into consideration in fixing the wages; he is paid at the settled rate as soon as the time contracted for is spent.
Merits and Demerits of Time Wage Plan:
i. It is simple, for the amount earned by a worker can be easily calculated.
ii. As there is no time limit for the execution of a job, workmen are not in a hurry to finish it and this may mean that they will pay attention to the quality of their work.
iii. As all the workmen employed for doing a particular kind of work receive the same wages, ill-will and jealousy among them are avoided.
iv. Due to the slow and steady pace of the worker, there is no rough handling of machinery, which is a distinct advantage for the employer.
v. It is the only system that can be used profitably where the output of an individual workman or groups of employees cannot be readily measured.
vi. The day or time wage provides a regular and stable income to the worker and he can, therefore, adjust his budget accordingly.
vii. This system is favoured by organised labour, for it makes for solidarity among the workers of a particular class.
viii. It requires less administrative attention than others because the very basis of the time wage contract is good faith and mutual confidence between the parties.
i. It does not take into account the fact that men are of different abilities and that if all the persons are paid equally, better workmen will have no incentive to work harder and better. They will therefore be drawn down to the level of the least efficient workman. Halsey observes- “Matters naturally settle down to an easy-going pace in which the workmen have little interest in their work and the employer pays extravagantly for his product.”
Taylor says- “The men are paid according to the position which they fill and not according to their character, energy, skill and reliability.”
ii. The labour charges for a particular job-do not remain constant. This puts the authorities in a difficult position in the matter of quoting rates for a particular piece of work. As there is not specific demand on the worker that a piece of work needs to be completed in a given period of time, there is always the possibility of a systematic evasion of work by workmen.
iii. This system permits many a man to work at a task for which he has neither taste nor ability, when he might make his mark in some other job.
iv. As the employer does not know the amount of work that will be put in by each worker, the total expenditure on wages for turning out a certain piece of work cannot be adequately assessed.
v. As no record of an individual worker’s output is maintained, it becomes difficult for the employer to determine his relative efficiency for purposes of promotion.
Method # 2. Piece Rate System:
Under this system, workers are paid according to the amount of work done or the number of units completed, the rate of each unit being settled in advance, irrespective of the time taken to do the task. This does not mean that a worker can take any time to complete a job because if his performance far exceeds the time which his employer expects he would take, the overhead charge for each unit of article will increase.
There is indirect implication that a worker should not take more than the average time. If he consistently takes more time than the average time, he does it at the risk of losing his job.
Under this plan, a worker, working in given conditions and with given machinery, is paid exactly in proportion to his physical output. He is paid in direct promotion to his output, the actual amount of pay per unit of service being approximately equal to the marginal value of his service in assisting to produce that output. This system is adopted generally in jobs of a repetitive nature, where tasks can be readily measured, inspected and counted.
It is particularly suitable for standardised processes, and it appeals to skilled and efficient workers who can increase their earnings by working to their full capacity. In weaving and spinning in the textile industry, the raising of local in the mines, the plucking of leaves in plantations, and in the shoe industry, this system can be very useful.
But its application is difficult where different shifts are employed on the same work or where a great variety of different grades of workers are employed on different and immeasurable services, as in the gas and electricity industries.
Merits and Demerits of Piece Rate System:
i. It pays the workman according to his efficiency as reflected in the amount of work turned out by him. It satisfies an industrious and efficient worker, for he finds that his efficiency is adequately rewarded. This gives him a direct stimulus to increase his production.
ii. Supervision charges are not so heavy, for workers are not likely to waste away their time since they know that their wages are dependent upon the amount of work turned out by them.
iii. Being interested in the continuity of his work, a workman is likely to take greater care to prevent a breakdown in the machine or in the workshop. This is a point of considerable gain to the management, for it reduces plant maintenance charges.
iv. As the direct labour cost per unit of production remains fixed and constant, calculation of costs while filling tenders and estimates becomes easier.
v. Not only are output and wages increased, but the methods of production too are improved, for the worker demands materials free from defects and machinery in perfect running conditions.
vi. The total unit cost of production comes down with a larger output because the fixed overhead burden can be distributed over a greater number of units.
i. In spite of the advantages accruing to the management as well as to the workmen, the system is not particularly favoured by workers. The main reason for this is that the fixation piece rate by the employer is not done on a scientific basis. In most cases, he determines the rate by the rule-of-thumb method, and when he finds that the workers, on an average, get higher wages compared to the wages of workers doing the same task on a day- rate basis, pressure is brought to bear upon the workers for a cut in the piece rate.
Halsey observes- “cutting the piece price is simply killing the goose that lays the golden eggs. Nevertheless, the goose must be killed. Without it, the employer will continue to pay extravagantly for his work; with it he will stifle the rising ambition of his men.”
ii. As the workers wish to perform their work at breakneck speed, they generally consume more power, overwork the machines, and do not try to avoid wastage of materials. This results in a high cost of production and lower profits.
iii. There is a greater chance of deterioration in the quality of work owing to overzealousness on the part of workers to increase production. This overzealousness may tell upon their health, resulting in a loss of efficiency.
iv. It encourages soldiering; and there “arises a system of hypocrisy and deceit, because to escape further cuts they begin to produce less and also regard their employers and their enemies, to be opposed in everything they want.”
v. Excessive speeding of work may result in frequent wear and tear of plant and machinery and frequent replacement.
vi. Trade unions are often opposed to this system, for it encourages rivalry among workers and endangers their solidarity in labour disputes.
Method # 3. Balance or Debt Method:
This is a combination of time and piece rates. The worker is guaranteed an hourly or a day-rate with an alternative piece rate. If the earnings of a worker calculated at the piece rate exceed the amount which he would have earned if paid on time basis, he gets credit for the balance, i.e., the excess piece rate earnings over the time rate earnings. If his piece rate earnings are equal to his time rate earnings, the question of excess payment does not arise.
Where piece rate earnings are less than time rate earnings, he is paid on the basis of the time rate; but the excess which he is paid is carried forward as a debt against him to be recovered from any future balance of piece work earnings over time work earnings. This system presupposes the fixation of time and piece rates on a scientific basis.
Methods of Wage Payment – Time and Piece Wage (Merits, Disadvantages and Suitability)
1. Time Wage:
This is the oldest and most commonly used basis in remunerating labour. Under this method employee is paid on the basis of time worked i.e. hourly, weekly or monthly or any other fixed period of time irrespective of the quantity of work done. The essential point is that the employee is paid at the settled rate as soon as the time contracted for is spent; and his production is not taken into consideration.
Time wage payment is found in practice in those industries and for those jobs where the quality of goods produced is of extreme importance. For instance, artistic pieces where the speed of production is beyond the control of employee or where the production is automatic or where the work done by an employee is difficult to measure such as clerical or managerial or supervisory work.
This system is very easy and simple to follow:
Time wage system offers the following advantages:
(i) It is the simplest system of calculating the wages because the time spent on the job is very easy to ascertain. The cost of operating time wage scheme is negligible.
(ii) The quality of the product can be maintained by paying particular attention as there is no time limit for completion of a job.
(iii) As workers are in no hurry to complete the job, they will avoid over – speeding and the consequent damage to equipments; thus there is no rough handling,
(iv) Where the production is not standardized, the productivity of workers cannot be measured accurately. In such circumstances, thin is the best system of wage payment.
(v) All the workers doing a particular kind of work get the same wages under this system; so there is no reason for ill-will or jealousy among the members in the group.
(vi) It gives the workers a sense of security. They need not be afraid of the cut in wages even when their efficiency is temporarily impaired by an injury or sickness. When there occur unavoidable interruptions in work, this system is good.
(vii) This system promotes industrial peace because; labour unions favour it and recognize it in the interest of workers as it does not create any distinction in the ranks of the workers.
There are several drawbacks of this system.
The major disadvantages are:
(i) The system does not distinguish between efficient and inefficient worker and between honest worker and a shirker. Wages are paid to all according to time spent on work; it decreases the morale of capable workers.
(ii) There is lack of incentive to the worker for higher productivity since there is no provision for reward on any extra effort. Thus, it offers no positive inducement to the worker to improve his efficiency and to show his ability by giving better performance.
(iii) There is frequent tendency of being slack in work as there is no specific time-limit to complete a job.
(iv) This system represses the superior workers because they are paid at par with the inferior workers. They refrain from producing better results.
(v) It requires continuous and strict supervision so as to maintain quality and quantity of work and to reduce the cost of production thereby,
(vi) Employer finds if difficult to calculate the labour cost and the cost of production because the output and the cost fluctuate considerably under this system.
After looking the merits and demerits of the time wage system, it may be concluded that the system is suitable in circumstances where:
(i) Quality of work is the prime consideration,
(ii) Unavoidable interruptions and delays in work or output occur,
(iii) The production is carried on small scale basis so that effective supervision may be possible,
(iv) A worker is learning a job,
(v) Nature of job changes frequently,
(vi) Work is not standardized and the output is beyond the worker’s control,
(vii) Specialized skills are required to perform the job,
(viii) Workers’ output cannot be easily or precisely measured; and
(ix) It is considered to be the only practical method.
2. Piece Wage:
This is the second oldest method of the payment of wages. Under this method quantum of work is the basis for paying the wages and not the time spent on work. A fixed rate for producing a unit of output is agreed upon and paid.
The worker is paid a fixed rate per unit produced or job completed that is normally developed on the basis of the analysis of previous performance and establishment of average performance of a particular standard of workmanship. Worker’s earnings can be calculated on the basis of this formula- “WE = NR” where WE is the worker’s earning, N stands for the number of pieces produced and R is the rate per piece.
This system has several advantages:
(i) It is very easy to calculate wage under this system.
(ii) Supervision charges are not so heavy since no strict supervision is called for as the workers themselves are interested in raising the production to earn higher wages.
(iii) The cost of production and cost per unit can easily be calculated and estimated because labour per cost unit is constant.
(iv) There is increased production as well as productivity due to greater motivational effects through financial incentives.
(v) There is greater cooperation from workers in avoiding interruptions in work. They take great care to prevent a breakdown in machine or workshop.
(vi) Working arrangements and method of production may be improved by workers themselves; workers demand materials free from defects and machinery in perfect running condition.
(vii) Cost of production comes down with larger output because the fixed overhead burden can be distributed over a greater number of units.
(viii) There is inducement to the superior worker to put in more effort and work hard.
Among the major drawbacks of this system the following are important:
(i) It lays too much emphasis on quantity of production at the cost of quality of the product.
(ii) There is frequent spoilage of tools, equipments, wastage of materials, over working the machines and more consumption of power as the workers are in a hurry to finish the work at a breakneck speed.
(iii) There is greater strain on the worker causing excessive fatigue due to work being done at the maximum possible speed owing to over zealousness. They undermine their health and efficiency. It causes accidents
(iv) There is decline in worker’s regularity in attendance at work due to increased earnings thus leading to an adverse impact on employee morale.
(v) It makes the worker feel insecure because he gets wages on the basis of output. If worker’s efficiency is impaired temporarily by ill- health etc., he will lose his wages for that period.
(vi) Labour unions oppose the system because the fixation of piece rate is not done on a scientific basis. Politically too this system weakens the labour unions as workers get no time for union activities.
(vii) This system promotes jealousy, suspicion and unhealthy rivalries among workers thereby endangering solidarity of trade unions in labour disputes.
(viii) Production planning and control prevents the workers from earning more and they become hostile in their attitude.
(ix) Workers may have to lose their wages where the production process is interrupted by reasons beyond their control such as power failure or non-availability of materials etc.
(x) This system is complicated as it involves a great deal of time and effort to develop, and maintain; it is costly too. It requires up-to-date record of output for each worker. Moreover, standards are required and time studies are more.
This system is suitable where:
(i) The work is of standardized and repetitive character
(ii) There is an urgent need to increase production
(iii) Units of output can be readily measured, inspected and counted.
This system can be very useful in the textile industry (weaving and spinning), in the mines (raising of coal), and in the plantations (plucking of leaves). However, it is difficult to apply where different shifts are employed for the same work.
Methods of Wage Payments – Important Wage Systems (With Calculation and Illustrations)
The important wage systems are as follows:
(1) Time Wage System:
This is the oldest and popular method of wage payment. Under this system, the wages are paid on the basis of time the employee puts on the work without considering the output of the employee. The wage rates are fixed for an hour, a day, a week, a month, etc. So, the wages are calculated on the basis of attendance.
Wages are calculated as follows:
Wages = Number of days/hours worked × Rate per day/ hour
In a factory, a wage rate of Rs. 100 per day is fixed. A worker ‘A’ attends work for 30 days and another worker ‘B’ work for 20 days, respectively.
Wages of worker ‘A’ = 30 × 100 = Rs. 3000
Wages of worker ‘B’ = 20 × 100 = Rs. 2000
(i) Simplicity – This is the simplest method and is very easy for the workers to understand.
(ii) Security – This provides a sense of security to workers as wages are paid irrespective of output.
(iii) Better quality of work – As there is no hurry to complete the work, the worker will handle the work with care and maintain quality.
(iv) Trade union support – This system has full support of trade unions, as this system does not distinguish between employees on their performance.
(v) Economy in costs – As the workers are not in a hurry to finish the task, so the materials, machinery and equipment are handled with care. This results in less wastage.
(vi) No need of standardization – This system does not create the necessity for standardization.
(vii) Good for the beginner – This system is beneficial for the beginners as they may not be able to reach a specific level of production in the early years of their career.
The demerits of time wage system are the following:
(i) No incentive for efficiency – Under this system, efforts and rewards are not correlated. Thus, this system works as a disincentive to efficient workers.
(ii) More supervision is required – The workers do not care for time and they consume time uselessly. Thus, to make them work, there is a need for more supervision and control.
(iii) Low production – As wages are not related to output, employees may be producing at slower rate.
(iv) Dissatisfaction among workers – As efficient and inefficient employees get equal wages, thus efficient workers lose their enthusiasm for more efforts.
(v) Difficulty in measuring labour cost – As wages are not related to output, labour cost is uncertain, thus it creates difficulty in determining labour cost per unit.
(2) Piece Wage System:
Under this system, the wages are paid on the basis of output without considering the time taken by the workers in performing the work. Workers are paid on the basis of quantity of work produced.
Wages can be calculated as follows:
Wages = Number of units produced × Rate per unit
If the rate per unit is Rs. 10 and if a worker produces 10 units, then the worker will get 10 × 10 = Rs. 100 as wages.
(i) Increased production – As wages are paid according to number of units produced, workers are encouraged to produce more.
(ii) Differentiation between efficient and inefficient employees – Under this system, the efficient worker will work more as wages are linked to the efforts.
(iii) Less supervision is required – As workers are paid on the basis of performance, less control and supervision is required.
(iv) Optimum utilisation of machinery – Under this system, workers may not like to keep their machines idle, which results in the optimum utilization of machines and equipment.
(v) Effective cost control – Increase in output will result in the reduction of overhead costs per unit. This alternatively results in the form of lower price of goods, which is beneficial for customers.
(vi) Act as an incentive – This system works as an incentive to employees to produce more. So, it maximises the output.
(vii) Breakage is minimized – Under this system, the worker handles the machines and equipment with great care; thus, loss of breakage is minimised. Workers know that breakage will reduce their output, which means reduced wages.
(i) No guaranteed wage – Under this system, workers are not guaranteed minimum wages as wages are directly linked to their efforts and not to the time spent on work.
(ii) Poor quality – Workers are encouraged to have quantity at the cost of quality. Workers are always in a hurry to produce more and this results in sub-standard products.
(iii) Deterioration of health of workers – This system motivates workers to produce more and more, which affects health of workers adversely.
(iv) Opposition of trade unions – This system creates unhealthy competition among workers and also it does not provide any sense of security. Therefore, trade unions oppose this method of wage payment.
(v) Determination of piece rate is difficult – Difficulty arises in determining the piece rate and generally disputes arise between labour and management in this regard.
(vi) Not suitable for beginners – Due to lack of experience, the newcomers may not be able to produce more goods.
(vii) Discontentment – This system frustrates inefficient workers. People who get fewer wages may feel jealous of the others. This results in discontent among workers.
Methods of Wage Payment – Formula, Calculation, Evaluation, Advantages and Disadvantages
There are mainly two major methods of wage payment. In addition, there are incentive wage payments and incentive wage plans.
1. Payment on the basis of time.
2. Piece wage system.
3. Incentive wage payments and
4. Incentive wage plans.
The schemes of incentive wage payments and wage plans have been devised mainly to eliminate the drawbacks of the first two methods.
This is also known as “Time Rate Plan” or “Day Rate Plan” or simply “Time Wages”. This is the simplest and the oldest method of wage payment. Under this method, wages are paid to the employee on the basis of time spent on the job. Wages are determined on the basis of time which the worker spends on his job.
It is like the employer buying the employee’s time. The unit of time may vary from one hour to one month in duration. Wages are calculated at a pre-determined rate per hour, per day, per week or per month or even per year. The actual wages earned by a worker therefore depend upon the total time spent by him on his job and the rate of wages.
In this system, therefore, the time spent and the rate per unit of time are the significant features. Thus, if a worker is paid at Rs.50 per day, his wages for 30 days will be (30 x 50 = Rs.1,500).
The calculation of wages may be expressed in the form of a formula as follows –
Where W stands for total wages to be paid, R for wage rate per unit of time and T for total time spent at the work place.
It is important to note that wages under this system are paid only after the time fixed is completed irrespective of the output produced by the worker. However, the employer expects a certain amount of output to be produced by the worker during the time fixed for payment of wages. If the worker consistently fails to come upto the expectation of the employer, he is likely to lose his job.
The greatest advantage of time wage method is its simplicity. It is very simple to calculate and easy to operate. Wages are not required to be determined after measuring the output produced by the workers. It requires only the laying down of the time spent by the workers at the work place and the rate of wages applicable to different grades and positions.
It gives the workers a sense of security because they will be knowing in advance what amount of remuneration they will be receiving at the end of the period. This will give them an assurance and they can plan their expenditure accordingly.
It is also very useful to the employer because it enables him to get an idea of his wage burden and he can plan for its payment at the end of the period. Thus, both the workers and the employer will be free from uncertainty.
Under this system, the workers need not make any hurry to complete their work or increase their output ignoring its quality. They can give more attention to the quality of the work done or the output turned out. Moreover, they will try to improve it by concentrating their attention on it and this will ultimately benefit the organisation.
IV. No Haste:
Since the workers are paid a guaranteed minimum remuneration on the basis of the time for which they have worked, there is no over-speeding and no consequent damage to the equipment.
V. Wide Applicability:
This system of wage payment can be adopted in any type of work. Even if a worker performs a variety of jobs or performs repetitive work, it will not be difficult to determine his wages.
VI. Suitable in Production of Unstandardized Goods:
This is the only just method of wage payment in the case of production of those goods which are not standardised and where the productivity of the workers cannot be measured accurately.
This system satisfies the principle of equality because it does not discriminate between the workers while paying wages. Therefore, feeling of jealousy and malice does not arise at all. All the workers of a particular grade are paid on the basis of time spent at the work place at the same rate.
Such a sense of equality among the workers of each grade or position makes for smooth working of the organisation. There cannot also be any objection from the trade unions for such a system of wage payment.
I. No Incentive to Hard Work:
The greatest defect of this system of wage payment is that it does not distinguish between the efficient and the inefficient workers and between the honest and the shirking workers. In other words, it does not offer any incentive for higher productivity. As a result, production suffers considerably.
II. No Inducement to Efficiency:
Under this system, there is no direct linkage between the output and the rate of wages of the worker. Therefore, this system does not induce exceptional or efficient workers to put in as much efforts as they might under other systems.
III. Go-Slow Tactics:
As the workers are not required to complete their job or produce a given quantity of output within a given period of time, they are tempted to resort to go slow tactics and they may even systematically avoid their legitimate work. This may be avoided by employing more supervisors and inspectors but this means increased cost of production.
IV. Rigid Supervision Required:
Under this method, the supervisors or the foremen have to work as watch-dogs or as the policemen but this will create a bad feeling among the workers. Sometimes the workers may agitate against their supervisors or foremen because of the latter’s attitude towards the former.
V. No Relation between Cost and Output:
As there is no proper relation between the output and the wages of the workers, it creates difficulties in the calculation of labour cost and the cost of production per unit of output.
VI. No Incentive to Improve Quality:
As the workers are not strictly required to maintain the production schedule and as they will be paid guaranteed minimum remuneration based on the time spent by them, there will be no incentive for them to maintain and improve the quality of the output.
VII. Too Much Security:
This system of wage payment offers too much security to the workers.
From the discussion of the advantages and drawbacks of the time wage system, it may by concluded that the system is suitable under the following situations:
i. Where utmost importance is placed on the quality of the product.
ii. Where the contribution of each worker to the total output cannot be measured in quantitative terms.
iii. Where the workers are contributing their might indirectly to the final product, e.g. in the case of office employees.
iv. Where there is no control over the rete of production in continuous process industries such as chemical industries.
v. Where the work is being performed on a very small scale so that the work of the employees is closely supervised by the employer himself.
vi. Where the workers are learning a job or a trade.
Under this system, wages are paid on the basis of the output turned out or the work completed by a worker irrespective of the time taken by him. A specified wage-rate is fixed per unit of output measured in terms of tons, quintals, kilograms or metres or yards or number of pieces.
Thus, the basis of wage payment under this system is the output or production and not the time spent on the job. Though the time is not important in this system, it is assumed that the worker will not take more than the prescribed or average time to produce a given output or to complete a given piece of work.
If the worker takes more than the average time to produce a given task, he will be generally asked by the employer to speed up his work. Otherwise he will be doing so at the risk of losing the job. Moreover he will also be financially affected. The total wages of a worker under this system depends upon the speed of his work and his own skill and efficiency.
As against time wage system, under which all the workers of a particular grade will be paid the same wages, under the piece wage system, wages paid vary from worker to worker depending upon their skill, efficiency, speed etc.
The wages payable to a worker under this method are calculated by multiplying the total number of units produced by the wage rate per unit.
The formula used for this purpose is as follows:
Where W stands for total wages, N for number of units of a product produced and R for rate of wages per unit. If, for example- a worker produces 10 units, when the rate per unit is Rs.50, he will get (10 x 50=) Rs.500 as his wages.
I. More Equitable:
The great merit of this system of wage payment is that every worker is paid according to the quantity of output turned out by him. This immensely satisfies efficient workers as they will be able to earn more than the inefficient ones. Thus, this system recognises merit and hence, it is more equitable than the time wage system.
II. Increase of Productivity:
Since the current rate of wages depends upon the amount of work done, every worker tries to work hard and earn more. This will inevitably increase the productivity of each worker and consequently increase the total output of the firm.
III. No Tendency to Go-Slow:
This system virtually eliminates workers’ tendency of go-slow tactics because slower the rate of production, lower will be the amount of wages accruing to them.
IV. Supervision Not Required:
Since the workers are interested themselves in working hard and earning more, the need and responsibility of rigid supervision would be greatly reduced. This will naturally reduce the management expenses as it will not be necessary to maintain a large supervisory staff.
V. No Wastage and No Break-Down:
Since the workers are paid according to the output turned out by them, they will be interested in continuous work and avoidance of any breakdown. Therefore, they will give proper attention to the total output and equipment so that the latter always remain in good working conditions. This will avoid the chances of breakdown and minimise the waste due to depreciation.
VI. Low Cost of Production:
Since the productivity of each worker and the total production of the firm increase under the stimulus of piece-rates, the cost per unit of output tends to decline.
VII. High Morale:
This system of wage payment raises the employees’ morale and maintains cordial relations with them, because there will be no cause for complaints. As the workers are paid according to the results, they will be satisfied with whatever they get.
VIII. Cost Calculation Easy:
From the employers’ point of view, this system is beneficial, because it facilitates strict control over cost be basing them on the output recorded. Recording and cost accounting would be easier under this system.
I. No Guarantee of Minimum Wages:
This system does not guarantee any minimum remuneration to the employees. If due to any reason beyond workers’ control, delays occur in their performance, the workers concerned will suffer a lot as they may have to go without any remuneration.
II. Piece-Rates Arbitrary:
This system is not approved by the workers on the ground that the piece-rates are arbitrarily fixed. The workers contend that the piece-rates have no relation to the amount of work done as they are not scientifically determined.
III. Rivalry among Workers:
This system will lead to rivalry among workers and destroy brotherly feeling among them because superior workers earn more than inferior workers under this system and thus a distinction is made between the superior and inferior workers. This creates ill-feeling and jealousy among the workers and leads ultimately to industrial unrest.
IV. Quality Ignored:
Since workers are prone to step up their output as much as possible to earn more wages, they are likely to sacrifice quality for the sake of quantity. In case inspectors are appointed to certify quality, friction takes place between the workers and inspectors. This will lead to dissatisfaction among the workers who may start agitation against the inspectors.
V. Over-Work and Strain:
Since wages are linked with the output, the workers, in their zeal to produce more, resort themselves to too much hard work and overstrain themselves. This will have a deleterious effect on their health resulting in loss of efficiency and energy. Thus, piece-rates would encourage disregard for essential health.
VI. Reckless Use of Machinery:
The workers, in their anxiety to produce more, will increase the speed of work and this naturally leads to speeding up of machinery, waste of materials, fuel and power and reckless handling of tools and equipment. Excessive speed in operating the machines is likely to cause breakdowns, accidents and frequent replacements resulting in loss to the firm.
This system involves increased administrative work as production cards will have to be maintained for each worker and daily record of production and periodical calculation of wages will have to be carried out for each worker.
VIII. Opposition by Trade Unions:
Trade unions very often oppose piece-rate system as it creates rifts and rivalries among the workers and weakens their hold over them.
IX. Not Applicable to Certain Processes:
Piece-rates cannot be introduced in new processes where production levels are not precisely assessed and determined.
X. Not Suitable to Certain Cases:
Piece-rates are not suitable in those cases where work done by the workers cannot be accurately measured.
The adoption of piece-wage system is justified under the following circumstances:
a. Where the output turned out by workers can be measured accurately.
b. Where the job is scientifically standardised, the flow of work is regular and consistent and break-downs are the least.
c. Where quantity of output is more important than its quality.
d. Where it is essential to forecast accurately the labour-cost per unit.
e. Where a clear-cut relation exists between employee’s efforts and the quantity of output.
Any plan which induces a worker to produce more and earn more is called ‘incentive plan’ and remuneration paid for increased output is called ‘incentive wage’. Payment of wages based on output is a general kind of incentive plan. But an efficient incentive plan usually implies the payment of a guaranteed minimum wage based on time-rate, irrespective of the output together with additional remuneration for increased output, time saved, costs reduced and better workmanship.
Thus, an incentive wage plan includes in its purview the characteristics of both the time-based and output based systems of wage payment. The objective of an incentive plan is to assure the workers a minimum amount of wages, to give sufficient scope for talented workers to increase their earnings through quicker, economical and superior performance and to establish reasonable link between labour- cost and output.
Both the time-wage and piece-wage systems have their own merits and demerits. The time wage system assigns the gains or losses arising from variations in worker’s productivity to the employer. But the piece-wage system offers no guarantee of a reasonable wage to the workers and passes gains or losses arising from variation in workers’ productivity to the workers themselves.
In order to do away the main demerits of these two systems, various schemes of wage payments have been devised. These schemes are known as incentive wage plans. The incentive plans are generally based on both time-wage and piece-wage systems but are designed to reward a superior worker above a guaranteed minimum wage.
Such incentive wage plans therefore induce the workers to increase their productivity in order to earn more and also induce the employer to part with a part of the increased revenue in order to encourage the workers towards this end. Thus, in an incentive wage plan, both the basic systems of wages are blended to satisfy both the workers and the employer.
The basic objectives of a good incentive wage plan are such as to increase workers’ productivity, improve their efficiency, increase their earnings and standard of living, eliminate their evil habits such as laziness, indifference, suspicion, distrust of the management and conservatism, reduce costs and to maintain or enhance workers’ morale and improve industrial relations.
In order to achieve these objectives, the incentive plan should be based on the following principles which apply to an ideal plan of incentive wage system:
a. The incentive wage plan should be simple and easily understandable by the employees so that they themselves can calculate their wages.
b. There should be a direct and proper relationship between the efforts put in by a worker and the reward that he gets for his efforts.
c. The standard job (or task) should be clearly described so as to lay down the best and the most economical method of doing that job.
d. The standard task should be clearly laid down in terms of output and the time of performance on the basis of time and motion studies.
e. Job evaluation methods should be adopted to establish fair rates on hourly or daily basis. This gives the workers a feeling of security about their income.
f. Job evaluation techniques should also be adopted to determine incentive rates or scales of bonus or premium.
g. Earnings of the workers above the standard task as defined by the time study should be in direct proportion to the increase in the output above the standard. In other words, wages should increase above a minimum limit in the same proportion as increase in the output. Variable relationships at different levels of output are confusing and are therefore not desirable.
h. The incentive wage plan must be just to both the employer and the employees. It should be economical to the employer and should give reasonable and fair reward to the workers for increasing the output.
i. The incentive wage plan should make due allowance for wastage of time, shortage of materials, breakdown of machinery etc., which are beyond the control of the workers.
j. The incentive plan should be comprehensive in the sense that it should cover all the jobs for which the plan can be profitably applied. If any job is left out, the workers doing that job will feel ignored and hence they develop grievances against the management.
k. There should be a careful follow-up of the personnel so as to ensure adherence to the production or job standards. The reasons for any deviations or shortfalls should be ascertained and corrective steps should be taken to facilitate the smooth functioning of the incentive wage plan.
Some of the important incentive plans intended to induce higher productivity, better quality, a guaranteed minimum wage and careful working on the part of the employees and at the same time economical and beneficial to the employer are briefly discussed below-
1. Halsey Plan
2. Rowan Plan
3. Taylor’s Differential Piece Rate Plan
4. Gantt’s Task and Bonus System
5. Merrick’s Differential Piece Rate Plan
6. Emerson’s Efficiency Plan
7. Bordeaux Points Plan.
This plan was formed by Mr. F. A. Halsey, a mechanical engineer in America. It is also known as Split Bonus Plan or 50:50 Bonus Plan.
It combines the time and piece rates of payment. Under this plan, the worker is paid a guaranteed hourly rate plus a percentage of wages for the time saved. The standard time required for the job is determined in advance on the basis of time and motion studies or on the basis of past experience.
Workers who perform the job in less than the standard time and thus save time are paid a bonus in addition to the basic wage for the actual time they have worked. The bonus is paid for the time saved by the worker. It is calculated at 331/3 percent of the time saved if the standard time is set on previous experience and at 50 percent of the time saved, if the standard time is set on scientific basis. Thus, the total earnings of a worker under this plan consist of wages for the actual time plus a bonus as calculated above for the time saved.
If, for example- a job requiring 10 hours is completed by a worker in 8 hours and the rate of wage per hour is Rs.10, then the worker will be paid wages for 8 hours plus wages for 50 per cent of the time saved, viz. two hours. Thus, the worker will get wages for 9 hours i.e. Rs.90 in all.
His wages will be calculated as follows:
(a) Wages for actual time worked = 8 hours at Rs.10 per hour = Rs.80-00
(b) Wages for time saved at 50 % = 1 hour = Rs.10-00
Total wages = a + b = Rs.80 + 10 = Rs.90-00
The following example shows the total wages of workers who take standard time and who do not save any time and of workers who take less time and save time.
Suppose normal weekly wage is Rs.400 (40 hours per week and the rate per hour is Rs.10). Standard output per week is 8 units (or 5 hours per unit). Premium is 1/2 of the time rate for time saved.
Here, A and B are paid basic wage of Rs.400 each because they do not save any time and produce standard output or even less. But C and D save time because they produce more than standard output. C produces 4 units more. So he saves (5 hours per unit x 4 units =) 20 hours. Premium is 1/2 of the time saved. Time rate is Rs.10 per hours so half of this time is one hour saved. So C gets (20 hours x ½ x Rs.400 + Rs.100 = Rs.500).
Similarly, D & E save 40 hours and 60 hours by producing 8 and 12 units more. So D gets 1/2 of 40 hours i.e. 20 hours’ wages i.e. 20 x 10 = Rs.200 as premium wages. Total wages of D will be 400 + 200 = Rs.600. Similarly E gets 1/2of 60 hours i. e. 30 hours’ wages i. e. 30 x 10 = Rs.300 premium. So his total wages will be 400 + 300 = Rs.700.
The worker who has saved time can again take up another job and earn still more during the day. The bonus is calculated for each job separately so that if the worker fails in one job, he may gain in another. It is important to note that if a worker fails to perform his job within the standard time and takes a longer time, then he is not punished but is paid the time wage.
If any worker is found to take more than the standard time consistently and fails to achieve the standard time, he may be discharged on the ground that he is below the average. An important feature of this plan is that as the time saved increases, the bonus paid decreases and the total cost also decreases.
The Halsey plan was later on adopted with slight modification in England in the Weir Engineering Works, Cath-Cart and the Clyde and it came to be known as Halsey-Weir Premium Plan. In this plan, the bonus is equal to the money value of 30 per cent of the time saved.
i. The Halsey plan assures every worker a guaranteed minimum hourly wage which creates a feeling of security in him and also brings a positive reward for him.
ii. It encourages efficient workers as they can finish their job before the standard time and get some reward for the time saved.
iii. The benefit of time saved is shared by both the workers and the employer. Therefore, workers do not generally oppose the adoption of this plan.
iv. The introduction of this plan does not require any change in the organisational pattern or in the methods of working. It can be adopted easily by any department or by all the departments of the plant.
v. The workers can easily follow the method of calculating the bonus and there is no room for any misunderstanding or bickering on their part on this score.
vi. This plan is simple to operate. As it guarantees a minimum on time basis, it is suitable to new and inexperienced workers.
i. The great demerit of this plan is that the standard time fixed may be often too high, inequitable and difficult to be attained.
ii. Workers complain that they are not given the full benefit of time saved under this method. They are paid only 50 percent of the wages for the time saved by them. This criticism would be valid if the saving of time results only from the efforts and efficiency of workers, but this criticism would lose much of its significance, if the saving of time is also due to the co-operation of the management through better machines, tools and materials.
iii. This method of wage payment requires close supervision to ensure that the workers, in their zeal to work fast, do not waste materials unduly or damage the machinery and tools carelessly. Since workers are over-induced, they may not take any care of the quality of the products they produce.
iv. This method encourages a policy of drift on the part of the management because in this method, the workers alone are left to decide whether or not to produce more after the standard is reached.
v. This plan does not offer much incentive to workers to work more and produce more. Because they get only 30 to 50 percent of the bonus which is not sufficient to induce them to work hard.
2. Rowan Plan:
This plan was introduced by James Rowan of David Rowan and Sons, Glasgow in 1901. This plan is similar to Halsey Plan but it is slightly modified in the method of calculation of bonus. Like the Halsey Plan, it is also a combination of the time and piece-rate methods.
It guarantees a minimum remuneration on hourly basis and it also provides for the payment of bonus to those who show efficiency and economy in their work. Bonus is paid on the basis of time saved in proportion to the total time set as a standard.
Bonus payable to a worker is calculated as follows:
Take the example given in the Halsey Plan. The worker completes his job within 8 hours and saves 2 hours. The rate per hour is Rs.10.
The total earnings of the worker will be:
It may be seen that the Rowan Plan is more liberal than the Halsey Plan, because the bonus under the Rowan Plan is higher (Rs.16) than that under the Halsey Plan (Rs.10).
Rowan Plan bonus is higher when the saving in time is less than 50 cent than Halsey plan bonus. But it decreases when the saving in time is more than 50 percent, whereas, the bonus under Halsey Plan goes on increasing with the increase in the time saved. Take the example of worker E. Under Halsey Plan, he gets Rs.700 as his wages but under Rowan Plan, he gets Rs.640 as his wages.
This system is more liberal than the Halsey Plan in initial stages. When the saving in time is less than 50 percent, bonus is higher than that under the Halsey Plan. But when the saving in time is less than 50 percent, the bonus under the Rowan Plan starts decreasing. But this is not so under the Halsey Plan. The bonus under the Halsey Plan goes on increasing with the increase in the time saved.
Secondly, under the Rowan Plan, there is an automatic check on production after a certain limit. But this is not so under the Halsey Plan. It is important to note that the Rowan Plan was designed to protect the interest of the employer when the time saved was too much and the employee also got too much benefit. This was so because the standards were set on past experience.
However, the Rowan Plan does not provide incentive for the maximum productivity. Further it is difficult and costly to put it into operation. Finally, the workers find it difficult to understand it and therefore, they cannot be expected to take much interest in it. But the great merit of this plan is that it provides sufficient incentive when the time saved is less than 50 percent of the standard time set for the task.
This plan was devised in 1880 by F. W. Taylor, the founder of scientific management. He was a great opponent of the time-wage system but he was a firm believer in the piece-wage system. He devised a differential piece-rate plan for providing greater incentives to efficient workers.
Taylor firmly believed that through a careful time study, it is possible to fix quite accurately a standard of performance in terms of a fair day’s work and that by standardising all conditions of production and by careful instructions, workers could reach the assigned standard.
Under his plan, standard of output is fixed per hour or per day by time and motion study, and two piece rates are set up for each work. A higher piece rate is allowed to those who can produce the standard output or more than the standard output and a lower piece rate exists for others who cannot reach this standard output.
For example- the standard output fixed may be 20 units a day and the piece rate may be Rs.10 and Rs.8 per unit. If a worker produces 20 units, he will get wages at the rate of Rs.10 per unit i.e. 20 x 10 = Rs.200 But if he produces less than 20 units, say 15 units, then he will get wages at the rate of Rs.8 per unit i.e. 15 x 8 = Rs.120.
The plan provides all the incentives to efficient workers whereas it penalises severely the average workers or the beginners. Therefore, the plan aims at certainly eliminating inefficient workers and attracting the best ones. Unlike under the Halsey or Rowan Plan, under the Taylor’s Plan, a worker is entitled to get not only a higher piece rate for the standard or more output but also the full piece rate instead of a fraction of it. Thus, this plan embodies both incentives and penalties.
The important advantages of this plan are as follows:
1. It encourages the efficient workers to work hard and earn more.
2. It also seeks to reduce cost, increase the output and reward the more efficient workers.
3. It encourages the high standards of performance by giving handsome rewards to the efficient workers in the form of increased wages.
4. The ultimate aim of this plan is to eliminate the inefficient workers and to retain only the efficient ones.
In spite of the various advantages, this plan suffers from certain major drawbacks:
1. This plan was never widely adopted because its disadvantages far outweigh its advantages.
2. This method is too harsh for the relatively less efficient workers, because he earns not only lower total wages but at lower rate per unit of output. Therefore, the penalty for the slight fall in the output of a less efficient worker below the standard is too much heavy.
3. Further, this method does not guarantee any basic minimum remuneration and therefore it creates a feeling of insecurity among the workers.
4. Again, an efficient worker, because of attractive incentives, is tempted to work too hard and overstrain himself at the cost of his health and efficiency.
5. Again, this method discriminates between the efficient and the average workers to such an extent that the average workers are psychologically very much discouraged. This will certainly cause discontentment among a large body of workers.
6. Finally, it is argued that the standard output may be fixed by the management at a high level which the workers may find very difficult to attain. The trade unions will not accept such a scheme because it makes discrimination between different workers.
Because of these disadvantages, Taylor’s differential piece wage plan became unpopular among the workers and hence it was not widely practised.
Henry L. Gantt was the contemporary and a close associate of F. W. Taylor, He brought out his plan in 1901 when he was working with Mr. Taylor. Though his plan is similar to Taylor’s plan, it is considerably modified and largely improved. The most important modification is the substitution of Taylor’s punitive wage rate by guaranteed basic wage.
Gantt’s plan is a combination of time rate and piece rate systems. Under this plan, wages on time basis are guaranteed to every worker. A standard performance under the best conditions is determined on scientific basis. The Plan guarantees a time wage to an average worker and a piece rate and bonus to an efficient worker.
Thus, if a worker completes the task in more than the standard time, he will be paid the usual wages. But if he completes the same in the standard time or in less than the standard time, then he will be paid at the piece rate plus a bonus varying between 20 to 50 percent of the standard time.
Suppose, the standard time required to complete a job is 10 hours, the hourly rate is Re.10 and the bonus fixed is 20 percent of the standard time. If a worker completes the job in 11 hours, then he will get the time wage of Rs.110. If he completes it in 10 hours, he will get the wage of Rs.100 plus bonus equal to 20 percent of the standard time i.e. 20 % of 100 = Rs.20.
So his total wages will be Rs.120. If he completes the task in 9 hours, he will still get the same amount of wages i.e. Rs.120 again if he completes the job in 8 hours, he will still get the same amount of wages i.e. Rs.120. But every saving in time enables the worker to take up the next job and thus increase his earnings per hour. Thus, it is clear that all the bonus earnings on the job will be the same (Rs.20 in the above example) and this creates a good psychological effect on all the workers.
The total earnings of the workers who are below the standard are calculated as under:
∴ ξ = Standard piece work rate plus the bonus at 20% of the standard time.
1. It is simple and easily understandable.
2. It guarantees a time rate to workers irrespective of their output. It also pays attractive bonus for efficient workers. Thus, it provides both security and incentive to the workers.
3. It does away with the defect of Taylor’s plan by providing a time wage to the average workers.
4. It helps the workers to increase their efficiency and earn more.
5. From the point of view of the employer, the plan is very useful particularly when the overhead expenses (i.e. fixed costs) and machine rates are higher than the total wage cost. Because these expenses will get spread over a larger number of units of output as the production increases.
6. This plan gives special attention (i) to the training of workers to increase their skill and (ii) to the provision of good working conditions so that the workers can always put in best of their efforts to earn the bonus.
1. The main defect of Gantt’s plan is that it is not an easy task for the employer to make arrangements as perfect as recommended in the plan so as to train the workers or to control the production.
2. The workers may reach the standard and earn more when the task is easy but they may fail to do so when the task is difficult, or when they dislike the job.
3. Like Taylor’s plan, this plan also divides the workers into two distinct and competing categories – those earning bonus and those not earning bonus. This creates disunity among the workers. Trade unions usually do not approve this plan on this score,
4. Under this plan, the labour costs would be high if the production is low. The production may not increase as expected particularly when the guaranteed time rates are kept high and the workers may lose all the incentives to reach the standard output for the sake of bonus.
Merrick’s plan is a modified form of Taylor’s differential piece rate plan. While Taylor prescribed two rates – one for the average or the inefficient workers and the other for the efficient ones, this plan lays down three rates – one for the beginners or sub-standard workers, the second one for the developing workers or average workers and the third one for the highly skilled and efficient workers.
Like the Taylor’s plan, this plan also lays down a standard output through time study and expects the workers to attain it. The rates are fixed per piece. This plan therefore does not guarantee any time rate.
The three piece rates are described as follows:
i. The first and the lowest piece rate is applicable to those who are able to produce upto 85% of the standard output. They are usually the beginners and sub-standard workers.
ii. The second rate which is higher than the first rate (generally by 10%) is applicable to those whose output exceeds 85% but who do not exceed the standard output (i.e. 100%). They are usually the average workers.
iii. The third rate which is still higher than the first and second rates (generally 20% more than the first rate) is applicable to those who exceed the standard output (i.e. more than 100%)
Thus, if the basic piece rate is Rs.10 per unit, wages at this rate will be paid to the workers of the first category; wages at the rate of Rs.11 per unit will be paid to workers of the second category, and wages at the rate of Rs.12 per unit will be paid to the workers of the third category. If 20 units is the standard output.
Wages will be paid as under:
Upto 17 units – Rs.10 per Unit
Between 17 and 20 units – Rs.11 per Unit
Above 20 units – Rs.12 per Unit
This plan modifies the severity of the Taylor’s lower piece-rate. The penalty for inefficiency under this plan is also lighter. But the general criticisms leveled against Taylor’s plan are also applicable to this plan.
Harrington Emerson was one of the proponents of scientific management. He devised a plan to encourage efficiency against the workers. Under his plan, time wages are guaranteed even to those workers whose output is below the standard. But bonus is paid, in addition to wages, to those workers who prove to be efficient.
Bonus is paid only if a worker reaches 662/3% standard efficiency. The bonus increases as the efficiency of the worker increases beyond 662/3%. It ranges from 10% at the lowest ebb of efficiency (67%) to 20% at the peak of efficiency (100%).
The important features of Emerson’s plan are as under:
1. The plan guarantees every worker minimum time wages irrespective of the output.
2. The standard output per unit of time or the standard time for a job is determined on scientific basis.
3. The bonus is paid only if the worker achieves 67% of the efficiency of the standard task. The rate of bonus is small in the beginning but it increases progressively. When 100% efficiency is attained, the rate of bonus is 20% of the standard time.
4. The worker is paid additional bonus for the time saved, if the task is completed before the standard time.
5. The worker’s wages and efficiency bonus are calculated not on the basis of the daily performance but as an average over pay-roll period which may be a week, a fortnight or a month. The efficiency is determined as a ratio between the total standard time and the total actual time spent on all jobs during the period. This avoids the danger of higher efficiency ratio due to spasmodic work.
The formula for finding out the total earnings of a worker under this plan is as under:
E stands for total earnings,
T for time actually taken,
R for rate per hour, and
K for the percentage of bonus.
Suppose a job is set at 80 hours and the hourly rate is Re.10. Suppose a worker completes the job in 100 hours.
His efficiency in terms of the standard will be:
80/100 = 4/5 = 80%
At 80% efficiency, the bonus rate is 3.27% (as ascertained from the Efficiency-Bonus Rates Table).
E = TR + K (TR)
= 100 x 10 + 3.27% (100 x 10)
= 1,000 + 3.27/100 x 1000
= 1,000 + 32.70
In case the worker completes his job in less than 80 hours, his efficiency will be more than 100 percent. In that case, he is given the benefit of the time saved, plus 20% of his actual time wages. Suppose the worker completes the job in 60 hours and saves thereby 20 hours.
Then he will get:
E = TR + (S – T) R + K (TR)
= 60 x 10 + (80 – 60) 10 + 20% (60 x 10)
= 600 + 200 + 1/5(600)
= 600 + 200 + 120
= 800 +120
i. The plan is easy to understand.
ii. It encourages the beginners, besides giving incentives to the skilled and efficient workers.
iii. It has a psychological conductive effect because the bonus payment starts at pretty low level (i.e. 67%) of efficiency.
iv. The fear in the minds of the workers of just failing to reach the standard and losing the bonus is removed under this plan. Therefore, this plan is accepted by the workers.
i. This plan tends to increase labour cost because bonus is paid at a low level of production.
ii. The calculation of bonus is however complicated and hence, it is not easily understood by the workers.
iii. The plan involves lot of clerical work for its administration.
iv. The rate of bonus in the beginning is very small and hence the workers are not tempted to attain the standard as under Taylor and Gantt’s Plans.
The important features of this plan is that the value of time saved is divided between the worker and the foreman in the ratio of 3:1. This is due to the belief that a worker cannot show good performance if his foreman does not co-operate with him. Therefore the foreman is also entitled to an incentive to extend full co-operation to the workers working under him.
Under this plan, the method of measuring time saved is slightly different. The standard time for various jobs is determined scientifically in advance and it is expressed in terms of minutes which are called B’s. ‘B’ symbolises the amount of work done by average worker in a minute under normal conditions of speed and effort.
In other words, each B represents a point equal to one minute. If the standard time for a job is 6 hours under this plan, it is expressed as (6 x 60 =) 360 B’s. The standard B’s of different jobs done by a worker in a week are calculated and compared with the actual time taken.
If the actual time taken exceeds the standard time, the worker is paid wages for the actual time spent on the jobs. Here, wages on time basis are guaranteed. But if the actual time is less than the standard time, the difference is divided by 60 to know the number of hours saved. Three- fourth of the wages of the time saved will be paid to the worker and one- fourth to the foreman.
Suppose a worker does jobs in a week as shown below:
Suppose the rate of wages per hour is Rs.10. The worker has actually worked for 2880 minutes i.e. 48 hours and therefore he gets wages. Rs.480. In addition, he gets bonus for the time saved. The total time saved is 6 hours. The value of this time saved is to be distributed between the worker and the foreman in the ratio of 3:1.
The value of the time saved will be 6 x Rs.10 = Rs.60 and 3/4th of this will be (3/4 x 60 =) Rs.45 which will be paid to the worker and 1/4th i.e. Rs.15 will be paid to the foreman. The total earnings of the worker will be 480 + 45 = Rs.525.
This plan is useful in industrial units where conditions are standardised and where facilities are available for measuring the job and output through time and motion study. It is also useful in those industrial units where they are shifted from one job to another or from one section to another. But the main defect of this method is that the workers are not able to understand how the standard time is determined because of the introduction of B’s.
The employers argue that this plan is not easily intelligible to many employees. It also involves lot of clerical work in maintaining records and in preparing wage bills. Finally, many workers may not like the rewarding of the foreman at the cost of workers’ efficiency.