Amity School of Business

Amity School of Business Semester IV

Compensation & Reward Management

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MODULE 2
Types of wage

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Wage Systems

Time Wage System

Piece Wage System

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Time Wage System

In this system, the workers are paid wages according to the time spent at the work place. E.g. a day, a week. A month etc. In this system, the work or production done by an employee is not taken into consideration. This is the oldest type of wage system.

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Merits of Time Wage System: Clear and simple. Provides guaranteed minimum wages. Quality is maintained. Haste is avoided and hence improper and excessive use of machinery is avoided. Suitable for industries where measuring output is impossible. Wages payable are pre-determined. Workers are not exploited which help to maintain harmonious relationship. Workers are motivated to work efficiently. Reduces labour turnover rate.

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Demerits of Time Wage System: Fails to motivate efficient and industrious workers. Work needs supervision. Thus, cost of supervision increases. Possibilities of the worker being negligent towards work or production. Conflict and jealousy between efficient and inefficient workers crops up. Nurtures the evil of shirking work. Cannot be considered a progressive wage system.

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When is time wage system effective? Quality of production is more important than the output. Work is to be done minutely, requiring extreme care and preciseness. Impossible to assess individual performance. Production is automatic i.e. machine-based. Workers are new, apprentices or trainees. Volume of production cannot be clearly measured.

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Meaning of Piece Wage System

In this system, wages are paid to workers according to their output. This wage system is directly related to the skill, production capacity, speed and precision of the worker. This system is also known as PAYMENT BY RESULT SYSTEM.

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Straight piecework system : The wages of the worker depend upon his output and rate of each unit of output; it is in fact independent of the time taken by him. Earnings = Number of units X rate per unit

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Differential piece work system: In this scheme, the rate per piece is increased as the output level is increased. That is there is moe than one piece rate system. In other words, the increase in rate may be proportionate to the increase in output. This system provide for higher rewards to more efficient workers. For different levels of output below and above the standard, different piece rates are applicable. Taylor Differential Piece Work System Merrick Differential Piece Rate System

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Merits of Piece Wage System: Workers skill is taken into account. No need for supervision and inspection. Efficient workers are given more incentives and rewards. Easy to estimate the cost per unit. Easy to calculate wages. More production and best results is the motto of this system.

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Demerits of Piece Wage System: Quality is not maintained. Workers intentionally ignore safety rules, inviting accidents. Workers are paid different wages with a wide gulf among them leading to less precision, lessening of their morale and industrial disputes. Trade union oppose this system. Sense of job satisfaction is less among workers. Administrative expenses are high. Workers neglect their health in order to put their maximum efforts. Workers feel a sense of insecurity.

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When is Piece Wage System Suitable? Measurement of units produced is easy. Efficiency, skill and concentration of worker is high and productivity depends upon proficiency alone. Easy to establish standards and flow of work is regular. Only one type of goods are produced.

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Taylors Differential Piece Rate System: According to this plan: There shall be two piece work rates, one is lower & the other is higher. The standard of effieciency is determined in terms of output based on time. The worker producing stanadard or more than expected during the standard given time would be payed higher. The slower worker would be penalised

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Merricks Differential piece rate system: According to this plan: There are three piece rate system Upto 83% of the standard output workers are paid at the ordinary piece rate 83% to 100% at 110% of the ordinary pice rate Above 100% at 120% of the ordianry piece rate Workers producing below the standard output are not penalised by the low piece rate

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Combination of Time and Piece Work

Gantt task and bonus system: The system consists of paying a worker on time basis if he does not attain the standard and on piece basis(high rate) if he does.
Emersons efficiency system: Under this system minimum time wages are guaranteed. But beyond a certain efficiency level, bonus in addition to minimum day wages is given.

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Balance Method: Balance method also known as debt method, is essentially a combination of time wage and piece wage methods. Under this method, a worker is guaranteed a fixed wage based on time rate with a provision of piece wage method. Thus, if a worker produces more quantity in a period, usually on weekly or monthly basis, and earns more than his time wage, he is given credit for additional output which is compensated in another period in which production quantity falls below the time wage. This method provides a sense of security to a worker so far as his wage earning is concerned. At the same time, he is also motivated to produce more because of inclusion of piece wage system. This method has its relevance in a workplace where the work flow is irregular like docks.
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Monitary vs. Non Monitary rewards: The organisation can reward employees certain non-monetary wards also like medical benefits and housing. Monetary rewards has primarily tax implications.

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