COMPENSATION MANAGEMENT Q&A

Piece wage system meaning

Under the piece wage method the wages are paid on the basis of the output. They are paid on the basis of the number of units produced by them irrespective of time spent on the job. So the earning of the worker depends upon the speed of the worker so an efficient worker earns higher wages than the inefficient worker.

Wages= number of units produce* rate per unit

This method is also called straight piece rate system

Suppose the worker is paid rs 50 for per unit produced and he made 5 units then he will be paid wages= 5* 50= rs 250.

Applicability of piece wage system:

i) This method is used when job is of repetitive nature.

ii) When production process is simple and does not require personal skill.

iii) When machines used are not costly.

iv) When quantity is important.

v) When physical work is involved.

Advantages of piece wage system:

i) Less supervision; this method does not require more supervision as they are aware that they will be paid more if they work hard.

ii) More quantity: in this case organization gets more of the quantity from the work method.

iii) Economy: here the workers production in per day is more than the other method so the overall production is more which proves to be economical for the organization.

iv) Fair wages: the workers are paid as per the pieces made by them so it penalizes the inefficient workers automatically.

v) Incentive for more production: here the workers get the incentives for more the output they give.

 Disadvantages of piece wage system:

i).wastage: as the workers are more concerned with production this results into wastage of the material as well as of the machinery.

ii) Low quality: the workers are concerned about producing more and more rather than the quality of the product.

iii) Health hazard: some workers are in habit of making more pieces irrespective of the effect of this on their health.

iv) Inefficient workers: they are not paid properly because the payment is as per the pieces made by them.

v) Difficulty in rate fixation: it is very difficult to fix the per piece rate for paying the workers.

Difference between time wage and piece wage system?

In last articles I have discussed the time wage system and piece wage system, let us today discuss the difference between the two:

1) Security: Time wage systems provide a security to the workers as they are assured of their wages. While wages in piece wage system varies from month to month.

2) Wastage: wastage of time is high in time wage system and in piece wage system wastage of raw material, machines is high.

3) Supervision: supervision is required so that there will be no wastage in time wage system but in piece wage system no supervision is required.

4) Quality: quality of the product is good in time wage system as compared to piece wage system.

5) Determination of wages: wages are determined on the basis of time spent in time wage system while in piece wage system wages are determined on the basis of number of pieces produced.

6) Support from trade union: trade union support to time wage system and oppose piece wage system due to lack of assurance of minimum wages.

7) Cost of maintenance: cost of maintenance is less because machines are properly handled while in piece wage system maintenance cost of machines is more.

Methods of wage payment?

Wage payment concept is not only important for the employees but also for the employers as they are interesting in paying fewer wages. But paying low wages are not economical as they can prove to be costly for the employer. Employer is morally responsible to pay fair wages to his employees.

There are generally two methods of wage payment

i)                    time wage system

ii)                   piece wage system

Time wage system: in this method worker is paid for the amount of time he has spent on the job. The period of time may be an hour, a day, a week, a month and the wages depend upon the period of time. Here wages are paid for the amount of time spent not on the basis of output. Thus, it is a non variable method of wage payment.

Wages= number of hours worked* rate per hour

Suppose the worker is paid rs 10 per hour and he worked for 15 hours so his wages will be 15* 10 = rs 150

Applicability of time wage system:

i) This method is used when it is difficult to fix standard time for the job.

ii) When production process is complicated and requires high degree of skill.

iii) When machines used are costly.

iv) When quality of work is important.

v) When mental work is involved.

Advantages of time wage system:

i) Simple method: this method is very simple as it is easy to calculate the time spent on the job.

ii) Better quality: when the quality of the product is more important in that case it is better to use this method rather than piece wage system because in that worker are in hurry of making more and more pieces.

iii) Less wastage: under this method workers are not in hurry so there is less wastage of material as well as of machinery.

iv) Equal wages: all the workers are paid as per the time spent by them not on the basis of production. So there is the equality of wages between them.

v) Secure feeling: this method gives the feeling of security to the workers as they will be paid irrespective of what ever is the production.

 Disadvantages of time wage system:

i) Slow work: under this method the workers slows down their work as there is no pressure of making required amount of pieces.

ii) Supervision: this method requires a lot of supervision to ensure better productivity.

iii) Fixed wages: if the workers make more production in that case also they are paid fixed wages as per the time spent by them in the job.

Compensation and its types?

Concept of compensation:

Compensation is a wide range of financial and non financial rewards to employees for their services rendered to the organization. It is paid in form of wages, salary, other benefits such as vacations, maternity leave, medical facilities etc. compensation helps in motivating the employees and reduce labor turnover.

Types of compensation:

1) Base compensation

2) Supplementary compensation

Base compensation: it involves monetary benefit to the employees in the form of wages and salaries. It is giving the remuneration to the workers for doing the work. Wages are generally given to the workers based on hourly, daily, weekly or monthly basis. But salary is the compensation given to the office employees. Wages may be based on the number of units produced i.e. piece wage system or the time wage system i.e. the time spent on the job. But salary is always based on the time spent on the job. When it is difficult to judge the production of the company then the compensation is paid in form of salary.

Supplementary compensation: now days the organizations use supplementary compensation over and above the base compensation. It helps in satisfying the employees as well as retaining them for long time. It can be given in form of various services like housing, medical, educational facility. Supplementary compensation is also called fringe benefit as well as hidden payroll. The basic purpose of fringe benefit is to maintain efficient human resources in the organization and to motivate the employees.

These are the two main types of compensation.

Supplementary compensation is again divided into following types:

1) Protection against hazards: supplementary compensation helps in protecting against the hazards of illness, injury, old age, death, permanent disability.

2) Employee services: some big organizations provide housing, low-cost loan, food, medical, and day care centre for children, educational facilities to their employees for their services.

3) Payment for time not worked: the employees are also paid for the time they are not working like wash up time, lunch period, vacations, holidays, sick leave etc.

4) Legal payments: payment under this category involves unemployment; layoff compensation, old age benefits etc.

7 factors affecting compensation?

Factors affecting wages or compensation or determinants of wages or compensation:

1) Productivity of workers: to get the best results from the employees and to increase the productivity compensation has to be productivity based.

2) Ability to pay: it depends upon the employer’s ability to pay wages to the workers. This depends upon the profitability of the firm. If the firm is marginal and can’t afford to pay higher than the competitors then the employees will go to other firms while if the company is successful then they can easily pay their employees as they wish.

3) Government: government has also fixed the rules for protecting the interest of the employees. The organizations are liable to pay as per the government instructions. Wages can not be fixed below the level prescribed by the government.

4) Labor union: labor union also helps in paying better wages to the workers. Higher wages have to be paid by the firm to its workers under the pressure of the trade unions.

5) Cost of living: wages depends upon the cost of living if it is high wages will also hike.

6) Demand and supply of labor: it is one of the important factors affecting wages. If the demand of labor is more they will be paid high wages otherwise vice versa. If the supply of the employees is more than they will be paid less and vice versa.

7) Prevailing wage rate: wages also depends upon the prevailing wage rate as the organizations have to pay accordingly to keep the employees with them.