• Register
Methods of Labour Remuneration

# Methods of Labour Remuneration

Labour remuneration methods can be broadly classified into two:

1. Time rate (on the basis of the time spent in the factory)
2. Piece Rate (On the basis of work done)

Most of the remuneration methods are a combination of or modification of these 2 systems

Time Rate System

May be a flat time rate or a high day rate.

Under flat time rate, each worker is paid for the time spent without considering the volume of production during that period

This may be paid daily, hourly or monthly basis as follows:

Total Pay = Hours worked X rater per hour

Under the high day rate system the workers time rate is fixed at a higher level than the usual rate of payment if the output exceeds the expected (usually set) level. The objective of this system is to provide an incentive to the workers while retaining the simplicity of the system. It is most appropriate for easily measurable output to which groups of workers contribute e.g. car assembly lines.

Piece Rate System

An employee is paid a fixed amount for each unit produced irrespective of time taken; the wages payable are calculated as follows:

Wages = Number of units produced X Rate per unit

In this case, there is a flat rate per unit. However, a company may modify this and apply the Taylor’s differential price rate system where three piece rates are set for each job: the low, normal higher piece rate. The low piece rate is applicable where a worker is not able to achieve the standard (normal) output and the highest piece rate is for those above standard. If it does not guarantee minimum wages on time basis, this may lead to high wage differential in the company and consequently demotivation. For this reason, the differential price rate system as well as many variations of the piece rate system contain a minimum (guaranteed) pay.

Group Bonus Plan

There are certain jobs or operations which require to be done collectively by a group of workers, for example, continuous production work flows in a sequence or in assembly work of computers, radio, televisions e.t.c A team of workers is engaged in various operations and as such it becomes necessary to introduce bonus schemes for collective efficiency of the group as a whole and the intention is to create a collective interest in the work. In this case, the bonus is shared among the members. The proportionate share may depend on a number of factors, for example, the level of employee in management structure, the department in which the employee falls, his current salary e.t.c.

Benefits associated with group bonus schemes include

1. It encourages cooperation and teamwork among workers
2. It reduces absenteeism since an absent worker is found to reduce the group earnings and the group may dislike him
3. The approach reduces supervision time and cost, thus it is administratively much simpler.
4. It greatly reduces the number of rates to be negotiated.
5. It may encourage flexible working arrangements within the group.

But it suffers the following setbacks

1. It may not provide a strong incentive to the individual workers, as it is group based.
2. Less hardworking group members are similarly rewarded as the very hardworking ones: this may cause demotivation in the group.
3. It is hard to determine each group members’ fair, have of the bonus.

Co-ownership incentive scheme (Profit Sharing Schemes)

The organization allows for ownership whereby the employees are allowed to own a percentage of the shares in the firm and therefore, have in the company’s profits. This converts employees from mere salary seekers to individuals who are part of the organization. They will be directly affected by the decisions taken in the firm in form of changes in earnings per share and dividends per share. The company may offer financial assistance in form of security, guarantees or loan if possible