Industrial

Management
RME 3105

By
Dr. Prianka Binte Zaman
Associate Professor
Department of IPE, BUET
Wages and Incentives
Wages
These are the payments made by the employer to the efforts put in by the
workers towards production.

Minimum Wage
Minimum wage is fixed taking into consideration the factors such as cost of
living, maintaining the efficiency of the worker, keeping them motivated and
paying capacity of the industries.

The objective of minimum wage

•To protect the sections of working population whose wages are very low.
•To prevent the exploitation of workers.
•To improve general standard of life.
•Satisfactory compensation towards efforts expended by the worker.
Wages
Factors influencing wage system
Labor market that is supply and demand of labor.
Bargaining capacity of the employer and employees.
Worker’s skill, knowledge and experience.
Cost of living.
Legal restrictions.
Organization’s ability and willingness to pay.
Characteristics of good wage system
A good wage system should be acceptable to both employees and management.
It should guarantee a minimum wage to the employee.
Should be able to keep the worker motivated.
It should provide a scope for employees to get reward for additional or extra effort.
It should be consistent (should not be altered frequently).
Should believe in equal work and equal pay.
The system should be simple and should be understood by all concern.
Proper encouragement should be given to utilize the full potential of all employees.
Should make the work challenging and interesting.
Types of wage payment
1. Wage payment on the time basis
Under this method wages are paid to the employees based on the time for which they work. The
wage rate is predetermined in terms of taka per month, per day or per hour. In this system the
workers are paid on time they work irrespective of output they produced.
This system is applicable where output is not quantifiable and it is not the criteria for payment,
where work is not repetitive type.
Advantages
System is easy to understand and simple to operate.
The quality of the work is maintained as employees are not in a hurry to increase quantity.
There is a scope for improvement in work methods.
Disadvantages
Do not provide incentive to ambitious and more efficient employees.
The output will be lowered in the absence of strict supervision.
The basis for the wage is time not the output or efficiency. So it happens that less efficient
workers are paid equal to the efficient workers.
Employer will gain or lose by the increase or decrease in output
Types of wage payment
2. Piece rate system
In this system, wages are paid to the employees in relation to the output produced. This method is
very convenient where each individual worker is capable of performing his work without any
dependence on the other individual. This method can be applicable to the work of repetitive nature.

Advantages
It provides incentives to efficient workers.
Cost of supervision is low compared to the time based system.
Higher speed increases the production rate and hence reduce the cost per unit.
Increases the utilization of production facilities.
Workers innovate new ways and method of doing the work in order to reduce the time per unit.
Motivates workers to produce more.

Disadvantages
Workers in order to increase their wages through faster working, may neglect quality.
Because of speed, worker may be prone to accident as it is possible that he may neglect
precautions and safety measures.
Incentive schemes
Incentive schemes are intended to increase worker’s motivation by allowing them
to earn proportionately higher returns from greater efforts.
American society of mechanical engineers (ASME) defines a wage incentive plan
as “a method of payment which directly relates earning to production. A system
which enables workmen to increase their earning by maintaining or exceeding an
established standard of performance.”

Characteristics of a good Incentive System

The plan should be simple and employees should be able to calculate his earning.
The incentive scheme should be consistent (should not be altered too often).
The incentive scheme should motivate the employee to produce more.
There should be direct relation between effort and reward.
Types of Incentives
Financial incentives: These are the rewards paid to the employees efforts in
cash.
Non-financial incentives: These are the non monetary incentives (other than
cash).

Some examples of non-financial incentive scheme

The incentive may include provision for good housing, with all modern
amenities (Things that make you comfortable), recreation facilities, medical
facilities etc.
Promotion to employees and facilities for personal growth.
Foreign training.
These may include gift items, discount coupons, special holidays etc
Types of Incentive plans
Individual incentive plan
Under individual incentive scheme, individual employee is paid incentive on
the basis of individual performance or output. The incentive is regardless of
the output or performance of the group or department or organization. It may
either be time based or production based. Under time based plan a standard
time is fixed for doing the job. The employer is liable to pay incentive to
those employees who are producing more than standard output.

The time based individual incentive plans

1. Halsey plan
2. Halsey-Weir plan
3. Rowan plan
The production based individual incentive plans
1. Taylor’s differential piece-rate plan
2. Merrick’s differential piece-rate plan
Halsey plan
Under Halsey plan minimum wages are guaranteed to every worker. A
standard time is fixed for the workers. If the workers finish the work before
standard time they are given bonus. But no penalty, if they fails to do that.
Total wages (W) =T×R+[50% of (S-T)×R]
Standard time(S) =15 hours
Time taken (T) = 10 hours
Rate of wages(R) =Tk 10 per hour
Bonus (P) = wages of 50% of time saved
Than wages= 10×10+50 % of ( 15-10)×10 = Tk 125 (Ans.)

Ex 1:Time rate of wages is Tk. 35 per hour, Standard output 50 units per
hour, Actual hours worked 8 hours, Actual output 500 units.
Calculate wages according to Halsey Plan.
Halsey-weir plan
 Under this plan, a worker is entitles to bonus which is equal to his time
wage for 33.33% (often 30%) of the time saved; instead of 50% in case
of the Halsey plan.
 Thus except the above, there is no difference between the Halsey plan
and Halsey-Weir plan.

Exercise 2:
Redo the previous problem of Halsey plan using Halsey-Weir plan.
Rowan plan
Rowan Plan is an Individual incentive plan and modified from Halsey Plan. It is
developed by James Rowan. Under this plan, a minimum time wage is guaranteed to
every worker. A standard time is determined in advance. The Bonus is the proportion
of the wages which the time saved bears to the standard time.
It is the modification of the Halsey plan it also guarantees the minimum wages
and does not penalize the slow workers. Standard time is fixed and the bonus is paid
on the basis of time saved
Total wages (W) =T×R+[T×R× (Time saved/ Standard time)]
Example:
Standard time(S) =15 hours, Time taken (T) = 10 hours, Rate of wages (R) =Tk 10/
hour
Wages= 10×10+[10×10× 5/15] = Tk 133.33 (Ans.)

Ex 3: Redo Ex 1 using Rowan plan.

Production based individual incentive plans
Under the production based incentive plan a standard output is fixed and the
workers are paid on the basis of the production. They are given incentive if
they produced more number of units than the standard fixed.
Taylor’s differential/multiple piece rate system
Under this system, a standard output for the day is fixed based upon accurate
time and method study. The employees who achieve this standard or
produce more than the standard are given higher rates than who fail to reach
the standard.
Characteristics of the system
The day’s wage and earning is not guaranteed.
Two piece rates are applicable.
Lower piece rate is considered for below standard performance and higher
piece rate for standard and above standard performance.
Taylor’s differential/multiple piece rate
system
Advantages
Worker is paid as per efficiency.
Reduce the supervision to minimum.
Encourage the operator to produce more to earn more.
It ensures the better utilization of resource.

Disadvantages
Worker in order to earn more will not care much for quality of the work.
Hence more wastages and rejection.
Quantity orientation makes the worker to work fast; in due course he may
neglect safety measure.
The decrease in demand may have an adverse effect on the employees.
Taylor’s differential/multiple piece rate
system
Taylor’s differential piece-rate system posits that the worker who exceeds the
standard output within the stipulated time must be paid a high rate for high
production. On the other hand, the worker is paid a low rate if he fails to
reach the level of output within the standard time.
Thus, there are two piece-rates, one who reach the standard output or
exceeds it, is paid 120~125 percent of the piece rate. While the one who fails
to reach the standard level of output, is paid 80~85 percent of the piece-rate.
The minimum wages of the worker are not guaranteed.
Taylor’s differential/multiple piece rate
system
Example:
Standard production = 200 units in a day
Wage rate = 1 Tk per unit
If the worker A produces 220 units in a day he will be paid
= 220 × (120/100)× 1 tk= Tk 264
If the worker B produces 180 units in a day he will be paid
= 180 × (80/100)× 1 tk = Tk 144

Ex 4: Using Taylor’s differential piece rate system, find out the earnings of workers X
and Y from the following particulars:
Standard Time per piece = 20 minute; Normal Rate per hour = 0.90; In a 9 hour day, X
produces 25 units and Y produces 30 units. Lower rate is 80% of normal rate and
higher rate is 120% of normal rate.
Merrick’s differential/multiple piece rate
plan
Under this plan there are three grade piece rate rather than two given by Taylor.
Workers who produce Less than 83% are paid basic piece rate
Workers who produce between 83%- 100% are paid 110% of basic piece rate
Workers who produce more than 100% paid 120% of basic
Thus this system is improvement over the Taylor’s plan. But this system also does
not give guarantee minimum wages to the workers. All the workers producing between
1 to 82% of standard output are considered same and paid at the same piece rate.

Characteristic of the system

Minimum wage is not guaranteed.
Standard rate is established after a thorough analysis of each job.
It encourages the worker to produce more and if they come up over 83% of standard
performance, they are going to get the piece rate above standard piece rate.
Merrick’s differential/multiple piece rate
plan
Example
Suppose, each day has 8 working hours. Standard output per hour is 120 pcs.
Standard labor rate per hour is $10.
Output of operator A = 600 pcs
Output of operator B = 800 pcs
Output of operator C = 1200 pcs
Calculate the salary of operator A, B, C using Merrick’s differential piece rate
system.
Merrick’s differential/multiple piece rate
plan
Solution
Here standard output per day = 120 pc x 8 hours = 960 pcs per day
Standard pcs rate = = $0.0833/pcs

Comparing to standard, A’s output is = 62.5%

Salary of A of that day = 600 pcs x $0.0833/pcs =$49.98

Comparing to standard, B’s output is = = 83.33%

Salary of B of that day = 800pcs x $0.0833/pcs x 1.1 =$73.304

Comparing to standard, salary of C is = = 125%

Salary of C of that day = 1200 pcs x $0.0833/pcs x 1.2 = $ 119.952
Merrick’s differential/multiple piece rate
plan
Ex 5: Calculate the earnings of workers A, B and C under the Straight Piece
Rate System and Merrick’s Differential Piece Rate System from the
following particulars.

Normal rate per hour: Tk 10

Standard time per unit: 1 minute
Output per day is as follows.
Worker A – 390 units
Worker B – 450 units
Worker C – 600 units.
Working hours per day = 8.