Module 3: (10 Hours)

Job Evaluation: Definition of Job Evaluation, Major Decisions in

Job Evaluation, Job Evaluation Methods, and Final Result – Pay
Structure- various methods of calculation of compensation:
Straight Piece Rate Method, Flat Time Rate Method, Halsey
Premium Bonus Plan, Rowan Premium Bonus Plan, and Taylor
Differential Piece Rate Method
JOB ANALYSIS DATA COLLECTION PROCESS WHAT
INFORMATION SHOULD BE COLLECTED?
Exhibit 5 suggests, a typical analysis starts with a review of
information already collected in order to develop a framework for
further analysis. Job titles, major duties, task dimensions, and
work flow information may already exist.
EVALUATING WORK: JOB EVALUATION
How does any organization go about valuing work? Next time
when you go to the supermarket, check out the different types of
work there: store manager, produce manager, front end manager,
butchers, stock clerks, checkout people, bakers—the list is long,
and the work surprisingly diverse. If you managed a supermarket,
how would you value work?

JOB-BASED STRUCTURES: JOB EVALUATION

The focus is on what to value in the jobs, how to assess that value,

and how to translate it into a job-based structure. Job evaluation

is a process for determining relative value.

Job evaluation is the process of systematically determining the

relative worth of jobs to create a job structure for the organization.
The evaluation is based on a combination of job content, skills
required, value to the organization, organizational culture, and the
external market. This likely to blend organizational forces and
external market forces.

DEFINING JOB EVALUATION: CONTENT, VALUE, AND

EXTERNAL MARKET LINKS
Content and Value
Viewpoints differ on whether job evaluation is based on job
content or job value. Internal alignment based on content orders
jobs on the basis of the skills required for the jobs and the duties
and responsibilities associated with the jobs. A structure based on
job value orders jobs on the basis of the relative contribution of
the skills, duties, and responsibilities of each job to the
organization’s goals. But can this structure translate directly into
pay rates, without regard to the external market, government
regulations, or any individual negotiation process? Most people
think not.

Recall that internal alignment is just one of the building blocks of

the pay model. Job content matters, but it is not the only basis for
pay. Job value may also include the job’s value in the external
market (exchange value). Plus, pay rates may be influenced by
collective bargaining or other negotiations. In addition, the value
added by the same work may be more (or less) in one organization
than in another.

Linking Content with the External Market

Some see job evaluation as a process for linking job content and
internal value with external market rates. Aspects of job content
(e.g., skills required and customer contacts) take on value based
on their relationship to market wages. Because higher skill levels
or willingness to work more closely with customers usually
commands higher wages in the labour market, then skill level and
nature of customer contacts become useful criteria for
establishing differences among jobs. In this perspective, the value
of job content is based on what it can command in the external
market; it has no intrinsic value.

“HOW TO”: MAJOR DECISIONS

The exhibit calls out some of the major decisions in the job
evaluation they are
(1) Establish the purpose(s),
(2) Decide on single versus multiple plans,
(3) Choose among alternative methods,
(4) Obtain involvement of relevant stakeholders,
(5) Evaluate the usefulness of the results.

1. Establish the Purpose

Job evaluation is part of the process for establishing an internally aligned
pay structure.
Supports organization strategy: Job evaluation aligns with
the organization’s strategy by including what it is about
work that adds value—that contributes to pursuing the
organization’s strategy and achieving its objectives.
 Supports work flow: Job evaluation supports work flow in
two ways. It integrates each job’s pay with its relative
contributions to the organization, and it helps set pay for
new, unique, or changing jobs.
Is fair to employees: Job evaluation can reduce disputes and
grievances over pay differences among jobs by establishing
a practical, agreed-upon structure that reduces the role of
chance, favoritism, and bias in setting pay.
Motivates behaviour toward organization objectives: Job
evaluation calls out to employees what it is about their work
that the organization values, what supports the
organization’s strategy and its success. Thus, job evaluation
helps create the network of rewards (promotions,
challenging work) that motivates employees.

2. Single versus Multiple Plans

Rarely do employers evaluate all jobs in the organization at one
time. More typically, are lasted group of jobs, for example,
production, engineering, or marketing, will be the focus. Many
employers design different evaluation plans for different types of
work.

They do so because they believe that the work content is too

diverse to be usefully evaluated by one plan. Subsequently, a
single, universal plan may not be acceptable to employees or
useful to managers if the work covered is highly diverse. Even so,
there are some plans that have been successfully applied across a
wide breadth and depth of work. The most prominent examples
include the Hay plan (more on this later) and the Position Analysis
Questionnaire.

Benchmark Jobs
Benchmark jobs would be identified for as many of the levels in
the structure and groups of related jobs (office, production, and
engineering) as possible. A benchmark job has the following
characteristics:

• Contents are well known and relatively stable over time.

• The job is common across a number of different employers.
It is not unique to a particular employer.
• A sizable proportion of the work force is employed in this job.

A representative sample of benchmark jobs will include the entire

domain of work being evaluated—office, production,
engineering, and so on—and capture the diversity of the work
within that domain. Diversity in the work can be thought of in
terms of depth (vertically) and breadth (horizontally).

The depth of work in most organizations probably ranges from

strategic leadership jobs (CEOs, general directors) to the filing
and mail distribution tasks in entry level office jobs. Horizontally,
the breadth of work depends on the nature of business.

Relatively similar work can be found in specialty consulting firms

(e.g., compensation or executive search firms).

Selecting a benchmark job from each level ensures coverage of

the entire work domain, thus helping to ensure the accuracy of the
decisions based on the job evaluation. Typically, a job evaluation
plan is developed using benchmark jobs, and then the plan is
applied to the remaining non-benchmark jobs.
There is no ready answer to the question of “one plan versus
many.” Current practice (not always the best answer for the
future, since practice is based on the past) is to use separate plans
form major domains of work: top-executive/leadership jobs,
managerial/professional jobs, operational/technical jobs, and
office/administrative jobs. Open the door on some organizations
and you will find additional plans for sales, legal,
engineers/scientists, and skilled trades.

3. Choose among Methods

Ranking, classification, and point method are the most common
job evaluation methods, though uncounted variations exist.

RANKING
Ranking simply orders the job descriptions from highest to lowest
based on a global definition of relative value or contribution to
the organization’s success. Ranking is simple, fast, and easy to
understand and explain to employees; it is also the least expensive
method, at least initially. It doesn’t tell employees and managers
what it is about their jobs that are important.

Two ways of ranking are common: alternation ranking and paired

comparison. Alter nation ranking orders job descriptions
alternately at each extreme. Agreement is reached among
evaluators on which jobs are the most and least valuable (i.e.,
which is a 10,which is a 1), then the next most and least valued
(i.e., which is a 9, which is a 2), and soon, until all the jobs have
been ordered. The paired comparison method uses a matrix to
compare all possible pairs of jobs. Exhibit 6 shows that the
higher-ranked job is entered in the cell of the matrix. When all
comparisons have been completed, the job most frequently
judged “more valuable” becomes the highest-ranked job, and so
on.

Alternation-ranking and paired-comparison methods may be

more reliable (produce similar results consistently) than simple
ranking. The criteria on which the jobs are ranked are usually so
poorly defined, if they are specific that all, that the evaluations
become subjective opinions that are impossible to justify in
strategic and work-related terms. However, even though the
ranking appears simple, fast, and inexpensive, in the long run the
results are difficult to defend and costly solutions may be required
to overcome the problems created.
CLASSIFICATION
A series of classes covers the range of jobs. Class descriptions are
the labels. A job description is compared to the class descriptions
to decide which class is the best fit for that job. Each class is
described in such a way that the “label” captures sufficient work
detail yet is general enough to cause little difficulty in slotting a
job description onto its appropriate “shelf” or class. The classes
may be described further by including titles of benchmark jobs
that fall into each class.

Determining the number of classes and writing class descriptions

to define the boundaries between each class (e.g., how many book
shelves and what distinguishes each from the other—fiction,
nonfiction; or mysteries, biographies, etc.) are something of an art
form. Writing class descriptions can be troublesome when jobs
from several job families are covered by a single plan. Although
greater specificity of the class definition improves the reliability
of evaluation, it also limits the variety of jobs that can easily be
classified.

With a classification method, the job descriptions not only

compared to the class descriptions and benchmark jobs but also
can be compared to each other to be sure that jobs within each
class are more similar to each other than to jobs in adjacent
classes.
POINT METHOD
Point methods have three common characteristics:
1. Compensable factors, with
2. Factor degrees numerically scaled, and
3. Weights reflecting the relative importance of each factor.

Each job’s relative value, and hence its location in the pay
structure, is determined by the total points assigned to it. They
represent a significant change from ranking and classification
methods in that they make explicit the criteria for evaluating jobs:
compensable factors.

Compensable factors are based on the strategic direction of the

business and how the work contributes to these objectives and
strategy. The factors are scaled to reflect the degree to which they
are present in each job and weighted to reflect their overall
importance to the organization. Points are then attached to each
factor weight. The total points for each job determine its position
in the job structure.

There are six steps in the design of a point plan.

1. Conduct job analysis.
2. Determine compensable factors.
3. Scale the factors.
4. Weight the factors according to importance.
5. Communicate the plan and train users; prepare manual.
6. Apply to non-benchmark jobs.

1. Conduct job analysis: Just as with ranking and classification,

point plans begin with job analysis. Typically, are
preventative sample of jobs, that is, benchmark jobs, is
drawn for analysis.
2. Determine compensable factors: These factors reflect how
 work adds value to the organization. They flow from the
work itself and the strategic direction of the business.
Compensable factors are those characteristics in the work
that the organization values that help it pursue its strategy
and achieve its objectives.

To select compensable factors, an organization asks itself, what

is it about the work that adds value? One company chose decision
making as a compensable factor. As shown in Exhibit 9, the
definition of decision making is three-dimensional: (1) the risk
and complexity (hence the availability of guidelines to assist in
making the decisions), (2) the impact of the decisions, and

(3) The time that must pass before the impact is evident.

To be useful, compensable factors should be

• Based on the strategy and values of the organization.
• Based on the work performed.
• Acceptable to the stakeholders affected by the resulting pay structure.

Based on the Strategy and Values of the Organization

The leadership of any organization is the best source of
information on where the business should be going and how it is
going to get there. Clearly, the leaders’ input into factor selection
is crucial.
Compensable factors reinforce the organization’s culture and
values. When the direction of organisation changes, then the
compensable factors may also change. Factors may also be
eliminated if they no longer support the business strategy.

Based on the Work Itself: Employees and supervisors are experts

in the work actually done in any organization. Hence, it is
important to seek their answers to what should be valued in the
work itself. Work-related documentation helps gain acceptance
by employees and managers.

Acceptable to the Stakeholders: Acceptance of the compensable

factors used to slot jobs into the pay structure may depend, at least
in part, on tradition.
Adapting Factors from Existing Plans: Although a wide variety
of factors are used in standard existing plans, the factors tend to
fall into four generic groups: skills required, effort required,
responsibility, and working conditions.
The Hay Guide Chart Profile Method of Position. The three Hay
factors - know-how, problem solving, and accountability use
guide charts to quantify the factors in more detail. Exhibit 11
summarizes the basic definitions of the three Hay factors. A
fourth factor, working conditions, is used when applied to non-
managerial work. In Exhibit 12, the Hay factor know- how is first
measured on two dimensions: scope (practical procedures,
specialized techniques, or scientific disciplines); and depth
(minimal, related, diverse, or broad). After that, the degree of
human relations skills required (basic, important, or critical) is
judged. The cell that corresponds to the right level of all three
dimensions for the job being evaluated is located in the guide
chart.
 3. Scale the factors.
Once the factors are determined, scales reflecting the different
degrees within each factor are constructed. Each degree may also
be anchored by the typical skills, tasks, and behaviour taken from
the benchmark jobs that illustrate each factor degree. Exhibit 13
shows NMTA’s scaling for the factor of knowledge.
Most factor scales consist of four to eight degrees. In practice,
many evaluators use extra, undefined degrees such as plus and
minus around a scale number. So what starts as a 5-degree scale—
1, 2, 3, 4, 5—ends up as a -degree scale, with –1, 1, 1+, –2, 2, 2+,
and so on.
Another major issue in determining degrees is whether to make
each degree equidistant from the adjacent degrees (interval
scaling).
The following criteria for scaling factors have been suggested: (1)
Ensure that the number of degrees is necessary to distinguish
among jobs, (2) use understandable terminology, (3) anchor
degree definitions with benchmark-job titles, and (4) make it
apparent how the degree applies to the job.
4. Weight the factors according to importance.
Once the degrees have been assigned, the factor weights can be
determined. Different weights reflect differences in importance
attached to each factor by the employer. For example, the

National Electrical Manufacturers Association plan weights

education at 17.5 percent; another employer’s association weights
it at 10.6 percent; a consultant’s plan recommends .0 percent; and
a trade association weights education at 10.1 percent.
Weights are often determined through an advisory
committee that allocates 100 percent of the value
among the factors. In the illustration in Exhibit 14, a
committee allocated 40 percent of the value to skill, 30
percent to effort, 20 percent to responsibility, and 10
percent to working conditions. Each factor has two sub
factors, with five degrees each. In the example for the
bookstore manager, the sub factor mental skill gets
half the 40 percent given to skill and the sub factor
experience gets the other half: 4 degrees of mental skill
times 20 equals 80 points, and 3 degrees of experience
times 20 equals another60 points.

Criterion Pay Structure

A supplement to committee judgment for determining
weights is the use of a statistical analysis. In this
approach, the committee members choose the criterion
pay structure, that is, a pay structure they wish to
duplicate with the point plan. The criterion structure
may be the current rates paid for benchmark jobs,
market rates for benchmark jobs, rates for
predominantly male jobs (in an attempt to eliminate
gender bias), or union-negotiated rates.

5. Communicate the plan and train users; prepare

manual.
A manual is prepared so that other people can apply
the plan. The manual describes the method, defines the
compensable factors, and provides enough information
to permit users to distinguish varying degrees of each
factor. The point of the manual is to allow users who
were not involved in the plan’s development to apply
the plan as its developers intended. An appeals process
may also be included so that employees who feel their
jobs are unfairly evaluated have some recourse.
6. Apply to non-benchmark jobs.
Recall that the compensable factors and weights were
derived using a sample of benchmark jobs. The final
step is to apply the plan to the remaining jobs. This can
be done by people who were not necessarily involved
in the design process but have been given adequate
training in applying the plan.

THE FINAL RESULT: STRUCTURE

The final result of the job analysis–job description–job
evaluation process is a structure, a hierarchy of work.
This hierarchy translates the employer’s internal
alignment policy into practice.
Exhibit shows four hypothetical job structures within
a single organization. These structures were obtained
via different approaches to evaluating work. The jobs
are arrayed within four basic functions: managerial,
technical, manufacturing, and administrative. The
managerial and administrative structures were
obtained via a point job evaluation plan; the technical
and manufacturing structures, via two different
person-based plans (Chapter 6). The manufacturing
plan was negotiated with the union.

Organizations commonly have multiple structures

derived through multiple approaches that apply to
different functional groups or units. Although some
employees in one structure may wish to compare the
procedures used in another structure with their own,
the underlying premise in practice is that internal
alignment is most influenced by fair and equitable
treatment of employees doing similar work in the same
skill group.

Various methods of calculation of compensation:

Straight Piece Rate Method, Flat Time Rate
Method, Halsey Premium Bonus Plan, Rowan
Premium Bonus Plan, Taylor Differential Piece
Rate Method.

1) TIME BASED
a) Flat time rate
b) High Wage System
c) Graduated time
2) RESULTS BASED
a) Straight piece rates
b) Standard hours piece rates
c) Differential piece-rates-Taylor & Merrick
3) COMBINED TIME AND PIECE RATES
a) Emerson’s efficiency
b) Gantt task plan
c) Points system
4) BONUS SYSTEMS
a) Halsey – plan
b) Halsey – Weir
c) Rowan plan
d) Barth plan

The variants of time rate are discussed below.

a) There is no incentive to produce more within the
same time as workers do not get additional
remuneration for increased output.
b) If overtime is paid for, there is a tendency among
workers to go slow during normal time and earn more
by working overtime. There is a likelihood of output
getting suffered.
c) Standards are difficult to set and operate under
this method. Workers get paid for the time clocked
(i.e. entry and exit to work place) and not as per
time booked on actual work. This may lead to idle
time which ultimately will increase cost of
production.
1) TIME BASED
a. Flat time based.
The rates and time are fixed in advance per day, week
or month. If worker work overtime, they are
compensated at one and half or two times the
ordinary rate.

The earning therefore will vary as per the time

worked. If a time rate is fixed as Rs.100 per day of 8
hours, and the worker works for four hours; he will
get Rs. 50.

b. High wages system

This method is similar to the above except the fact that
the time rate is fixed at a higher level compared to the
rates prevailing in the industry. This is done to attract
efficient and high performance workers and also to
induce them to improve productivity as they would be
satisfied with high level of earnings. However, the
level of performance cannot be guaranteed over a
longer period and it also may not be possible to keep
wages always at higher level compared to industry.

c. Graduated Time rate

Under this method, payment consists of two portions –
one based on regular time base payments and the other
is linked to cost of living (e.g. dearness allowance) and
merit awards. As the cost of living is taken care of, the
system has an advantage. It’s further enhanced by the
fact that the method rewards individual merits.
However, merit rating is highly subjective and thus the
method is difficult to implement. It is difficult to
calculate the cost of the cost unit. It is generally
observed that trade unions prefer time based payments
as they do not have to guarantee output. The variations
in the time based payments do not really bring in any
additional benefits.

2) RESULTS BASED PAY SYSTEM.

These methods are based on the output linked
payments to workers. The payments are fixed per unit
of output irrespective of the time taken by the worker
to produce a unit. The payment is simply calculated as
rate per unit x units produced. These payments may be
released for a period
e.g. Day, week or a month. The output produced by the
workers during that period is multiplied by the pre-
fixed rate per unit. The objective here is to induce
workers to produce more and thereby increase sales.
As workers get more money, they tend to produce
more. Some-times under such systems, the benefits of
increased output are shared between workers and the
business.

This method is simple to understand and easy to

operate. The workers also prefer it as they can earn
more by producing more. The labour cost per unit is
known in advance and hence it helps in fixation of
overhead rates based on direct wages and therefore
estimation of cost per unit is easy. If benefits are shared
with employees, they are motivated to put in their best
efforts.

However, fixing a piece rate itself is not a simple job.

Considerable amount of engineering estimations, time
and motion study and assessment of physical efforts
needed to perform a job are needed to arrive at a piece
rate per unit.

Disadvantage:
The nature of job should be standard and repetitive for
piece rate system to be successful. It cannot be applied
if the jobs are non-standard, and the specifications
change for every order received. Further, in the quest
of increasing the earnings workers may compromise
quality. It may increase supervision and cost of rework
as well. It also may add to fatigue and increase
absenteeism.
a) Str
aight
Piece
Rate
Definition: The Straight Piece-Work System is the
simplest incentive method in which the rate per unit of
output is fixed, and the earnings of the worker are
computed by multiplying his total output by the rate
per unit.

In other words, a system in which the worker is paid

according to the number of units produced at a fixed
rate per unit during a defined period of time is called a
straight piece-work system. Here, the earnings of a
worker depend directly on his performance (measured
in units). Such as, if the per unit rate is 10 Paise and
the total output is 1000 units, then his earnings will be
0.10 x 1000 = Rs 100.
In the case of a price-rate system, the worker has to
even go without the wages if the output falls below the
defined level of output. Thus, in order to safeguard the
interests of the workers the straight piece-work system
is modified in one respect, i.e., the time-rate of a
worker is also guaranteed. This means worker’s
earnings are computed by multiplying the time taken
by per unit of time. The time-rate is usually set at a
level that yields earnings below the average earnings
on piece-work in average conditions. It is designed to
protect the worker against the low earnings due to the
causes beyond his control.

 This is the simplest form of payment by results.

 Under this a predetermined rate per unit of output is
applied.

Eg) In a laundry, a worker may get Rs. 0.50 for

pressing one shirt. If on a day he presses 100 shirts, he
will get (100x0.50) i.e. Rs. 50. If he presses 200 shirts
he will get Rs 100 and so on.

b) Standard hour system of piece rate.

This is the result based payment with a time dimension
factored into it. We have seen that time and motion
study and other engineering methods are used to
determine time based piece rate per unit. In addition, a
standard time is set up per unit of product. Workers are
supposed to complete production of one unit within
this allotted time. The rate is fixed per hour (or any
other time unit).

If the worker completes the job within the standard

time, he is paid for the 77 time he worked plus also
for the time saved based on the time rate.

If he spends more than standard time per unit of

output, he is paid at this time rate for the time actually
spent on the job. Thus this takes care of time
performance as well. The formula to work out the
earnings as per this method is:

 When production is in excess of standard performance;

Earnings = (Actual hours worked x hourly rate
per day) + Hourly rate per day x (standard hours
produced – Actual hours worked)
 When production is at or
below standard
performance; Earnings =
Actual hours worked x
hourly rate per day

This system is simple to understand and operate. It can

be applied for group installation type of job and also
where the jobs are of non-repetitive & nonstandard
nature. It takes into account the individual
performances. Almost all disadvantages of straight
piece rate system are removed by this method.
However, a great care needs to be taken for fixation of
time per unit of output. Also, there has to be close
monitoring of quality of the performance. It has to be
ensured that the worker does not compromise quality
in order to show time saved.

 This system is based on the logic that workers

should be rewarded for higher efficiency. The
 earning method offers a motivation for increasing
productivity. These systems are however difficult
for workers to understand.

There are two variants of this system.

 One was developed by F. W. Taylor (the father of
scientific management in the early era of
industrial revolution) and
 The other by another expert Merrick. This method
tries to penalize workers when they do not
perform as per standard by applying differential
rates.

c) Taylor plan

Taylor’s differential piece-rate system suggests that

the worker who exceeds the standard output within the
stipulated time must be paid a high rate for high
production. On the other hand, the worker is paid a low
rate if he fails to reach the level of output within the
standard time. Thus, there are two piece-rates, one who
reach the standard output or exceeds it, is paid 120
percent of the piece rate. While the one who fails to
reach the standard level of output, is paid 80 percent of
the piece-rate. The minimum wages of the worker are
not guaranteed.
This system can be further understood
through the example given below:
Standard Output = 200 units
Rate per unit = Rs 10 Paise

Case (1): Output = 220 units

Earnings = 220 x (120/200) x 0.1 = Rs 13.20
Case (2): Output = 180 units
Earnings = 180 x (80/200) x 0.1 = Rs 7.20

It is clear from the above example that the worker is

paid a higher rate (Rs 13.20) for high production (220
units) and low rate (Rs 7.20) for low production (180
units). Thus, Taylor’s differential piece rate system
works on the principle that the inefficient worker must
be paid at a low piece-rate for low production such that
he is left with no other option but to leave the
organization.

 The payment scheme is based on fixing two or more

pieces’ rates –
 a base level piece rate is used for workers who do not
perform as per standard and
 a higher piece rate is used for workers who perform as
per standard.

The difference between these two rates is deliberately kept so

wide that the award for
Efficient worker is really goods and simultaneously,
punishment for inefficient worker is severe.

Consider a factory operates an 8-hour day. The

standard output is 100 units per hour and normal wage
is Rs 50 per hour.
The company operates Taylor plan as 80% of piece
rate for workers performing below standard and 120%
of piece rate for performance at or above standard.
Hourly rate paid = Rs 50
Standard output per hour = 100 units
Normal piece rate = (50 / 100) = Rs 0.50 per unit

For performance below standard,

The piece rate will be = 80%
of Rs 0.50 i.e. Rs 0.40 per unit
& For performance at or
above standard,
It will be = 120% of Rs 0.50 i.e. Rs. 0.60 per unit.

It can be found that there is a differential of Rs 0.20

between the two piece rates. This will induce an
ambitious worker to increase efficiency and earn
more.

On the other hand, inefficient worker gets penalized

for not achieving minimum standards. It will reduce
fixed overheads per unit as it induces more production.

The success of this plan depends highly on setting a

standard. Any error in fixation of the differential rates
could be disastrous. Also, this system does not
guarantee any minimum wages. Further the piece rates
and standard are to be fixed in such a way that the
earnings won’t fall below minimum wages as per the
law in force.

d) Merrik plan
 The disciplinary element under Taylor plan was
quite severe. It tends to discourage and attract
average workers.
 Merrick modified this differential system by
introducing more slabs and by removing the
punitive element. He advocated that performance
up to a certain level (although below standard
level) should be rewarded at normal piece rate
and then progressive slabs are provided to
recognize above standard performance.
  He worked out the following formula for differential
payments:

Up to 83 & 1/ 3% - at normal piece rate

Above 83 & 1/ 3rdup to 100%
-10% above normal piece rate
above 100% - 20% over
normal piece rate

In the above example, the normal piece rate was fixed as Rs

0.50 per piece.
A worker under Merrick plan will guarantee this
earning if he achieves efficiency level of 83 1/ 3%. The
worker, who performs above this and up to 100%
mark, will get paid at Rs 0.55 per piece which is 10%
above the normal level. A worker giving in
performance above 100% will get paid at Rs 0.60 i.e.
20% above normal piece rate.

Disadvantage of differential piece rate:

 Both these plans however put a cap on maximum
earnings. So the worker will just ensure to
perform at 100% or slightly above and then does
not improve further as there is no additional
incentive for him to do so.

3) COMBINED TIME AND PIECE RATE PLANS

The combination of time based and piece based

methods of remuneration aim at combining the
benefits and removing the deficiencies of both specific
time based and specific piece rate systems. Basically
this method has a combo offering for the workers – a
time rate, a piece rate and a bonus.
Essentially for workers who do not
perform as per standards, there is a
guaranteed time rate payment.
For workers performing above standard
there are piece rates with applicable for
higher rewards.
Variants of this system:
a) Emerson’s efficiency
b) Gantt task plan
c) Points system

a) Emerson’s efficiency
 The main features are guarantee of daily wages
regardless of performance. A standard time is set
for per unit of output or a volume of output per
unit of time is taken as standard.
 The following differential rates apply:
o Below 66 2/ 3rd% - Time rate without any bonus
o Above 66 2/ 3rd% up to 100% - Bonus varies
between 1% to 20%*
*At 100% efficiency the bonus percentage will be
20%)
>Above 100% performance - Bonus of 20%
of basic wages plus 1% for every 1%
increase in efficiency.
 The efficiency for this purpose is calculated as:

On time basis:
Percentage efficiency = (Standard time allowed / Actual time)
x 100
On output basis:
Percentage efficiency = (Actual Production / Standard
production) x 100

 Total Bonus = New bonus%*(hours worked *rate per

hour)
The system is certainly more worker centric than
Taylor and Merrick plans. They have an element of
efficiency based payment so as to motivate workers.
Also, a worker is kept interested to improve even
beyond 100% level as it includes additional bonus
even above100% level. It is however complicated to
calculate and involves a lot of clerical work in keeping
records of efficiency levels of different workers. It is
difficult to adopt this for group jobs

Q) Standard output in 10 hours is 240 units; actual

output in10 hours is 264 units. Wages rate is Rs.10 per
hour. Calculate the amount of bonus and total wages
under Emerson Plan.
Sol)
Efficiency percentage = 264/240*100= 110%
As per Emerson plan, in case of above 100%
efficiency bonus of 20% of basic wages plus 1% for
each 1% increase in efficiency is admissible.

So, new bonus

percentage = 20 + (110 –
100) = 30 Total Bonus =
30/100*(hours worked
*rate per hour)
= 30/ 100* (10*10) = Rs.30
Total wages = Rs. (10 * 10) + 30 = Rs. 130

b) Gantt task plan

As per this system a higher standard is set and payment
is made at time rate to a worker for production below
the standard. If the standards are achieved or exceeded,
the payment is made at a higher piece rate. The piece
rate fixed also includes an element of bonus to the
extent of 20%. Bonus is calculated over the time rate.
 The computation is usually done as follows:
o For output below standard level -guaranteed time
rate payment
o Output at standard -
o Time rate plus Bonus of 20% of time rate
o Output above standard -
o Bonus of 120% of normal piece rate

Q) In a factory the output produced by workers in 8

hours is A- 8 units, B- 10 units and C- units.
Standard production in 8 hours is 10 units. Daily wages
guaranteed are Rs 2 per hour. Bonus rate on time rate
is 20%.Standard output per day is10 units. So ‘A’ has
performed below standard, ‘B’ has achieved the
standard and ‘C’ has performed above standard.

Sol) Under Gantt Task

plan the earnings will
be: A will get only
time rate payment i.e.
Rs 16 (8 x2)
B will get time rate + bonus @ 20% of
time rate i.e. Rs 16 + 20% of Rs 16 = Rs
19.20
C will get piece rate payment
which is 120% of normal piece
rate. The normal piece rate here is
((8*2)/ 10) i.e. Rs 1.60 per unit.
120% of this is Rs 1.92 per unit.
C produced units, so he will get Rs 28.80

See how the earnings increase with increase in

productivity. The impact on per unit cost is worth
noticing. For ‘A’ producing 8 units and getting Rs 16
the unit cost is Rs 2. For ‘B’ producing 10 units and
getting Rs 19.20, the unit cost is Rs 1.92 and for ‘C’
producing units and getting Rs 28.80, the unit cost is
Rs 1.92.

c) Point system
 Under this method, the performance is measured
in terms of ‘points saved’ by the workers.
 Standards are also fixed in terms of points and
workers are paid bonus based on the points saved,
either in full or a portion there of.
 There are two variants of the points system. The
“Rs” are fixed based on a rigorous time and
motion study with time for actual work plus a
reasonable allowance for rest.

Bedaux Method
 The points are called as “Bs”.
 Hence a standard performance one hour is expressed as
“60Bs”.
 A standard number of points are specified for a
job. The worker gets a time rate payment and a
bonus. When the scheme was originally formed
bonus was calculated at 75% of points saved.
Later it was modified to 100% of points saved.
 The formula is:

Time rate payment + (75% or 100%) of (points saved/ 60) x

hourly rate

Example: The standard time is 320 Rs and the worker

consumes240 Bs to complete a job. The hourly rate is
Rs 10 per hour for an 8-hour day. Here the worker has
saved 80Bs.
Hence the payment
based on75% bonus
will be: (10 * 8) +
75% (80/ 60) *10 =
Rs 90.

4) PREMIUM BONUS OR INCENTIVE SYSTEM

These are also referred to as premium bonus plans that

guarantee a minimum wage per hour plus a premium
for output in excess of stipulated norms. Here as in
many of the above schemes, a standard time is
determined for a job or operation.
 There are many variants of this method. They are given
below.
a) Halsey – plan
b) Halsey – Weir
c) Rowan plan
d) Barth plan
e) Accelerating premium plans
a) Halsey – plan
This system is also known as Split Bonus Plan or Fifty- fifty
Plan. The plan was introduced by
F.A. Halsey, an American Engineer. In the plan, the task
(standard) time, is decided on the basis of past
experience, and scientific studies are set.

Under this plan, a standard time is fixed for the

performance of each job, and the worker is paid the
agreed rate per hour for the time spent thereon plus a
fixed percentage (may be 50%) of the time, he saved
on the standard.

 Under this method the payment for work done is related

 to time taken to do a job.
If the time taken is equal to or more than the
standard time, the worker is time rate
based payment.
If actual time is less than the standard time,
then the worker gets a bonus @ 5ofthehe time
saved. The balance 50% is retained by the
business.
The formula is:
Total earnings = (Hourly rate x Time taken) + (50% x Time
Saved x Hourly rate)

b) Halsey – Weir
Here the worker gets a bonus of 30% of the time saved,
against 50% in the Halsey Plan, Except for this point,
Halsey Plan and Halsey Weir Scheme are similar.
 It was developed as a modified version of Halsey
plan. The bonus percentage was modified to 33
1/3% instead of 50%.
 The other computations are same.
 This was developed by G & J Weir ltd. Glasgow.
 The reduction in the bonus percentage makes this plan
unpopular.

c) Rowan plan
This scheme was introduced in the year 1901 by David
Rowan of Glasgow. The guidelines of Halsey Plan
have been followed. It is similar to that of Halsey Plan
except in regard to the determination of bonus
calculation.

 Under this method, a standard time is fixed.

 The worker gets time rated pay as per time
worked. The bonus shared is in proportion of time
saved to standard time applied to the time rated
 earnings.
 In other words, the percentage time saved is
applied to time taken a payment is done for time
actually taken plus the proportion of time saved.
 The formula for the labour cost is:
 (Hourly rate x Time taken) + (Time Saved x Time
Taken) x Hourly Rate/ Time Allowed
For bonus is:
(Time saved / Standard time) * Actual hours * hourly Rate

Q) The firm employs 5 workers at an early rate of 2.

During the week, they worked for 4 days for a total
period of 40 hours each and completed a job for which
the standard time was 48 hours for each worker.
Calculate the labour cost under the Halsey method and
Rowan method of incentive plan payments.

Sol) hourly rate= 5*2= 10 standard time=

48 hours’ actual time taken= 40 hours time
saved = std. time - actual time taken = 48-
40= 8 hours
 Halsey Method = (Hourly rate x Time taken) + (50% x
Time Saved x Hourly rate)
= (10 x 40) + (0.5 x 8 x 10)
= 440
 Rowan Method = (Hourly rate x Time
taken) + (Time Saved x Time Taken) x
Hourly Rate/ Time Allowed
= (10 x 40) + (8 x 40) x 10/ 48
= 467

d) Barth plan
 This is also a time based payment scheme. But it
does not guarantee any time rate payment.
 The earning is determined as follows:
  Hourly rate x √Standard time x √ Actual time

Example: Time allowed to perform a job is 5 hours and

the hourly rate is Rs 2. If the actual time taken by A, B
and C are 6, 5, and 4 respectively, the payment under
Barth system will be calculated as: For A = 2 x ( √5 x
√ 6) = Rs 10.95
For B = 2 x
(√ 5 x √ 5)
= Rs 10
For C = 2 x
(√5 x √ 4)
= Rs 8.95
It can be seen that when efficiency goes above 100%, this
scheme is not that attractive.

e) Accelerating premium plans

For low and average levels of output, the incentives

are small, but for above average output, the incentives
are paid at accelerated rates.
 This plan may not be suitable for machine
operators as they may want to increase output
for earning incentives. It may be useful for
supervisors.
 The most popular scheme
is the equation given as below:
y= 0.8 x sq.
Where x denotes efficiency and y denotes earnings.