METHODS OP WAGE PAYMENT. The main task in any discussion about the method of. wage payment is to examine the different systems of rewarding

Transcription

1 m METHODS OP WAGE PAYMENT The man task n any dscusson about the method of wage payment s to examne the dfferent systems of rewardng labour n a way whch would yeld the best result to employers. Wage payments are the prncpal means to motvate the worker so that he puts hs best effort n the jjob* "If there s one thng on whch economsts, psychologsts, and admnstrators agree, t s on the prncple that specfyng a task and payng rewards contngent on the accomplshment of that task can generate substantal motvaton. Whle wage payment systems represent only a part of the motvatonal arsenal avalable to management, they can be a potent, and also a destructve, admnstratve weapon."'*' ^1. Tme-Rate and Pece-Rate : In constructon ndustry one fnds both the usual methods of wage payment, vz.,tme-and pece-rates. In the former method, payment s made rrespectve of quantty or qualty of work accordng to rate per hour, day or week etc. The tme wage, although t may seem separate from the pece wage, n practce has a pece as well as a tme bass, for the workman must perform a certan amount of work, the results of whch determne the atttude of the employer towards the

2 182 2 wage-contract." The lower lmt of tme-rate s set by the mnmum output expected from an employee below whch t would be unremumeratve for the employer to employ hm. Ths lmt called the "lmt of dscarge" or dsmssal pont acts as a "permanent stmulus to workmen to keep a mnmum standard 3 of work". As for ther advantages, and dsadvantages they depend on whom they-devolve. What may seem advantageous from the pont of vew of employees may be dsadvantageous to employers. For examplet for a less-than-average effcent worker the tme' rate system of payment may be an advantage, but ths s defntely less encouragng to employers nasmuch as ths ncreases cost and breeds neffcency. Agan, the system requres adequate and close supervson n order to obtan from the workers at least an amount of output above the "lmt of dscharge". Uncertanty and dffcultes n forecastng. cost are other demerts of the system. Broadly speakng, therefore, the tme-rate system s not very popular n an ndustry where output s standardsed, homogeneous and measurable by unts or peces. The pece-rate, on the other : hand, s determned accordng to peces or unts of producton rrespectve of tme nvolved. The system provdes suffcent ncentves to the workers and s free from the uncertanty n determnng the cost of producton n advance. Further, where...'products are suffcently standardsed the system elmnates the

3 183 necessty of mantanng close supervson over the workers. The responsblty for economcal and effectve use of tme now falls on workers and not on employers. Lastly, n order to ncrease ther earnngs, the workers always try to study the job well and make sncere attempts to elmnate "some of the tedum and monotony of * 4 the daly grnd". In a sense, both tme- and pece-rates are nterrelated. As has been sad above, n determnng tme- rates the employers generally take nto account the mnmum amount (peces or unts) that should be produced per unt of tme by a worker of average effcency. Smlarly, the pece-rates may be fxed on the bass of work done prevously on tme-rate. In acceptng the pece-rate or a changeover to t from the tme-rate system a worker s lkely to take nto consderaton the 5 followng :-t (a) Income-comparson wth the probable tme-rate : how much he s expected to earn by the pece-rate system per unt of tme, say a day or week. (b) Bffort-comparson : that s, whether to earn the same amount he s requred to put more effort n the pecd-rate than requred under tme-rate. (c) The extent to whch the completon of the job depends on hs ndvdual effort and/or collectve effort. In all these calculatons he wll be guded by

4 184 hs concepton of a far wage on a tme bass, The employer wll also thus, n allowng the pece-rate system, he guded by normal tme-rate. He wll, n normal crcumstances, he reluctant to offer a pece-rate n excess of a measurng day's work based on normal performance standard. 2. Dfferent Methods of Payment n Payment-by-Hesult System s The smplest form of payment-by-result system s the pece-tate system. It s essentally an ncentve wage system. The term ncentve wage connotes "a system of remuneratng rank and fle workers under whch the earnngs of a worker Cor a group of workers) are drectly, promptly and automatcally related to hs output by a predetermned formula relatng hs actual performance to a specfc standard of performance."^ But all pece-rated wages do not necessarly promote ncentve among the workers. For example, pece-rate payments whch. vary n the same proporton as the change n output do not 7 act as an ncentve wage. From the pont of vew of workers' earnngs the system of payment by result can be broadly 8 classfed under four man groups. (1) Earnngs whch vary n the same proporton as output:- Two varants of ths group are straght pece work system and standard hour system. In the latter the worker s pad for the standard tme f he completes the job n.standard tme or less. For example, f a man completes n 8 hours a job for whch the standard tme s 10 hours hs earnngs for the job

5 185 wll amount to ten tmes Ms hourly rate. If, on the other hand, he takes more than the standard tme to complete the job, he wll, f he s guaranteed hs tme-rate, be pad at ths rate for the tme he actually works on the job. But f he s not guaranteed hs tme-rate he wll be pad only for the standard tme. (2) Earnngs whch do not vary proportonately wth output s- The chef characterstc of ths formula s that the worker shares wth hs employers the gans or losses resultng from changes n output. There are four varants of the system, vz., the Halsey, the Rowan, Barth Varable Sharng and the Bedaux Systems. All these varants except the Barth guarantee a worker hs tme-rate even f hs output does not reach a specfed level. In other words, drect labour costs are same as under straght pece work for rates of output upto the specfed level. Further, under all these varants unt labour costs above standard output are lower than under pece work. (3) By ntroducng hgh pece-rates above a standard performance,workers' earnngs are made to vary proportonately more than output. (4) Earnngs whch dffer at dfferent levels of outputs- Ohef varants of the system are Taylor Dfferental, Merrck Dfferental Pece-Rate Systems, Gantt Task System and the Bmerg.W^ Emprc or Effcency System.

6 186 One of the chef dffcultes that s generally faced n fxng pece-rate under any of the above varants of the dayment-hy-resut system s the standardsaton and evaluaton of effort, or,n other words, fndng out the *wage-effort party'. It should he remembered that although changes n wage rates affect workers' effcency or effort, t s not suffcent to consder only the changes n the workers effort, resultng from changes n ther wages. Besdes method and rate of wage payment, methods of producton, technques of / supervson as well as general dealngs of supervsors and/or smgkgremployers also nfluence wage-effort party. In pece-rate the evaluaton of effort s based on rate fxng or on tme study. Whle the former nvolves a combnaton of ntutve judgement and practcal experence, the latter (tme study) s a systematcally organsed technque whch requres specal tranng n addton to experence. "The most strkng feature of tme study ratonale s the contradcton between the clams whch the practtoners make of scentfc accuracy and ther general admsson of the extent to whch Q ther practce requres ntutve judgements.for effectve admnstraton of pece-work, accurate'tme standards' obtaned by methods of tme study should be establshed. Although t depends on objectve measurement of the exact tme requred by a gven worker for a gven pece of work, yet t s "always admtted, though often reluctantly, that there are certan dffcultes. The most serous one stems from the fact that

7 187 vwwu.-k've. the requred tme cannot he defned wthout'yguesses as to what s n fact a normal*, reasonable, far, average* ortrght degree of effort for any partcular task. ^ Wth ths background nformaton, we wll gve n. the followng secton a bref account of the wage payment system n Trpura, and then consder a formula of dfferental pece- rate system for the constructon workers. 3(a). Wage Payment System n Trpura : About one-ffth of the total labourers surveyed were found workng on pece-rate, the rest four-ffth an tme-rate. The proporton of the pece-rated labourers was found to be a bt hgh (23 per cent) among the unsklled than among the sklled (about 19 per cent) labourers. Most of the pece-rated unsklled labourers were found to be earth-cutters. Generally a team of such labourers s headed by a Sardar (head-man) or. jobber who takes payment and dstrbutes the amount to hs labourers. To what extent such a method of dstrbuton s perfect s very dffcult to say, for most of such unsklled labourers were found to be gnorant of the formula of measurement, and generally never remaned present when such measurement t ok place. In fact, pece-rate s generally agreed upon between the head-man and the contractor or the subcontractor. The head-man who undertakes to perform certan peces or unts of work may also be termed as a petty contractor. Sometmes hew&y hmself work as a labourer, sometmes agan

8 188 Table 8.1 Percentage Dstrbuton of Constructon Workers by Mystsm Skll, Occupaton and System of Wage Payment (a) Base : all workers System of wage payment Tme-rate Pece-rate Total Sklled labour (112) Unsklled labour 2? (200) Total (245) ( 67) (312) (b)base ; workers of each occupaton Occupaton Tme-rate Pece-rate Total Masons, plasterers 80.4< {» ( 31) Carpenters ( 33) Ftters ( 20) Khalashs ( 11) Others, sklled ( 17) Unsklled, male (174) Unsklled, female ( 26)

9 I 189 Table 8.1 (cond.) (e) Base s workers n each system of wage payment Occupaton System of wage payment Tme-rate Pece-rate Masons, plasterers Carpenters Ftters Khalashs Others, sklled Unsklled, male Unsklled, female TOTAL (245) ( 67) Source : Feld nvestgaton by the author. Note : fgures n bracket show the number of labourers surveyed. he may merely supervse the workng of other labourers under hm. Exceptng among the ftters, the proporton of pecerated labourers was not hgh. The ftters generally work as rod-benders. Amongst them the pece-rated ones receve payment accordng of the weght of the rod (per cwt) they bend. Sub-contract (or petty contract) system s also found prevalent. Pece-rated workers among the masons and carpenters were found

10 190 to be less than 20 per cent. One of the reasons why pece-rate system does not appear to he popular among the labourers s that the rate s often not appled n the case of actual labourers. A pece-rate or a pece contract s usually fxed between the fra contractor and the sub-contractor. Even those labourers who receve payment accordng to pece rate do not receve accordng to any dfferental pece-rate system. Only the straght pecerate system has been found to be n vogue. Another reason appears to be :l that labourers workng on a pece-rate system have to fac& an uncertanty n regard to ther remuneraton, an uncertanty that s brought about by temporary shortage of any of the requred materals and whch, therefore, affects ther earnngs adversely. Ths rsk s at least mnmsed when labourers choose to work on tmerate system. / 3(b). A Suggeston for Dfferental Pece-rate System wth Guananteed Mnmum Daly Wage : One of the chef characterstcs of the dfferent methods of payment-by-result system dscussed n the earler secton-s the employer s antcpaton from each job a - standard rate of output per unt of tme. Any output n excess of ths standard rate s an expresson of better performance. A standard rate s, therefore, measured as a rato of standard tme (the hours requred to perform a gven job or

11 191 produce a pece) and the actual hours worked for producng the same. At the standard rate of performance the rato s equal to unty. Where, however, the rato s greater than one, t wll be.3 a case of better performance, and, conversely, a worse performance s ndcated by a rato of less than one. Standard rate of performance should usually be based*upon the performance of one or more workers of average effcency selected for the purpose. low, once we are n a poston to determne the standard rate of performance per hour, a system of remuneratng workers may be suggested whereby pece-rated workers can be gven a pece-rate wth guaranteed mnmum daly wage. In suggestng the formula one s naturally guded by the pecular 11 characterstcs of the n constructon ndustry. Let us suppose that producton of 50 peces per 8 hours of work (or 0.16 hours per pece) s the standard performance,. and the pece rate s 10 pase per pece. Gven normal condtons an average Worker can therefore earn at least Rs 5/ a day or 62.5 pase per hour. Let us : ;; further suppose that two workers A and B are workng accordng to pece rate. The former produces 100 peces and the latter only 40 peces n the same 8 workng hours. The earnngs of A would, therefore, be equal to 100 x 10 pase or Rs 10/-. B's earnngs would be 40 x 10 pase or Rs 4/- per day whch s less than the daly mnmum whch s Rs 5/~ a day. The hourly rate of standard performance comes to 62.5 pase per hour. In ths sense. r.<

12 192 B's earnngs should "be Rs 5/- (or, 8 x 62.5 pase «Rs 5/-). In other words, whle pece-rate formula s adopted for A, B s gven accordng to tme.rate. It may be argued that the scheme would tend to encourage neffcency snce, whether or not hs output s at the standard performance rate, the worker would contnue to receve *wage at the tme (or daly) rate. But ths tendency can be counteracted by nsstng on a mnmum quota of work whch must be produced n order to enttle hm to receve a wage at the tme-rate. In our example above, 40 peces may be taken as quota. Below 40 peces or above 50 peces payment may be made at the pece rate. To gve suffcent ncentve productdm above 50 peces may be progressvely rated. In ths way the scheme wll put a check on neffcency provdng at the same tme an ncentve wage for promotng effcency., 4. System of Payment by Result n Other Countres and ts Effects^ In the Scandnavan countres, vz., Norway, Denmark and Sweden, pece work s regulated by natonal pece work rates and collectve agreements between workers and management. The prce-lsts or the peoe-work rates are elastc enough, very much detaled and cover a few thousand pece-rates.15.blexbl.-4 Flexblty n the rate of fxaton s ensured by provson for prompt revson, and by takng nto account of changes n constructon methods and materals as n Norway and Denmark. In lorway basc hourly wage rate s guaranteed even n respect

13 193 of pece-rated workers f the work s stopped for reasons beyond ther control. However, n both these countres the hourly cost of lvng allowance accounts for so large a proporton of total earnngs that there s, n effect, a combned system of payment by results and tme work.' Table 8.2 below ( p. 194 ) shows the proporton of hours worked on pece rate to total hours worked by dfferent trades or occupatons n the constructon ndustry n the Scandnavan countres. It w ll be seen that of these three countres the payment-by-resalt system s much n use n Norway and Sweden whle n Danmark, although the proporton.. 4 s less than n these two countres, "pece work s more common n the constructon ndustry than n the average of. all Dansh ndustres.l ke the Saeandnavan countres, the pece-rates n the Nethe rlands also are mutually agreed upon by the labour and manag ement whle the broad drectves come from the government thr ough the Board of Government Conclators. In the Netherlands the pece-rates are based on "standard tme", and they seem to go n favour of workers, for t has been lad down that n case the standard s exceeded the workers must be pad accord! ng to hourly rates, whle any tme saved s also pad accordngly to standard tme. For nstance, f the standard tme s 0.72 hours and the work has been completed n 0.54 hours!, the worker s pad for a full 0.72 hours and thus earns a 'surplus' of 33 - per cent whle

14 19^ f he takes 0.80 hours he wll he pad at hourly rates. fable! 8.2 lumber of Hours on Pecfe-work as a Percentage of Total Hours Worked n Varous Buldng Trades n Scandnava n Countres N T R I B S. BflnfflftKfc (19511,) Norway(1949) Occupaton Copenhegen Rest o j thole Oslo of Sweden the country Norway Brcklayers ( Carpenters Plumbers 56 p J Panters Electrcans Brcklayers' labourers 63 W n.a. 33. & Iron & Concrete workers n.a. n.a. Note : ++ The break-up s not avalable. Nor sklled workers (brcklayers, plastererk, carpenters and joners) per cent of hours worked are pad at pece-rates. For other workers the percentage s less. Source ; Internatonal Labour May 1954 (Reprnt), Revew, Sol. LXIX, No. 5, bp Unlke as n the Scandnavan countres and the Netherlands the payment-hy-retelt system s appled on a regonal bass and restrcted scale n the U.K. and Federal

15 195 Republc of Germany. In F.R. lof Sermany only about 4 per cent of constructon workers are clovered by the payment-by-re suts scheme- whch s confned mably to the bg ctes lke Berln-, Hamburg and Munch. Elsewhere;, the system s n vogue n certan specal types of work,. In both the countres (the U.K. and P.R. of Germany) the contnuaton of the system depends largely on the employers who Negotate the rates locally. The Effects of the System There are dffcultes n measurng precsely the effects of the payment-by-result system n any ndustry. Constructon ndustry s no excepton, notwthstandng the dffcultes t has been ^ad that the system has been qute successful n achevngjts objects, vz., the reducng of cost and the rasng of effcencyin the letherlands the output as a percentage of'! standard output ncreased by I about 20 per cent after the system has been ntroduced. In the U.K. the man effects after t[e ntroducton of the system n 1941 were as follows ;- t I (1) Substantal ncrease n output was acheved by speedng-u^ of producton. ' (2) Labour costs were redujced substantally. It had been I estmated that for 5 spent on bonus there was a gross savng, of about 7 n labour costs or a net savng of about 2. (3) There was no evdence that qualty of work suffered when adequate supervsor staff was provded. Smlarly,n the Scandnavan countres the system has generally resulted n greater Output and hgher earnngs for the workers. In all these countres, although comparsons.are

16 196 dffcult to make between the pece-rated and tme-rated work because of the preponderance of the former, the general opnon n the ndustry s tjttat "payment-by-results does t lead to greater output, and that workers earnngs are hgher than they would be f systemls of payment-by-results were not 4» 16 n use." I 5. Conclusons s! An examnaton of the p^yment-by-result system, as we - I have made above, has conclusvely proved that there are nherent advantages n the system. Whatever be the sze of l the 'carrot* and howsoever djry t mght be, t s better to! 'hold a carrot before the donkey than none at all. Judged by the results of the systemr ll other countres t cannot be j sad that ths would ncrease the overall cost of the project. When labour cost n buldng accounts for about a thrd of the total, and n road const;meton, n many cases, more'::, than ths, any scheme that wpuld provde ncentve to labour towards greater output should defntely be welcome to the employers. It should be emphassed* even at the rsk of repetton, that the fundamental objectve of pece-rate system s to ncrease ncentves and productvty of labour, and that fulflment of the same wll jlepend, to a great extent, on partcular workng condtonjof the labourers whch dffers from country to country. An^r generalsaton may, therefore,

17 197 suffer from many ptfalls, evolvng a formula for determnaton of pece-rates;one s lkely to be confronted wth certan dffcultes. 1 o However, fxng the 'standard tme' for a pece or unt of job should be made h such a manner that t s possble f for a worker of average effcency to reach the target. :,s A 'standard task' should smlarly be fxed. It should be closely scrutnsed whether jthe extra effort needed to exceed the norm s sutably rewarded. Great dffcultes wll no doubt be faced n evaluatngjthe standard tme' and standard task'. Both objectve and subjectve consderatons are nvolved n ther evaluaton^ As Baldamus has put t, "The rght rate s not merely a matter of accuracy n the sense of stop-watch measurements durng the process of tmng. Much more mportant s what goes ^ehnd the scene : the tentatve evaluaton of the rght effort... It s qute evdent that ths tentatve approach to effort values mples a normatve orentaton. And f ths s So t s only logcal that the wage rate, too, s perceved!n smlar terms of moral 17 J atttudes,", A normatve Orentaton, <M.n;.sprt of co-operaton 3a and reasonableness between the partes should brng a 'wage-effort party* the concept of whch, n our opnon,need not be lmted to pece-work alone. It has general valdty qute ndependent of the method of payment. The feld study n Trpura suggests that certan dffcultes may have to be raced n the determnaton of j

18 198 ndvdual remuneraton where the effort of a team, and not of a partcular ndvdual, s mportant. Team work s most common n constructon ndustry and a team ncentve scheme should "be properly evaluated from tme to tme dependng on varyng condtons of operatons. Accordng to the opnon * of some experts of the system the team should be kept as small as*s compatble wth effcent performance. No doubt, bonus scheme wll provde suffcent ncentve for effcent performance The feld study also suggests that n order to make the pece-rate effectve and popular, the exstng straght pecerate system should be repalced by a dfferental one whch would provde suffeent ncentves for ncreased effcency. In constructon ndustry where collectve barganng s yet to take ts roots, t should be the responsblty of the State to see that approprate share of ncreased productvty. s passed on to the workers. It s n ths context that the feasblty and desrablty of a mnmum guaranteed tmerate Wage should be consdered.

19 199 NOTES AND REFERENCES 1; McKer/se, Robert B., 'Changng Methods-of Wage Payment* n "Fronters of Collectve Barganng", edted by Dunlop, John T., and Chamberlan, Nel W.1(Harper & Row Publshers, New York, 1967), pp Glchrst, R.N., "Wages and Proft Sharng" (Calcutta Unversty, 1924), p Ibd. * 4. Watkns',G.S,, Dodd, P.A., McNaughton, Jf.L., and Prasow, P,, "The Management of Personnel and Labour Relatons" (McGraw -Hll, 1950), pp Glchrst, R.N., op. ct., pp Datar, B.N., "Labour Economcs" (Alled Publshers, Bombay, 1968), pp But compared to tme-rate even ths wll nduce the worker to earn more n a. gven tme by speedng-up hs effort. See Dobb, M., "Wages" (London, 1956), pp ' 8. I.L.O., "Payment By Results (Geneva, 1951), Chapter I. 9. Baldamus, W., Artcle enttled 'The Relatonshp Between Wage and Effort' publshed n Journal of Industral Economcs, Vol. 5, No. 3, (July 1957). 10. Ibd. 11. Watkns, Dodd etc., op. ct., pp Above, only the feasblty and desrablty of the scheme for the constructon ndustry<xk& emphassed. 12. A meetng of experts on System of Payment by Results n the constructon ndustry was held under the auspces of the I.L.O. n Geneva n A fuller account of the conclusons of the experts and a relatvely detaled account of how the System works n dfferent countres have been dscussed n Internatonal Labour Revew, Vol. LXIX, No. 5, May For example, n Denmark n nternal plasterng alone 147 prces have been agreed to n respect of 93 dfferent operatons. Ibd., p Ibd., p. 10.

20 15. Ibd., pp ; I.L.O., B.O.B. & P.W. Commttee's General Report (Report I) of Second Sesson (Geneva,1949)» pp Internatonal Labour Revew, Yol. LXIX, No. 5 (Reprnt), p Baldamus, W.f op. ct. 18. Internatonal Labour Revew, op. ct., p. 8.