Employees work in the different capacities. The level of physical and mental work, skill, responsibility, education, experience, required supervision etc. are different from job to job. It is, therefore, necessary that employees working with different job characteristics should be rewarded according to their job characteristics. It requires that effective job evaluation techniques should be applied to determine the relative worth of every job and remunerate accordingly.
Workers undoubtedly are the most valuable asset of the enterprise. They are indispensable factor of production. They work and extract work from the subordinates and also from physical factors. In order to maintain reasonable standard of living, workers must be paid fair wages. The methods of wage payment available to us are time rate system, piece rate system and incentive wage plans. Every method has got its plus and minus points. Methods of wage payment must be fair and just. It should be competitive and must suit the interest of both enterprise and workers. The methods must encourage workers to improve their competence and performance. It other words certain incentives must be provided.
Job evaluation
It is always a problem for the venture to study the physical, mental, intellectual and technical efforts involved in the different jobs and to fix the fair amount of remuneration to be paid to workers for their services, sacrifices, efforts and energies put in on different jobs. In the absence of proper job evaluation, easy and less responsible jobs may be highly rewarded and the arduous and responsible jobs may be low paid. It is, therefore, necessary that comparative study regarding different jobs may be made as regards their tediousness, responsibility and risk. Reasonable remuneration be fixed for very jobs as a measure of effective job evaluation.
Factors determining jobs worth
Important factors determining the worth of the job are explained herewith :
Skill : It means proficiency to perform certain job. Skill may be as mental and manual. In general, the more skilled the job, the more is its worth.
Education : Jobs requiring higher education are paid more than jobs needing lesser or no qualification.
Experience : Education imparts general understanding, whereas experience enables to perform job practically then and there. Educated persons need further training to be capable for performing the job. This is why, experienced persons are paid more.
Initiative : It is an ability to involve oneself in the work and point out the easy, simple and novel approach of doing the work resulting in more output and lesser wastage of resources. The more efforts and initiative in the job, the more, is its worth.
Supervision required : Jobs requiring more supervision are low paid. Generally, physical works require more supervision, because there are chances of carelessness. Less supervised jobs are highly paid.
Responsibility : In case the job is more responsible, it will be highly paid. Lesser responsibility leads to lesser emoluments.
Advantages
Job evaluation is aimed at the determination of reasonable wages for every job. Such evaluation is beneficial to both the management and the workers. It has the following advantages.
Determining reasonable remuneration : Job evaluation is a technique of determining fair wages for every job after scientific testing of the different jobs.
Improvement in Wages Rates : If the nature of work changes with the application of new machines, equipments and techniques, wage rates are changed accordingly.
Solution of Wage Disputes : There may be different wage rates for different jobs. In case, employees on particular job are dissatisfied with their wage-rates, proper evaluation of their job will determine their reasonable wages and the dispute will be reconciled.
Helpful in Comparative study : Job evaluation is an effective technique of comparing different jobs and there remuneration. Such a study is beneficial for research purposes.
Multiple use of Data : The data collected for job evaluation may also be used for various purposes such as simplification and improvement in the personnel selection, training and remunerating.
Limitations
Employees’ objection : Workers do not have any say in the job evaluation. They do not have opportunities of collective bargaining. They feel that job evaluation is a technique of befooling them and reducing their wages rates. Differences in wage rate due to difference in the jobs create inequality and dissatisfaction among workers.
No scientific analysis of the job : Job evaluation has its own technique and is not based upon scientific study and analysis of work. In this way, different processes of work cannot be properly evaluated.
Lack of Practicability : The principle of job evaluation fixes equal pay for equal work, but there are certain jobs, where promotional avenues are more and the workers will be happy to work on these jobs even with low wage-rates. On the other hand workers on jobs with lesser promotional opportunities will be loser, if the same and equal wage rates are provided to them.
Limitation of factors : Different factors taken into consideration for job evaluation weightage accorded to these factors is not standardised. It is different on different jobs and in different organisation. In this way, job evaluation technique becomes a tool in the hands of management to justify their whims and points of views.
Limitations of evaluations : Job evaluation represents evaluator’s point of view. It is vitally affected by the qualifications, experiences, thinking and views of the evaluators.
Compensation to employees
After the job evaluation techniques, which determine the relative worth of jobs the next step is to assign compensation for each job. Compensation is the reward for the services rendered by employees in the form of salaries, wages, bonus, benefits perquisites and incentives.
Compensation attracts and motivates employees to contribute their worth in the service of the enterprise.
Compensation being provided to employees must be adequate, cost effective, equitable, secured, incentive providing, fair, competitive and acceptable to the employees.
Forms of compensation
Different forms of compensation have emerged as interaction between the employees and the enterprise. These forms are as under :
Salaries and wages : It is the amount paid to the employee on periodic basis. Generally payment is made after a month. It is the major element of compensation.
Bonus : It is an extra payment made by the enterprise to its employees annually on the basis of productivity. These days bonus is treated as deferred wage.
Benefits : Remuneration providing economic protection are called benefits such as paid holidays and group insurance etc.
Estate building plans : These plan help employees in accumulating savings through various savings schemes. Out of these saving house building advance is granted.
Long term income : It is lump sum reward earned over a long period of time such as share option to employees, grant of bonus shares to employees.
Perquisites : Perks are also granted to executives, such as free furnished bungalow, car for conveyance and other medical, educational and recreational amenities.
Purpose of wages and salaries
Wages and salaries programmes have the following objectives :
Appointment of employee : The first and foremost objective of providing salaries is to attract the employees towards enterprise. It is the offer of salaries which drives the candidate to apply in the enterprise for the post.
Motivating factor : Wages and salaries are motivating factor to the employees. Fair and competitive salaries motivate the employees for superior performance.
Job satisfaction : Workers feel satisfied with the reasonable amount of wages at proper intervals. They have lesser grievances, friction and conflicts with the management.
Increasing productivity : Satisfied employees will contribute their maximum worth, which will undoubtedly increase the output and productivity of employees.
Time rate system
This is the oldest system of wage payment. Workers are paid wages at the rate of per hour, per day, per week or per month or in certain cases per year. An agreement regarding wages is reached between employees and management regarding wage rates. Every worker knows, how much wages he will get after specific period. In this way they can plan their expenditure. In general, there is no prescribed standard and quantity of work. Wages can be determined by the following formula :
Wages = Time taken x Rate prescribed
Time wage system is useful in the following cases :
- If the quality of work required is superior.
- If the proper evaluation of individual worker’s performance is not possible.
- If mental efforts are involved. These efforts require higher standard of proficiency, competency and specialised training.
- Where production process is complicated and intricate.
Merits
Simplicity : The method is simple to be understood by employees. Calculation of wages under this system is also simple.
Certainty of wages : Workers are sure to get certain amount of wages, so they can plan their expenditure and make family budgets,.
Popular Method : This is the most popular method. It is favoured and practised by most of the employers and employees.
Useful is non-standard works : If individual employee’s work cannot be standardised and separately measured, it is the most effective method.
Top quality of production : As there is no restriction regarding the quantity of output, employees try to maintain the top quality of goods. They work with ease and patience.
Lesser administrative expenses : Every worker takes his job as its pious duty sincerely and honestly, as such lesser inspection and supervision is required.
Cut in Labour Cost : Labour cost in the longer run is proportionately reduced with the increase in the proficiency and efficiency of the worker.
Proper use of machines and equipments : Workers do not perform their job in haste. Their remuneration is also not linked with the amount of work done by them. As such, they make the proper and appropriate use of machines and equipments, resulting in lesser depreciation, wastage and repairs.
Favoured by Trade Unions : Time rate system is based upon equity. Workers are treated at par. There is no discrimination among workers on the basis of output and efficiency. As such workers’ union favour time rate system.
Demerits
There are following defects of the time rate system :
Lack of Incentive for efficiency : Both efficient and inefficient workers get equal remuneration on the same job, as such there is no incentive for the efficient workers.
Need for more supervision : The worker becomes careless, as no specific amount of work is required to be performed. This is why, more supervision is required which naturally increases cost of production.
Loss of efficiency : Efficient worker have of incentive to work better in terms of quality and quantity of output, because efficiency will neither increase their remuneration nor result in their promotion.
Difficult assessment of individual’s work : As there is not record of individual’s performance or output, it is very difficult to assess worker’s efficiency.
Industrial dispute : The method of wage payment treats workers at par, as such employees unions become very strong. Their collective bargaining capacity pressurises management to accept their demands. If the management is not capable of accepting demand, there is industrial unrest leading to strikes, and lockouts etc.
Managerial slackness : Management knows, that they cannot take severe action against employee, even if he is careless at work. Therefore, the management do not keep their relation tense with the employees and hesitate to take stern action against them.
Loss of production : Carelessness and slackness of both workers and management results in the loss of production.
Piece rate system
It is a system of wage payment based upon the amount of work performed by the workers. Piece of work performed by the worker determines the amount of wages. The amount of time spent on the job is not taken into consideration. The amount of wages has direct relationship with the amount of work done by the workers. Wages increases with the increase in the output and decreases with the decrease in the output of the worker. It is a payment based upon results not the time spent on the job. Wages are calculated by applying the following formula.
Wages = No. of units produced
× Rate per unit.
Example : Let us suppose the piece-rate prescribed is Rs. 4 per unit, produced. If a worker produces 6 units. His wages will be calculated as follows :
Wages = No. of units produced × Rate per unit
Wages = 4 × 6 = Rs. 24
Merits
The piece-rate system of wage payment has the following advantages :
Increased production : The production increases, because every worker tries to produce more and more, as the wages are directly linked to the number of pieces produced by them. Efforts on the part of every worker, results in an increase of total output.
Better employer-employee relationship : Wages are based upon the number of units produced by the worker, as such the chances of dispute between the worker and management are reduced. The piece-rate is prescribed in advance and both the worker and the employer has knowledge of it. This method automatically reconciles the possibilities of disputes.
Simplicity : Wages are based upon the number of units produced by workers, and the rate per unit is already fixed, so both the workers and management easily calculate wages.
Maximum utilisation of tools and equipments : Every worker keeps himself actively busy on his job, which results in the optimum untilisation of machines, tools and equipments.
Rise in the standard of living : The worker puts in his best efforts in his job to produce more and more units, as such the amount of wages increases with the increased production. The higher income enables workers to satisfy their more needs and the standard of living correspondingly rises.
Benefits to consumers : The large scale increased output reduces the cost of production and the consumers get these commodities at cheaper rates.
Other advantages
The system motivates the worker to work more and more.
Workers make the best possible use of machines, tools and equipments. They are afraid that the defect in the machine will deprive them of the increased output and they will get lesser wages. The best advantage in this way lies in the lesser wear and tear.
Demerits
The piece-rate system suffers from the following defects :
Misuse of machine and tools : The workers, in order to multiply their production make the misuse and rough handling of tools and equipments, which results in the wastage and more depreciation.
Uncertainty of remuneration : The amount of wages being directly linked with the number of units produced, is always uncertain and inexact. Any mishappening with the worker hits the amount of output and wages are adversely affected. The employee can never be sure of the wages, he will get.
Loss of health : The worker keeps himself continuously busy with the work, without caring the least for his health. Generally, under this system working hours are not fixed, therefore the worker spends more hours in the work, which results in the loss of his health.
Loss of the quality of goods : In order to maximise output, worker does not care much for the quality of the product, because, if they care too much for the quality, their output will be reduced.
Class-struggle : Piece-rate system discriminates workers on the basis of efficiency and remuneration. As such there are different groups of workers, conflicting each other. There can be clashes and conflicts between workers and management in connection with increasing wage rates.
Unsuitability : This method is unsuitable for certain types of works, where the work is complicated and is of artistic nature.
Loss of remuneration : If the worker is absent on the work due to his illness or any urgency, he is not in a position to get remuneration, whereas in case of time rate system workers get certain leaves with pay to meet their urgent requirements.
Determinants of Wage Rate
Workers should get the reasonable and fair wages, which should be sufficient to meet needs of the worker and his family. As wages are in return of the services rendered by the worker, it should also take into consideration the nature, type and amount of services rendered by the worker. While determining wage rates following factors should be taken into consideration.
Factors Determining Wage Rates
Nature and type of work : Higher wage rates should be fixed for complicated and the hazardous jobs. Simple, easy and risk-free jobs, which require physical work more are low paid.
Proficiency of the worker : The workers, who are more efficient, proficient and experienced should get more in comparison to less efficient workers.
Training : If the job requires specialised training, wages should be more as compared to jobs, requiring general qualification.
Length of service : Workers who have put in longer periods of service in the venture should get more than freshers on the same job.
Provisions of Minimum Wages Act and other legislations : The Government fixes minimum wages, which are the least to be paid to workers. It shows that the minimum wage-rates are determined by the Provision of Government legislation. All the established concerns have to honour the provisions, but the small, unregistered units may escape from the provisions of the act.
Bargaining capacity of the employer and employees : Wages, no doubt, is normally determined by the interaction of demand and supply of the labour force. If the demand of labour is more, workers’ bargaining capacity will be more and their wages will be fixed comparatively higher as compared to the case, wherein the supply is more.
These days, there are workers’ unions, which collectively bargain on behalf of the workers with the employers. In most of the cases, wages are determined by bargaining.
Attitude of employers : If the employer is selfish and self-centered, he is always after multiplying his profit by any fair or foul means, even at the cost of exploiting the working force. If the employer treats workers as a human being, such as he is, he will instead of multiplying his wealth, award higher rates of wages out of the profits. The more, employer is conscious to his social and humane commitments to the worker, the higher wage-rates will be fixed.
Capacity of the employer : In general, wages are not linked with the paying capacity of employer, but in certain cases, where business units have been suffering losses and they are at the verge of financial collapse, wage rates are comparatively low.
