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Labors Remuneration on Result basis

         Methods of Remuneration:

(2) Remuneration on Result basis: Any system of payment of wage by which wages gets directly related with the output is known as a system of remuneration on result basis.

Advantages of remuneration on result basis are:

(1) Only in respect of output, payment is made.

(2) More & more is produced & hence more earned by the efficient workers.

(3) More products are produced by the workers in their own interest so that they can earn more, as a result more production & less supervision cost is there under this method.

(4) Idle time is not required to be paid.

(5) Fixed overhead per unit is reduced by greater output.

(6) The method, on the basis of careful time study, helps setting up of standards.

(7) At the instance of more efficient workers, less efficient workers try to improve themselves.

(8) For enhancing earning, scopes are provided to the workers.

Disadvantages of remuneration on result basis are:

(1)The methodwill not be applicable in cases where measurement of output in terms of homogenous units cannot be done.

(2) There is a chance of quality of work to get deteriorated.

(3) The chances of more scraps, defectives are there.

(4)More chances of machinery breakdown may be created by the speedy production.

(5)As the workers overworked during early life, this may bring about fatigue early.

(6) Under this method, if there is no work, the workers will not get anything unless a guaranteed day rate is there.

(7) If continuous work cannot be provided, chances of unrest are there.

(8)Much initial cost is involved as piece rate is fixed on scientific basis.

Various systems of Remuneration on result basis:

(a) Straight Piece-Rate system:

          Under this system, after careful time & motion study, & after considering the comparable time rate for the same class of workers, the straight rate per piece of output is fixed. Instead of one unit; for a definite number of units, the rate may be fixed. Irrespective of the time taken by the worker, wages equal to his output multiplied by the piece rate is received by the worker. The piece rate is fixed as below:

Let $.1.20 be the comparable hourly rate of pay; according to the time & motion study, the standard rate for the production of a piece of work is 35 minutes. The piece rate will be = ($.1.20 /60 minutes)*35 minutes = $.0.70
Straight piece rate may be applicable to the work of an individual or to the work of a group of individuals. The system is called individual piece work, when prescribed for a work done by an individual & by multiplying the number of units produced by a worker or number of similar operations done by him by his piece rate, his earnings is obtained.

Alternatively, the system is called group piece work, when prescribed for a work done by group of individuals & by multiplying the number of units produced by the group or the number of similar operations done by the group by the group piece rate, the earnings of the group as a whole is obtained. The members of the group, in the ratio of their time wage for the time devoted by each member to the group piece work, share the group earnings among them.
For calculating gross wage of the workers, when payment to them are made on the basis of result under piece rate, the number of units produced by each worker, can be obtained from records. Obviously, the number, on the basis of which wage calculation is done, is the same as the number which has been passed by inspection. Workers usually rectify the defective units without extra remuneration, which gets accepted after rectification.

          In respect of every worker working on the basis of individual piece rate or in respect of every group working on the basis of group piece rate, piece work card is used, for the purpose of obtaining necessary information.

Matters to be considered for fixing piece rates:

(a) The responsibility of fixing piece rates should be given to the person having technical knowledge & experience.

(b) Consultation should be made of the past records of similar work.

(c) The time required by an average skilled worker for the production of a unit should be taken into consideration.

(d) Before the fixation & introduction of piece rate, the method of production & efficiency gain should be known to the worker.

(e) The rate should not be too high or too low, as both is dangerous.

(f) For eliminating avoidable motions & for the purpose of ascertaining the time required for producing a unit or making operation by an average workman, time & motion study should be undertaken.

The following precautions should be taken:

(a) For eliminating defectives & protecting the standard of work, work should be inspected.

(b) For the minimization of the wastage, defectives, spoilage, breakdown etc., the work should be supervised.

(c) For avoiding bottle-neck in work-flow, there should be discipline in work & attendance.

(d) For providing incentive to the workers for the purpose of increasing the output, piece rate should be made attractive , yet not too high.

(e) As a rule, the workers should rectify the defectives without extra remuneration.

(f) In case of group piece rate, some members could be exploited by the other members of the group, which should be avoided (e.g. One or more member, in spite of remaining tactfully idle, may share the earnings of the group).

(b) Taylor’s Differential Piece Rate system:

F.W Taylor, who is regarded as the father of scientific management, introduced this system in the United States.

In this system, for each job, two different piece rates are fixed. For the worker who is working at less than 100% efficiency, the lower rate is applicable, which is equivalent to 83% of the time rate. On the other hand, for the workers working at & above 100% efficiency, the higher rate, which is fixed at 125% of time rate plus 50% of time rate in the form of incentive, is applicable.

For the performance of standard task, a standard time may be fixed. In this case, the efficiency will be worked out as below:

% Efficiency = (Standard time/Actual time taken)*100

Alternatively, during a standard time, standard output could be fixed, in which case, the measurement of efficiency will be as below:

% Efficiency = (Actual output/standard output)*100

 No day wage has been guaranteed by Taylor. The workers by whom 100% efficiency cannot be attained are penalized because the lower rate is abnormally low. On the other hand, very high rewards are achieved by the efficient workers, as the higher rate is very high.   

(c) Merrick Differential piece rate system (or multiple piece rate):

This system made by Mr. Merrick, is a modification of Taylor’s differential piece rate system. Under Taylor’s differential piece rate system, workers by whom 100% efficiency cannot be attained are penalized, whereas under Merrick system, there is no imposition of such punitive lower rate upon them; whereas, those by whom certain percentage or more, of efficiency can be achieved, are rewarded by higher differential rates. The rates are as below:

Up to 831/3 % efficiency                                Normal rate is applicable

Between 831/3 % & 100% of efficiency         Normal rate + 10% of normal rate is allowed

Above 100% efficiency                                  Normal rate + 30% of normal rate is allowed

No day wage has been guaranteed under Merrick system also. Encouragements are given to the efficient workers, at the same time; penalization is not imposed upon less efficient workers. This system is also called multiple piece rate system.

(d) Gantt Task Bonus System:

          Unlike Taylor & Merrick system, day wages are guaranteed under this system. A high standard or task is set. A time rate is paid to the worker who is not able to attain the standard, on the other hand, a high piece rate including a bonus of 20% of the time rate or 20% of ordinary piece rate is paid to the worker attaining or exceeding the standard. Therefore, fixation of time rate, piece rate & standard performance is required under Gantt task bonus system. Thus this combines time wage & piece wage system. Under this system, as the worker proceeds towards the standard, the labour cost per unit tends to diminish.

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