Gradient distribution

6.7 Remuneration System

The remuneration of employees is a reward of services rendered by him. It is an agreement among employer and employee. For remuneration, B.K. Bhar has rightly point out that, "Remuneration is the reward for labour and services, whereas incentive is the stimulation of effort and effusiveness by offering monetary inducement or extra facilities."

Labour cost plays an important role in total cost. It is based on efficiency and experience of workers. Many times labour cost forming 60 per cent to 70 per cent part of total cost. H.J. Sheldon stated that, "Low wages do not necessarily mean low costs; in fact, it is widely recognized now that efficiently organized factories may pay the highest, and yet have lowest labour costs."

6.8 Normal Remuneration Method

It has already been stated that labour is one of the main element of production. The success of a business organization is based on the efficiency of labour. There are several methods of wage payment. These are differing from each organisation to another organization. The methods of wage payment are as follows:

1. Time Rate Method: This method is very popular method of payment of wages. Under this method, the payment is made on the basis of time devoted by worker in the factory. It is an oldest form of wage

payment. In this method wages is calculated as follows:

Wages = Hours Worked x Rate per Hour Illustration - 5:

Calculate total weekly wages paid to Mohan, from the following information:

Per week

Standard Hours even to him 40 Hours

Actual Hours worked 30 Hours

Rate per Hour Rs. 20

Solution:

The total weekly wages paid to Mohan will be calculated as follows : Formula:

Wages = Hours Worked x Rate Per Hour = 30 x Rs. 20 = Rs. 600 Thus, weekly wages paid to Mohan is Rs. 600

2. Piece Rate Method: In this method, wages is paid on the basis of units produced by the workers. The rate of payment is determined by production department. Under this method, wages of workers is calculated by following formula:

Total Wages = No. of Units Produced x Rate Per Unit Illustration - 6:

From the following information, calculate total wages by piece rate method and time rate method.

Standard Hours 60

Actual Hours Worked 50

No. of Unit Produced 500

Rate per Hour Rs. 20

Rate per unit produced Rs. 5

Solution:

The total wages paid to workers is calculated as follows:

Time Rate Method

Formula = Actual Hours Worked x Rate per Hour = 50 x Rs. 20 = Rs. 1,000 6.9 Incentive Wages Method

Generally, incentive may be deemed as an extra payment paid by employer to worker/employees for his additional efficiency. The main object of an incentive plan to induce a worker to produce more to earn higher wages. Incentive plans increase the efficiency and capacity of workers. Some important incentive plans are as follows:

1. Halsey Premium Plan 2. Rowan Bonus Plan 3. Taylor's Plan

4. Emerson's Efficiency Plan

1. Halsey Premium Plan: This plan was developed by F.A. Halsey an American Engineer in 1891. They developed this plan for the payment of bonus. Under this plan, a worker is entitled to get bonus if he finished his work before his standard time. The total wages is paid to him as normal wages (Actual time x Rate per hour) plus a bonus on the basis of time saved by him on production. The rate of bonus may be 30 per cent to 70 percent of wages for time saved by workers. But, in the absence of any Information the rate of bonus may be taken at 50 percent. According to this plan, time saved can be calculated as follows:

Time saved = Standard Time - Actual Time or TS = ST - AT

Therefore, the total wages of a workers in this plan can be calculated as follows :

Normal Wages (Actual Time x Rate per Hour) = x x x

Bonus (Time Saved x Rate x 50/100) = x x x

Total Wages x x x The above calculation can also be solved as follows:

Total Wages = (Actual Hour worked X Rate per Hour) + (Time saved X Rate per hour X 50/100) Illustration - 7:

Calculate the amount of total wages from the following information:

Standard Output in 11 hours : 120 units

Actual Output in 10 hours : 132 units

Wages Rate per hour : Rs. 15

Solution:

At first standard time (ST) is calculated for 132 units and than total wages is calculated as follows :

= (10 x 15) + [ (11-10) x 15 x 50/100]

= 150 + 7.5 = Rs. 157.50

2. Rowan Bonus Plan: In 1901, this plan was developed by James David Rowan. This plan is similar to Halsey Premium Plan. But, the calculation of bonus is made on the proportion of time taken and time allowed to him. In this plan the bonus is calculated as follows:

Bonus: Actual Time / Standard Time x Time saved x Rate per Hour Therefore, the total wages is calculated as follows:

Normal Wages = (Actual Hours x Rate per Hour) x x x

Bonus = (Actual Time/standard Time x Time Saved x Rate per hour) x x x

Total Wages x x x

The above calculation can also be solved as follows : Total wages = (AT x R) + (AT / ST x TS x R) Illustration - 8:

Calculate the total wages under Rowan Bonus plan with the help of illustration 7.

Solution :

Total wages = (AT x R) + (AT / ST x TS x R)

= (10 x 15) = (10 / 11 x 1 x 15)

= 150 + 13.63 = Rs. 163.63

3. Taylors Plan: This plan was developed by the father of scientific management, F.W. Taylor. This plan is based on time and motion study. Under this plan, the wages is paid according to the capacity of workers. If the workers use less than 100% capacity then the low price rate equal to 80% of standard piece rate is given to him. But, if they use 100% or more than 100% capacity then higher price rate equal to 120% of standard piece rate is payable.

The piece rate is also expressed as follows :

Rate

Below 100% Capacity : 80 % of Normal

100% or More capacity : 120% of Normal Rate

Illustration - 9:

When standard output in 40 units per hour and standard rate Rs. 4 per hour. The following differential piece rate is applied:

75% of piece rate when below standard. 125 of piece rate when above the standard. The workers have produced in a day 8 hours as follows :

Ram 240 units

Shyam 400 units

Solution:

Given, Standard time = 40 per hour Standard Rate = Rs. 4 per hour

On completing 40 units in one hour, a worker receives Rs. 4. Hence, the piece rate is 4 / 40 = 10 . Differential Piece Rates :

Low Price Rate : 75% of Piece Rate = 75 x .10 / 100 = Rs. 0.075 High Price Rate : 125% of piece Rate = 125 x .10 / 100 = Rs. 0.125

Thus, at 40 units per hour, the standard output is 320 units per day. Ram produced 240 units and Shyam produced 400 units. In this question, performance of Ram is below standard while Shyam's performance is above standard. Hence, Ram is paid at lower rate and Shyam is paid at higher rate. i.e. Ram is paid = 240 x.075 = Rs. 18, Shyam is paid = 400 x0.125 = Rs. 50

4. Emerson's Efficiency Plan: This plan was developed by Emerson. Under this plan, minimum wages is guaranteed but, bonus is paid on the efficiency of workers. There are several slabs for efficient workers.

The standard output is fixed at 100% efficiency. If the worker uses less than 100% efficiency, bonus is not paid to him. The bonus slabs in this plan is as follows:

Illustration - 10:

Calculate the amount of bonus and total wages under Emerson plan with the help of following information:

Standard Output in 10 Hours : 120 units

Actual Output in 10 hours : 132 units

Wages Rate : Rs. 15 per hour

Solution:

At first, the efficiency of worker is calculated:

Actual Output

Efficiency of worker 100

Standard Output 132 100 110%

120

 

 

As efficiency of worker is more than 100% rate of bonus is calculated as follows : Rate of Bonus = 20% + (Efficiency of worker - 100%)

= 20% + (110% - 100%)

= 20% + 10% = 30%

5. Merric's Plan: This is a updated form of Taylor's plan. Taylor's plan gives two rates while merric's plan