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A proper system of wage payment is absolutely essential to keep
employees in good humour. Ideally, such a system must have the
following characteristics:
   !  "# $ %
à Yimple
à Beneficial
à Equitable
à Guaranteed minimum wage
à Balanced
à Incentive-oriented
à Quality output
à Certainty
à Cost effective
à flexible



Mere the pay is linked to individual, group or organisational performance.
Employees have to compete and deliver results. Three types of variable
pay are commonly used:

à c'(%  ') they link individual effort to pay

à ñ(  ') they link pay to the overall performance of the

entire group

à #"  ') here employees are rewarded on the

basis of the success of the organisation over a specified time period.



à Guaranteed minimum wages

à Yimple
à Equitable
à Economical
à Flexible
à Yupported by workers and unions
à Motivating
à Prompt payment



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The Rate Yystem Payment by Results

Flat time Migh wage Graduated time Piece rate Premium bonus Group bonus Other incentive
rate system rate system plans system scheme

Combination of
Ytraight piece Differential time and piece Profit Co-partnership
work piece work rate sharing

Taylor system Merrick system

Gantt task Emerson Point

and bonus efficiency schemes
systems system

Bedeaux Maynes Manit

system system

Malsey premium Rowan Accelerating

plan scheme premium bonus scheme

Priestman¶s production bonus Rucker plan Ycanlon plan Towne plan



à  "# $) A worker is paid on the basis of time spent

on the work, irrespective of the amount of work done.
à Yimple and easy to operate
à Guaranteed wages to workers
à Favoured by trade unions
à Good for precision jobs
à ( 
à Makes no distinction between efficient and inefficient
à Offers very little to efficient workers
à Requires close supervision so that workers do not waste
their time
à No relationship exists between wages and productivity


   $) A worker is paid at a stipulated rate per piece
or unit of output. This method is suitable where quality of work is
not important, work is repetitive in nature, there is sufficient
demand for output to guarantee continuous work and the job is a
standardised one
à Encourages efficient workers to produce more
à Workers adopt better ways of getting things done, to earn
à Idle time is reduced to the minimum
à Workers take every precaution to avoid machine breakdowns.
à Cost of supervision is less



à ( 
à Delays beyond one's control could affect workers earnings
à Beginners and slow learners are left behind in the race
à The focus on quantity would affect quality
à Workers may stretch themselves to unhealthy levels to earn
à Encourages rivalry between workers
à $%/ !!%    $) A worker is paid more
if he finishes the assigned task before the stipulated time.
à  0/ !!%    $) This method uses
threerates; up to 83%of the standard output workers are paid at
the ordinary piece rate; between 83% to 100% at 110% of the
ordinary piece rate and above 100% at 120% of the ordinary
piece rate.



à M%$ %) Mere the worker gets a guaranteed wages based on the
time, irrespective of whether the assigned work is completed or not. If
the worker is able to finish the task in less than the standard time, he or
she is entitled to get fifty (in some cases one third) per cent of time
saved at time rate in addition to normal time wages.
à ," %) It assures minimum time wages. Bonus is paid on the
basis of time saved. But unlike a fixed percentage , it is calculated thus
Bonus = Time saved/Ytandard time X Time taken X hourly rate
à ñ 0  2( %) Mere time wages are guaranteed.
Ytandard time for each task is fixed. Workers, who fail to finish the job
within the time limits, get time wages. A worker who reaches the
standard is paid time wage plus bonus at a fixed percentage (20 per
cent)of normal time wages. If a worker exceeds the standards, he is
paid a high piece rate.



à (4 %) In this plan every operation is expressed in terms of

standard minutes called as ³B's´ representing one minute. A worker
gets time wages for 100 % performance; ie, finishing the job exactly as
per standards set. If actual performance exceeds the standard
performance in terms of B's then 75% of the wages of time saved is
paid to worker as bonus and 25% is given to the foreman.
à M$  %) It is more or less like the bedeaux plan. Mere the
bonus is only 50 per cent as against 75 per cent, being paid to the
efficient worker. Of the remaining 50 per cent, 10% goes to the foreman
and the rest to management.
à / !!  $ %) If the worker achieves 67% efficiency, he
gets bonus at a given rate. The rate of bonus increases gradually from
67% to 100%. Above 100% bonus will be at 20% of the basic rate plus
1% for each increase in efficiency.
à  % ( 2( %) Mere the premium is paid at varying
rates for increasing efficiency.


It is an incentive payment granted to a worker at the end of a particular

year, in addition to one¶s normal standard wage.
   a  ?

The Act defines an employee who is covered by it as one earning Rs 2,500 p.m. (w.e.f.
1.4.93) basic plus dearness allowance and specifies the formula for calculating the allocable
surplus from which bonus is to be distributed. The minimum bonus to be paid has been
raised from 4 per cent to 8.33 per cent (w.e.f. 25.9.75) and is sought to be linked to
increased productivity in recent times. Through collective bargaining, the workers, through
their representative union, can negotiate for more than what the Act provides and get the
same ratified by the government, if necessary. In the absence of such a process, the Act
makes it mandatory to pay bonus to employees (who have worked in the unit for not less
than 30 working days in a year) following a prescribed formula for calculating the available
surplus. The available surplus is normally the gross profits for that year after deducting
depreciation, development rebate/investment allowance/ development allowance, direct tax
and other sums referred to in Yec. 6 The Act applies to every factory or establishment in
which 20 or more persons are employed in an accounting year. Currently the position is such
that even if there is a loss, a minimum bonus needs to be paid treating the same as deficit to
be carried forward and set off against profits in subsequent years (Yec. 15). The Act is
proposed to be changed since the amount of bonus, the formula for calculating surplus, and
the set off provisions have all been under serious attack from various quarters.


Any salary increase awarded to an employee based on his or her

performance is called merit pay. It is like rewarding the best
performers with the largest increases in pay as an appreciative
gesture from the employer. When high achievers are rewarded, they
set the benchmarks for others to follow. But the whole process of
recognising merit, measuring performance, picking up the winners
need to be followed objectively.



Compensation plans for sales personnel generally consist of a

straight salary plan, a straight commission plan, or a combination of

Incentives based on performance would definitely motivate people
to give their best to the organisation. They can improve their
standard of living. Other benefits include; better use of facilities,
reduced supervision; reduced lost time, absenteeism and turnover.
There is, of course, the dark side of the moon and the research
evidence in this regard is somewhat mixed.



à Poor perceived connection between performance and pay

à Tendency of workers to speed up everything, leading to accidents, wastage of
à Workers may ignore basic safety precautions in order to produce more
à Workers have inflated ideas about performance levels and when they fail to
receive expected rewards, they blame management
à Jealousies may arise among workers because some are able to earn more
than others. Unions, not surprisingly, are opposed to PFP systems because these
would go against the spirit of ³all for one and one for all´.
à Often, setting acceptable, attainable, objective standards is not easy.
à All said and done, money is simply a hygiene factor and has only limited
potential to spur people to superior performance.



à Develop and implement PFP systems in an atmosphere of

mutual trust and confidence
à Make them easy to understand and implement
à Establish the relationship between effort and reward directly
and clearly
à Recognise individual differences and set the targets keeping
the expectations of people in mind.
à Yhow clearly what is there in the plan for an efficient worker,
apart from the guaranteed wages.


ñ   a  


Mere all team members receive an incentive bonus payment when

production or service standards are met or exceeded. Methods in
this category include Preistman¶s production bonus, Rucker plan,
Ycanlon plan, Towne plan and Co partnership. Under co
partnership, the worker gets his usual wages, a share in the profits
of the company and a share in the management of the company as



Companies like Mastek, Godrej and Boyce have tried to link their rewards to team based
performance in recent times quite successfully
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à Yet quantifiable targets when evaluating team performance for rewards.
à Ensure that top performers in each team earn the highest level of rewards.
à Link team performance closely to the company's profits and overall financial health.
à Avoid subjectivity when assessing both the team and its member's performance.
à Offer uniform non-team based incentives to employees within each grade.
Other companies like Pfizer, Yiemens have been linking rewards to shop floor workers
based on the worker ability to meet productivity as well as performance targets. In any
case, the emerging picture is quite clear especially in the post liberalisation era in India.
The start that need entrepreneurial action from its employees will have to offer large
doses of cash, goal linked incentive pay and possibly stock options to link compensation
to profits. Mature companies, whose focus is on managing their earnings per share and
protecting market shares, will have to seek out managerial talent and reward it with
flexible tax-friendly compensation packages with benefits designed to improve the
quality of working life.




These plans reward employees on the basis of the success of the

organisation over a specified time period.
! #) Mere the organisation agrees to pay a particular portion
of net profits (given in cash or in the form of shares) to eligible
à ñ #) It is based on a mathematical formula that compares a
baseline of performance with actual productivity during a given period.
When productivity exceeds the base line an agreed upon savings is
shared with employees. Unlike profit sharing plans which have deferred
payments, gain sharing plans are current distribution plans. These are
based on individual performance and are distributed on a monthly or
quarterly basis.
à %$  0 " %) It provides a mechanism through
which certain eligible employees (based on length of service,
contribution to the department etc) may purchase the stock of the
company at a reduced rate.




à Empower the employee to participate in the growth of a company as
part owner and get a fair share of the cake.
à Melps the company to retain talented employees and make them
committed to the job and the company
à Better industrial relations, reduced employee turnover, lesser
supervision, are other benefits



Yince Indirect workers also play a key role in manufacturing
operations, their contributions need to be recognised and rewarded
appropriately. The list of beneficiaries here would include repairs and
maintenance staff, store staff, material handling staff, office staff etc.
Yuch schemes, however, must be based on some agreed criteria
aimed at improving the overall efficiency of the organisation over a
period of time.


These are extra benefits provided to employees in addition to the

normal compensation paid in the form of wages or salaries.

à Yupplementary forms of compensation
à Paid to all employees
à Indirect compensation, since they are not directly related to performance
à May be statutory or voluntary


à Employee demands
à Trade union demands
à Employer's preference
à A kind of social security
à To improve industrial relations


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