LABOUR REMUNERATION & INCENTIVES Presented by:- Shweta Dubey Ruchi Dongaonkar MPM-3rd sem

LABOUR REMUNERATION&INCENTIVES: Remuneration is the total monetary earnings of the employees. It consist of earnings according to time on the work or the piece rate and includes other financial incentives. Incentives is the stimulation of effort and effectiveness by offering monetary or extra facilities. Incentives may be monetary or non-monetary. Monetary incentives include wage payments in excess of those paid to time rate workers, premium, bonuses, prizes and return on investment. Non-monetary incentives include the provision of adequate facilities and background conditions to obtain full effectiveness of the personnel of all grades, e.g promotion plans, training schemes etc.

ADVANTAGES OF INCENTIVE SCHEME :- To increase the volume of production. To improve or at least maintain, the quality of the product. To reduce the cost of production. To raise morale and increase efficiency of staff and finally keeping them contented.

WAGE LEVEL: The wages which any worker receives depend, in general, on the supply of his class of labour and the demand for it. While fixing remuneration in a particular industry, following factors must be considered: The impact of remuneration level on the economy of the nation. The wages paid to employees of same type of organisation in the locality. The ability of the employers to pay. The needs of the employee in relation to his standard of living

FACTORS IN AN INCENTIVES SYSTEM :- Production :-If the productivity is higher the cost of production will be lower and the employer will ultimately get the benefit to a great extent. Effect on workers :-A wage system should be unambiguous and simple. It must be capable of obtaining maximum co-operation, and should not increase labour turn over. Incidence of fixed overhead:-Consideration should be given on the incidence of fixed overhead over production. If the volume of production is increased, the variable cost of production per unit will remain the same but the fixed cost per unit will decrease. Thus, the total cost of production will be low due to increase in production efficiency.

PRINCIPLES APPLICABLE TO ALL INCENTIVE SCHEMES :- The reward must be linked with the effort involved and must be fair to both employer and employee. The scheme should be clearly defined and fully understood by workers. It should provide for worthwhile and attainable objectives. There should be no limits placed upon the amount of additional earnings. The scheme should be reasonably permanent and should not be changed with worker’s approval and indirect workers must be included if possible. The scheme should be coupled with a sound routine of inspection to ensure that workers are only paid for good production. The system should be simple and capable of operation without excessive clerical work. The main aim of the scheme should be to influence the worker’s morale.

REMUNERATION SYSTEMS :- Wages are based on time or production. When employees are paid on the basis of time it is called time rate. When wages are calculated on the basis of production it is called as piece rate. Remuneration system are classified in following ways :- 1) TIME RATES: a) at ordinary levels; b) at high wage levels; c) graduated time rates. 2) PIECE-RATES: a) straight piece rates; b) piece-rates with guaranteed day rates; c) differential piece-rates.

3) BONUS SYSTEM: a) individual bonus for direct workers; b) group bonus for direct workers; c) bonus for indirect workers. 4) INDIRECT MONETARYINCENTIVES: a) Profit sharing b) Co-partnership. 5) NON-MONETARY INCENTIVES: Usually related to working and welfare conditions, such as health and safety, sports etc.

1) TIME RATES AT ORDINARY LEVELS: This is the method by hour , day, week or other agreed time regardless of output. However , it is customary in most industries, and indeed a legal obligation, to pay extra for overtime work. The employer gets all the benefits for increase in productivity under the time rate. EARNINGS=HOURS WORKED X RATE PER HOUR. ADVANTAGES: a) Easy to understand . b) Improvement in quality DISADVANTAGES: a) provides no financial incentives. b) It increases the cost of production

2) TIME RATE AT HIGH WAGE LEVELS:- Under this system employees are remunerated at time rate, but the time rate is appreciably higher than the normally paid in the industry or locality. Here overtime work is generally not permitted. The characteristic feature of high wage level is that it provides incentive that is lacking in ordinary time rates, and retains the advantage of simplicity and cheapness of administration. It attract the highest quality of labour and retains it.

3) GRADUATED TIME RATES:- Under this system payment is made at times rates adjusted to suit general or particular economic circumstances or to allow for different personal qualities in the workers. Time wage under this system varies with changes in the official cost-of living index. Though this scheme is favourable both to the employer and employees, the determination of a suitable wage index is difficult.

1)STRAIGHT PIECE-RATE FORMULA Under this system the workers receives a flat rate of pay per unit of output, irrespective of time taken. The earning of an individual is depended on the number of units he finishes at that rate. FORMULA a) Where rate per unit is known:- Earning =Number of units × Rates per unit. b) Where standard hour rate is known:- Stand. Hours of work produced ×Rate per stand. hour Straight piece-rate and payments by results can be applied only where the work is of a sufficiently repetitive nature to allow the setting of definite piece-rates. The effect of payment by this method is that remuneration is in direct ratio to the workers’ effort and labor cost per unit is constant the range of output.

ADVANTAGES & DISADVANTAGES Straight piece rate system is simple and provides a strong incentive benefit. Higher productivity helps to spread the load of overhead and thus lower the cost of unit. Disadvantages: No incentives for special effort. The worker’s remuneration may fall because of fault & inefficiency of the worker.

2)PIECE RATE WITH GAURANTEED DAY RATE Under this method a worker receives the straight piece-rate for the number of pieces he produces, provided his total remuneration is greater than his earning on a time-rate basis. If the earning falls below the set standard time-rate system is followed. Labor cost per unit decreases with increase in production until piece-rate exceeds the guarantee. The advantages & disadvantages are same as the straight piece-rate system.

3) DIFFERENTIAL PIECE-RATE Under this scheme, the rate per standard hour of production is increased as the output level rises. The increase is proportionate to the increase in output. This system is best suited where:- a) The work is of repetitive nature. b) The methods & equipments are standardized. c) The worker can be kept at the same job for long hours. d) The output can be identified with each individual worker. e) The standard time required can be easily measured. f) Fixed expenses are higher than that of variable expenses.

PRINCIPLES OF DIFFERENTIAL PIECE-RATE The principal of differential piece-rate are as follow:- Taylor Differential piece-rate system:- The originator of this was F.W.Taylor, the day wages are not guaranteed. It provide two piece-rate, a low piece-rate for output below standard & high piece-rate for output above standard. The scheme when started Taylor’s high rate was 150% of the lower rate, as it provides a very strong incentives to expert workers. Effect on labor:-As no minimum time rate is guaranteed, labor cost is constant. Advantages:- 1) It is simple 2) It attracts only the best worker and very strong incentives to experts is provided. Disadvantages:- 1) It penalizes the slow worker. 2) It is not good for quality work of human.

MERRICK DIFFERENTIAL PIECE-RATE SYSTEM This is a modification of the Taylor system and uses three rates instead of two:- Output-percentage standard payment a) Up to 83% ordinary piece-rate b) 83% to 100% 110% of ordinary piece-rate c) Over 100% 120% of ordinary piece-rate Merrick excluded the guaranteed time-rate wages, this ensuring that every worker was paid solely on the basis of the output. This plan is particularly useful as an incentive to employees who are potentially high producers.

GANTT TASK BONUS PLAN This is a combined time, bonus, and piece-rate using differential piece-rate. Output payment a) Output below standard (high task) Time rate (Guaranteed) b) Output at standard Bonus of 20% (usually) of the time rate c) Output above standard High piece-rate on workers whole output. Objective:- a) To pay incentive to highly efficient worker. b) To protect less skilled workers. c) To plan & standardized the methods & equipments. d) To suit the quality production of individual.

ADVANTAGES & DISADVANTAGES Effect on labor:- Labor cost is high for low production, decreasing gradually until standard is reached. Advantages:- a) It provide security. b) It is simple to understand. c) It is suitable where machine rates are high. d) It stimulates better supervision & planning. Disadvantages:- a) Greater care is necessary in fixing the guaranteed time-rate & standard time for working above the standard. b) Trade union may seek to fix a high guaranteed time-rate & in that case, the incentive force of the plan is lost.

CONCLUSION As it is being an old adage that each system has its own pros & cons the incentive system is formulated to find the effectiveness of the incentive scheme & its impact on the cost of production & to see that the productivity of the concern is raised considerably. Thus, the incentive scheme is formulated according to the organization “MODEL STANDING ORDER”.

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