FACTORS AFFECTING WAGE PAYMENT SYSTEMS.

FACTORS AFFECTING WAGE PAYMENT SYSTEMS.

  • Trade Unions
  • The employer
  • Legislation
  • Third Party (including the Judiciary)
  • Pay commissions.

 

  • TRADE UNIONS – Wages are usually determined in business and industrial organizations through bipartite negotiations between representatives of recognized unions and the employer – in the collective bargaining process.
  • THE EMPLOYER – Traditionally, the employer fixed unilaterally the wages in the organization. Even now, employers still unilaterally decide on the wages levels of their organization especially those not covered by the minimum wage legislation.  A company’s wages policy also has am impact on wages payment.
  • LEGISLATION – In industries and occupations, which are notified under The Minimum Wages Act, minimum wages are determined as the procedure prescribed under the law.
  • THIRD PARTY (Including the Judiciary) – The Industrial Disputes Act provides for settlement of all labour disputes including wage disputes through conciliation, arbitration and adjudication. Industrial courts also decide wages after hearing both the parties to a dispute and their decisions are binding on the parties.
  • PAY COMMISSIONS –These is set up by the government to review salaries of government employees.

Other factors have an effect on the wage payment systems include; competitors activities, the work (its nature, level of skill needed and the work methods used), the workers (their attitude and motivational levels, and the other options of alternative employment they may have) and the management objective-its commitment to wage earners.

TYPES OF WAGE PAYMENT SYSTEMS

The following wage payment systems are commonly in use.

  • Time Rate Systems
  • Incentive Payment Schemes
    1. Piece rates.
    2. Premium bonus or share plans.
    3. Measured day work.
    4. Group incentives.
    5. Company-wide Incentive Systems
    6. Skills-based payment systems
    7. overtime Pay
    8. Shift Pay.

 

1) TIME RATE SYSTEMS

Also known as day rates or flat rates, time rates are an arrangement under which workers are simply paid a predetermined rate per week, day or hour for the actual time worked.

These are wages calculated by reference to the number of hours worked.  The rate may be per hour or per day. Some companies seek to pay rates higher than those defined by the law and found in the competitors with the hope that this will produce more cooperation and reduce labour turnover.

Wage rate is fixed in accordance with the level of the job or the skill regularly used and only varies with time, never with output, performance or any additional skills the workers acquire.

The wage rates set are usually subject to the twin influences of work measurement (time study) and collective bargaining between the employer and trade union representatives. The following figure indicates the basic effect of time payment.

The two most common forms of time system are: –

A) High Day-rate and

B) Measured day work

  1. High day-rate systems involve payment of a relatively high level of hourly pay with the understanding that the work is of a high performance. Under such a system, overtime and shift premiums are also paid at their usual enhanced rates.  Such rates are paid to attract and retain good workers. Such rates are found in the motor vehicle industry and chemical industry with a high degree of machine control over output.  The system is important where multi-skilling and flexibility are important.
  2. Measured daywork systems do include a bonus element in their construction. Under this system pay is fixed on the understanding that the employee will maintain an agreed level of performance set at an incentive level, which is paid as part of basic pay – it is paid in advance and requires an element of trust between management and employees.

A time rate method of work can be introduced under the following main considerations:

 

  • Type of work. When high quality work is required there may be need to pay time rates. Where spoilage is likely to cause heavy losses; skill rather than speed should be the order of the day.
  • Measurement of work. In order to make a direct payment to individual workers, the work must be capable of precise measurement; either in units or standard hours.
  • Individuals cannot control output. Time rate is applicable where the employee has no direct control over output. In such a case a time rate is applicable.
  • Output flow is erratic. If a worker cannot be guaranteed a steady flow of work then he cannot really be expected to be paid on the basis of work done.
  • The payment of time rates means there must be very effective supervision; if not the output per man will tend to be low.
  • Relation between output and payment. Some form of incentive payment only becomes applicable if productivity increases as the amount paid out in wages increases.
  • Acceptance by trade unions. Time rate methods have been accepted by trade unions the world over, provided the hourly rates provided are agreed upon between employees and their unions.

Advantages:

  • Earnings are predictable and steady and workers do not have to engage in endless arguments
  • Time rates are better where its hard to use incentive systems – maintenance work
  • They are simple to operate
  • Labour costs can be readily controlled
  • They encourage collaboration rather than competition between employees
  • They encourage labour flexibility

Disadvantages:

  • They do not provide the motivation of a direct financial incentive, which clearly relates to pay performance.
  • Time rate schemes do not stimulate workers so that each produces a fair day’s work.
  • If the labour costs go up so much the business is likely to have problems selling its goods or services.
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