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Employee Remuneration refers to the reward or compensation given to the employees for
their work performances. Remuneration provides basic attraction to a employee to
perform job efficiently and effectively. Remuneration leads to employee motivation.
Salaries constitute an important source of income for employees and determine their
standard of living. Salaries affect the employee’s productivity and work performance.
Thus the amount and method of remuneration are very important for both management
and employees.

There are mainly two types of Employee Remuneration

1. Time Rate Method

2. Piece Rate Method

These methods of employee remuneration are explained below in detail

Methods of Employee Remuneration

1. Time Rate Method: Under time rate system, remuneration is directly linked with
the time spent or devoted by an employee on the job. The employees are paid a
fixed pre-decided amount hourly, daily, weekly or monthly irrespective of their
output. It is a very simple method of remuneration. It leads to minimum wastage
of resources and lesser chances of accidents. Time Rate method leads to quality
output and this method is very beneficial to new employees as they can learn their
work without any reduction in their salaries. This method encourages employees
unity as employees of a particular group/cadre get equal salaries.

There are some drawbacks of Time Rate Method, such as, it leads to tight
supervision, indefinite employee cost, lesser efficiency of employees as there is
no distinction made between efficient and inefficient employees, and lesser
morale of employees.

Time rate system is more suitable where the work is non-repetitive in nature and
emphasis is more on quality output rather than quantity output.

2. Piece Rate Method: It is a method of compensation in which remuneration is

paid on the basis of units or pieces produced by an employee. In this system
emphasis is more on quantity output rather than quality output. Under this system
the determination of employee cost per unit is not difficult because salaries differ
with output. There is less supervision required under this method and hence the
per unit cost of production is low. This system improves the morale of the
employees as the salaries are directly related with their work efforts. There is
greater work-efficiency in this method.
There are some drawbacks of this method, such as, it is not easily computable,
leads to deterioration in work quality, wastage of resources, lesser unity of
employees, higher cost of production and insecurity among the employees.

Piece rate system is more suitable where the nature of work is repetitive and
quantity is emphasized more than quality.


A number of factors influence the remuneration payable to employees. They can be


• External

• Internal

External Factors To an organization are:

• Labour Market

• Cost of Living

• Labour Unions

• Government Legislations

• The Society, and

• The Economy

Labour Market

• Demand for and supply of labour influence wage and salary fixation. A low wage
may be fixed when the supply of labour exceeds the demand for it. A higher wage
will have to be paid when demand exceeds supply, as in the case of skilled labour.
High remuneration to skilled labour is necessary to attract and retain them. But
exploitation of unskilled labour, like, for instance, paying niggardly wages
because it is available in plenty, in unjustified. The Minimum Wages Act, 1948, is
precisely meant to prevent this kind of exploitation. The Going rate system
involves fixing wage/salary rates in tune with what is paid by different units of an
industry in a locality. Going rates are generally paid in the initial stages of plant
operators. Productivity of labour also influences wage fixation. Productivity can
arise due to increased effort of the worker, or as a result of the factors beyond the
control of the management, and the like. From advance technology and more
efficient method of production Productivity has only a subordinate role in wage
fixation. The argument that productivity would increase if it is linked to
remuneration is hardly acceptable.

Cost of Living

A rise in the cost of living is sought to be compensated by payment of dearness

allowance, basic pay to remain undisturbed. Many companies include an escalatory
clause in their wage agreement in terms of which dearness allowance increases or
decreases depending upon the movement of consumer price index (CPI)

Labour Unions

The presence or absence of labour organizations often determines the quantum of

wages paid to employees. Employers of non-unionized factories enjoy the freedom to
fix wages and salaries as they please because of large unemployment. An individual
non-unionised company may be willing to pay more to its employees if only to
discourage them from forming union, but will buckle under the combine pressure
from the other non-unionised organizations. The employees of strongly unionized
companies too, have no freedom in wage and, salary fixation. They are forced to yield
to pressure of labour representatives in determining and revising pay scales.

Labour Laws

We have plethora of laws at the central as well as at the state levels. Some of the laws
which have bearing on employee remuneration are :

The Payment of Wages Act 1936: for certain classes of persons employed in the
industry. Protection against irregularity in payment of wages in a particular form and at
regular intervals

The Minimum Wages Act, 1948: enabled central and state Government to fix minimum
rates of wages payable to employees

The Payment of Bonus Act 1965: provides payment of a specified rate of bonus to
employees in certain establishments.

Equal Remuneration Act, 1976: provides payment of equal remuneration to men and
women workers for same or similar work.

The Payment of Gratuity Act 1972: provides payments of gratuity to employees after
they attain superannuation.

The Act stipulate stringent action/punishment for contravention of its provisions In

addition to legal enactments, there are wage boards, tribunals and fair wages committees
which aim at providing a decent standard of living to workers. In fact India is the only
democratic country in the world which has attempted wage regulation on so large a scale
through state-sponsored agencies. With regard to managerial remuneration, there is
Companies Act 1956, which puts a cap on salary and perquisites of managers. Section
198 and 309 of the Act contain provisions relating to managerial remuneration.


Remuneration paid to employees is reflected in the price fixed by an organization for

its goods and services. Remuneration paid to employees has social implications too.
The Supreme Court has been keeping social and ethical considerations in adjudicate
wage and salary disputes.

The Economy

The last external factor that has its impact on wage and salary fixation is the state of
the economy. In most cases, the standard of living will rise in an expanding economy.
Since the cost of living is commonly used as a pay standard, the economy’s health
exerts a major impact upon pay decisions. Labour unions, the government, and the
society are all less likely to press for pay increases in a depressed economy.

Internal Factors

• Company/Business’s strategy

• Job evaluation

• Performance appraisal and the

• Worker himself or herself

Business strategy

The overall strategy which a company pursues should determine the remuneration to
its employees. Where the strategy of the enterprise is to achieve rapid growth,
remuneration should be higher than the competitors pay. Where the strategy is to
maintain and protect current earnings, because of the declining fortune of the
company, remuneration level needs to be average or even below average.

Job Evaluation and Performance Appraisal

Job evaluation helps establish satisfactory wage differentials among jobs.

Performance appraisal helps award pay increase to employees who show improved
performance. Pause and Ponder. How far luck does influence pay? Have you come
across any individual who has been lucky enough to be paid more than he or she

The Employee

Several employee-related factors interact to determine his or her remuneration. These


• Performance ------Performance is always rewarded with pay increase.

Rewarding performance motivates the employee to do better.
• Seniority ----- Managements prefer performance to effect pay increases but
union new seniority as the most objective criterion for pay increase
• Experience ------ makes an employee gain valuable insights and should
therefore be rewarded.
• Potential -----is useless if it is never realized. Yet organizations do pay some
individuals based on their potential. Young managers are paid more because
of their potential to perform even if they are short of experience.
• Sheer luck-----some people have luck to be at the right place at the right