Methods of remuneration

Remuneration methods:

1. Time rate

2. Piece rate

3. Combination of time and piece rate

4. premium bonus schemes

5. group bonus schemes

1. Time-based (Time Rate System) 

Straight Time Rate System: Under this system, the workers are paid on a time basis i.e. hour, day, week, or month. The amount of wages due to a worker are arrived at by multiplying the time worked (including the normal idle period) by the rate for the time. Time-based wages payment is suitable for employees (i) whose services cannot be directly or tangibly measured, e.g., general helpers, supervisory and clerical staff, etc. (ii) engaged in highly skilled jobs, (iii) where the pace of output is independent of the operator, e.g., automatic chemical plants. Wages under the time rate system are calculated as under:

              Wages = Time Worked (Hours/ Days/ Months) × Rate for the time  

2. Output Based (Piece Rate System) 

I) Straight Piece Rate System: Under this system, each operation, job, or unit of production is termed a piece. A rate of payment, known as the piece rate or piece work rate is fixed for each piece. The wages of the worker depend upon his output and the rate of each unit of output; it is in fact independent of the time taken by him. The wages paid to a worker are calculated as:

                      Wages = Number of units produced × Piece Rate per unit  

II) Differential piece rate system: Under this system, there is more than one piece rate to reward efficient workers and to encourage the less efficient workers / a trainee to improve.

a) Taylor differential piece rate: This system was introduced by Taylor who was the father of scientific management. He advocates here 2 piece rates which are high & low piece rates. If a worker performs high production / standard production,  he is entitled to receive a high piece rate. If he performs below the standard production he is paid at a low piece rate.  Generally, 80% of the normal piece rate is equal to low piece rates, and 120% of the normal piece rate is equal to a high piece rates.

b) Merrick / multiple piece rate: Under this method, 3 piece rates are applied for workers with different levels of performance. Wages are paid at the ordinary piece rate to those workers whose performance is less than 83% of the standard output,  110% of the ordinary piece rate is given to workers whose level of performance is between 83%-100% of the standard output and 120% of the ordinary piece rate is given to workers who produce more than 100% of the standard output

3. Combination of time and Piece Rate :

a) Emerson's efficiency system: This plan was introduced by Mr. Hemington Emerson. Under this plan of incentive wages, the wages are paid at the standard rate & the amount of bonus paid to the workers depends on the individual efficiency of the workers.

The main features of the plan are:

1. Daily wages are guaranteed

2. A standard time is set for each job/operation

3. Below 66 2/3 % efficiency,  the worker is paid his hourly rate

4. Below 66 2/3% - 100 % efficiency,  payments are made on the basis of step bonus rates.

5. Above 100% efficiency,  an additional bonus of 1% of the hourly rate is paid for each 1% increase in efficiency.

Efficiency	Bonus (%)
67-75	1
76-85	4
86-95	10
96-100	20

 

Efficiency for this purpose is calculated as follows :

1. On-time basis :

             Percentage of efficiency = Time taken ÷ standard time allowed × 100

2. On a production basis:

         Percentage of efficiency =Actual production ÷ standard production × 100

 

b) Gant's task method: This is a combination of time and piece wage system. In this method, standard time is fixed for doing a particular task, workers' actual performance is compared with standard time & efficiency is determined.

1. If a worker fails to reach the standard that is if he takes more time to complete the standard work. He is paid at the time rate for the time taken.

2. In case those who reach the standard that is 100% of efficiency, wages are paid at the time rate + a bonus of 20% on wages earnings.

3. Who are above the standard that is above 100% of efficiency piece wage are paid together with a bonus of 20% on wage earnings. 

4. Premium bonus: Under these methods, standard time is established for performing a job. The worker is guaranteed his daily wages (except in Barth System) if his output is below and upto standard. In case the task is completed in less than the standard time, the saved time is shared between the employee and the employer.

(i) Halsey Premium Plan: Under the Halsey premium plan a standard time is fixed for each job or process. If there is no saving on this standard time allowance, the worker is paid only his day rate. He gets his time rate even if he exceeds the standard time limit since his day rate is guaranteed.

              If, however, he does the job in less than the standard time, he gets a bonus equal to 50 percent of the wages of time saved; the employer benefits by the other 50 percent. The scheme also is sometimes referred to as the Halsey fifty percent plan. Earnings under the Halsey Premium plan are calculated as under:

       Wages = Time taken × Time rate + 50% of time saved × Time rate

Advantages:

1. Time rate is guaranteed while there is an opportunity for increasing earnings by increasing production.

 2. The system is equitable in as much as the employer gets a direct return for his efforts in improving production methods and providing better equipment.

Dis Advantages:

1. Incentive is not as strong as with the piece rate system. In fact the harder the worker works, the lesser he gets per piece. 

2. The sharing principle may not be liked by employees.

(ii) Rowan Premium Plan: According to this system a standard time allowance is fixed for the performance of a job and a bonus is paid if time is saved. Under Rowan System, the bonus is that proportion of the time wages as time saved bears to the standard time.

wages=Time taken × Rate per hour + Time Saved /Time Allowed × Time taken × Rate per hour

Advantages:

1. It is claimed to be a fool-proof system in as much as a worker can never double his earnings even if there is a bad rate setting. 

 2. It is admirably suitable for encouraging moderately efficient workers as it provides a better return for moderate efficiency than under the Halsey Plan. 

 3. The sharing principle appeals to the employer as being equitable.

Dis Advantages:

1. The system is a bit complicated.

2. The incentive is weak at a high production level where the time saved is more than 50% of the time allowed.

 3. The sharing principle is not generally welcomed by employees

5. Group bonus schemes: In contrast to individual incentive schemes, group incentive plans include incentivizing the entire group of workers. Each member of the group gets awarded based on the performance of their group under this arrangement. This technique is extremely beneficial in situations when individual worker output cannot be quantified but group worker output can be commonly measured. The emphasis in group incentive plans is mostly on teamwork toward a common goal.

    The group incentive plans include a focus on the group meeting a specified level of output and thereby qualifying for the incentive payment. A team approach is required, with all members contributing to achieving and maintaining the output. Such collaborative efforts can be rewarded with group incentive plans based on the piecework or variations thereof, as well as the conventional hour plan.

 

Suitability: 

Group incentive plans are best suited for and appropriate in the following scenarios: When individual performance cannot be properly quantified.

1. A group of employees all have the same sort of talent or ability.
2. The accomplishment of the goal is tied to the group’s collaborative efforts.
3. The goal is to incentivize indirect employees rather than direct workers.
4. A group is made up of a small number of people.