System of Compensating (Time Wage Plan, Piece Wage Plan, Balanced Wage Plan, Skill Based Pay, Competency Based Pay, Broad-banding, Variable Pay, Merits of Time Wage, Demerits of Time Wage,Time Wage Plan Environment, Merits of Piece Wage, Demerits of Piece Wage, Piece Wage Plan Environment, Merits of Balanced Wage, Factors Affecting Wages)

1. System of Compensating
Dr. G C Mohanta, BE, MSc(Engg), MBA, PhD(Mgt)
Professor
Al-Qurmoshi Institute of Business Management
Hyderabad

2. Wage Plans
 Time Wage Plan
 Piece Wage Plan
 Balanced Wage Plan
 Skill Based Pay
 Competency Based Pay
 Broadbanding
 Variable Pay

3. Wage Plans (Contd.)
 Time Wage Plan – paid based on time worked:
hourly, daily, weekly, monthly
- Jobs for which output within specified period not
measurable
 Piece Wage Plan - paid wages based on number of
units produced or completion of a job
 Balanced Wage Plan – paid based on combination of
time wage & piece wage

4. Merits of Time Wage
 Easy to understand and calculate wages
 Illiterate worker can understand it
 Employers and workers know in advance wages payable
and adjust budgets
 Payment made regularly - specific wages, beneficial
from social point of view
 Product/service quality high, workers not in hurry to
produce more

5. Demerits of Time Wage
 Workers not motivated for higher performance - generate
inefficiency
 Performance and wages not linked, employee take it easy
 Efficient and inefficient workers not differentiated; inefficiency
percolates
 De-motivates efficient workers for putting at par with
inefficient ones.
 Production labour cost difficult to determine
 Productivity not criteria for fixing wages, wrong employees
placed on job

6. Time Wage Plan Environment
 Output cannot be measured precisely
 Individual employees not have direct control on
outputs
 Quality of work more pronounced, needing creative
imagination
 Machine, materials – sophisticated, requiring
handling with utmost care
 Work highly varied, standard outputs cannot be
ascertained
 Supervision good and fair day's work can be
estimated

7. Merits of Piece Wage
 Output and wages linked, acts as motivating factor to
produce more.
 Differentiates efficient and inefficient workers, provides
incentives to become more efficient
 Fair and equitable for utilization of HR
 Requires less supervision for in-built quality control in
product.
 Cost of production can be estimated in advance.

8. Demerits of Piece Wage
 Fixing piece rate difficult, if no standardized procedure
 Employer tries to cut piece rate, if workers' earnings very
high
 Minimum wages not assured, where factors beyond
control of worker
 Quality & machine conditions suffers, as workers
concentrate on quantity
 Jealousy and interpersonal conflict among workers for
uneven earnings

9. Piece Wage Plan Environment
 Output of individual worker - can be measured
precisely
 Quantity of output - result of skills and efforts
 Flow of work - regular and no work interruptions
 Production methods – standardized & job repetitive
 Workmanship - not required

10. Merits of Balanced Wage
 Worker is guaranteed for fixed wage and also
provision for piece wage
 If worker produces more quantity, earns more than
time wage
 Given credit for additional output to compensate
for short falls in future
 Provides a sense of security
 Motivate worker to produce more

11. Factors Affecting Wages
 Demand for and supply of labour - short supply
increases wages, more supply decreases wages
 Labour unions - strong trade unions can demand
higher rates of wages, un-organised workers get low
wages
 Cost of living - strong influence on rate of wages

12. Factors Affecting Wages (Contd.)
 Prevailing wage rates - Prevailing wages taken into
account for deciding wage
 Ability to pay - ability of a company to pay
 Job requirements – Jobs with specialized knowledge or
skill are priced higher
 State regulation - State regulates wage rates of labourers
 Increment system - wages increase annually at a
prescribed rate