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IE Unit-V

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0% found this document useful (0 votes)
14 views74 pages

IE Unit-V

Uploaded by

santhosh kumar
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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18MEO111T INDUSTRIAL ENGINEERING

Unit –V
Wages and Salary Administration
Wages and Salary Administration
• Types of Wages and salary administration
• Meaning principles in wage fixation, Techniques used of wage fixation
• Method of Job evaluation
• Steps involved in merit rating of employee
• Various Methods of wage payment
• Types, Advantages and disadvantages of Incentive scheme
• Productivity base incentives
• Case Example of Evaluation of incentive scheme
• Importance of Environmental pollution and control
Types of Wages and salary administration
• Wage and salary administration is a collection of practices and procedures used
for planning and distributing company-wide compensation programs for
employees.

• A ‘wage’ (or pay) is the remuneration paid, for the service of labour in
production, periodically to an employee/worker. “Wages” usually refer to the
hourly rate or daily rate paid to such groups as production and maintenance
employees (“blue-collar workers”).

• Salary’ normally refers to the weekly or monthly rates paid to clerical,


administrative and professional employees (“white-collar workers”).
Wages and Salaries

Wages – paid to blue-collar employees; paid daily, weekly or monthly; paid to jobs
which can be measured in terms of money’s worth.

Salary – paid to white-collar employees; paid in monthly basis; paid to employees


whose contribution cannot be measured easily.

Compensation – a comparative term; includes wages and all other allowances and
benefits. (e.g. allowances, leave facilities, housing, travel, and non-cost such as
recognition, privileges, and symbols of status)

Wage and Salary administration is a group of activities involved in the


development, implementation, and maintenance of a pay system.

This is ongoing process of managing a wage and salary structure


Why Do We Need To Study Wage And Salary Administration?

• To have a scientific, rational, and balanced wage and salary structure.

• In a salary administration, the employer should not feel that the employees
are paid more than they deserve and the employees should not feel that they
are underpaid.

• One of the most important functions of Human Resources is the payment of the
proper salaries and the wages to all company employees.
• The pay that the employees receive from their employer is the very reason for
their being in the job.

• The function of the payroll in a company is usually the wage and salary
administration and it is carried out by the Human Resources Department.
Wage and Salary Administration
Nature and Characteristics
Nature:
1. The basic purpose of wage and salary administration is to establish and
maintain an equitable wage and salary structure.
2. It is concerned with the establishment and maintenance of equitable labour
cost structure i.e. an optimal balancing of conflicting personnel interest so that the
satisfaction of the employees and employers is maximized and conflicts are
minimized.
3. The wage and salary administration is concerned with the financial aspects of
needs, motivation and rewards.
4. Employees should be paid according to the requirements of their jobs i.e.
highly skilled jobs are paid more compensation than low skilled jobs.
5. To minimize the chances of favoritism.
Wage and Salary Administration
Nature and Characteristics
Characteristics:
1. Payment of wages is in accordance with the terms of contract between the
employer and the worker.
2. The wages are determined on the basis of time-rate system or piece-rate
system.
3. Wages change with the change in the time spent by the labourer.
4. Wages create utility.
5. Wages may be paid weekly, fortnightly, hourly, or on monthly basis.
6. Wage is the reward paid to the workers for the services rendered by them.
7. Wages can be paid in cash or in kind.
8. All kinds of allowances are included in wages.
Wage and Salary Administration
Nature and Characteristics
Objectives:
i. To compare or draft company HR policy
ii. To find out the income level and return ratio of similar industries
iii. To understand wage differentiations
iv. To examine the competitiveness of entry level employees
v. To establish hiring rates favorable to the community
vi. To keep abreast wage and salary rates with production cost
vii. To minimize labour turnover due to pay disparity
viii.To increase employee’s satisfaction and morale
ix. To learn about the trend of perks and benefits in the market
x. To resolve existing labour problems concerning compensation.
Wage and Salary Administration
Direct, Indirect, Financial, Nonfinancial – better
Factors affecting wage structure
working condition, promotion schemes, job security,
1. Cost of living
training and employee improvement programmes,
2. Demand and supply
housing and other medical facilities
3. Ability to pay
4. Bargaining capacity of trade unions Other allowances

5. Government regulations House rent allowance – HRA

Components of Wage: City compensatory allowance – CCA

1. Basic wage Medical allowance

2. Dearness allowance Conveyance allowance

3. Bonus Travelling allowance

4. Overtime payment Hill allowance

5. Incentives Night shift allowance


Risk allowance
Wage and Salary Administration
Different types of wages:
1. Real wage
• Measured in terms of goods and services that can be bought from the money earned
• Ex. Mr.X earned Rs 4000/month in 1990 able to purchase only essential things, He earns
Rs6000/month in 1995, now also he is able to purchase only essential things, means no increase
in standard of living for him.
• No increase in standard of living , because of increase in cost of living.
2. Minimum wage
• Sufficient to cover the bare physical need of a worker and his family, that is a rate which has got
to be paid to the worker irrespective of "the capacity of the industry to pay.
• If an industry is unable to pay to its workmen at least a bare minimum wage, it has no right to
exist.
• Minimum Wage Act, 1948 is a landmark in the history of labour legislation in the country
which, recognizes that the wages cannot be left to be determined entirely by market forces.
• Minimum wage is fixed to provide necessaries of life which include food, clothes, shelter,
education and medical care. the concept of 'necessaries' is depend upon the standard of living of
persons concerned in a particular area or region.
• Minimum wages revised time to time .
Wage and Salary Administration
Different types of wages:
3. Living wage
• A sum sufficient for the normal and reasonable needs of the average employee living in a locality where the worker
under consideration is done or is to be done.
• Determined based on national income and the capacity of the industry to pay
• "Our political aim is living wage" though in actual practice living wage has been an ideal which has eluded our
efforts like an ever receding horizon and will so remain for some time to come. Our general wage structure has at
best reached the lower levels of fair wage though some employers are paying higher wage then the general
average".
4. Fair wage
• Fair wage is a mean between the living wage & the minimum wage
• Involves a rate sufficiently high to enable the worker to provide a standard family with food, shelter, clothing,
medical care and education of children appropriate to his status in life but not at a rate exceeding the wage coming
capacity of the_ class of establishment concerned.
• “Equal pay for equal work”
It depends upon the following factors:
i) Productivity of labour ii) The prevailing rate of wage iii) The level of national income and its distribution and
iv) The place of industry in the economy of the country
The fair Wage would be decided from time to time depending on the economics and social development in the
country.
Wage Fixation
The Minimum Wages Act, 1948
• The Minimum Wages Act, 1948 is an Indian legislation enacted by the Parliament of India for
statutory fixing of minimum wages to be paid to skilled and unskilled labors.
• The Indian Constitution has defined a 'living wage' that is the level of income for a worker which
will ensure a basic standard of living including good health, dignity, comfort, education and provide
for any contingency.
• However, to keep in mind an industry's capacity to pay the constitution has defined a 'fair wage‘
• A minimum wage is such a wage that it not only guarantees bare subsistence and preserves
efficiency but also provides for education, medical requirements and some level of comfort.
• India introduced the Minimum Wages Act in 1948, giving both the Central government and State
government jurisdiction in fixing wages.
• The act is legally non-binding, but statutory. Payment of wages below the minimum wage
rateamounts to forced labour.
• Wage Boards are set up to review the industry’s capacity to pay and fix minimum wages such that
they at least cover a family of four’s requirements of calories, shelter, clothing, education,
medical assistance, and entertainment.
• Under the law, wage rates in scheduled employments differ across states, sectors, skills, regions
and occupations owing to difference in costs of living, regional industries' capacity to pay,
consumption patterns, etc.
Wage Fixation
Collective Bargaining:
• Process of negotiations between employers and a group of employees aimed at reaching
agreements that regulate working conditions.
• The interests of the employees are commonly presented by representatives of a trade union to
which the employees belong.
• The collective agreements reached by these negotiations usually set out wage scales, working
hours, training, health and safety, overtime, grievance mechanisms, and rights to
participate in workplace or company affairs.
• The union may negotiate with a single employer (who is typically representing a company's
share holders) or may negotiate with a group of businesses, depending on the country, to reach
an industry wide agreement.
• A collective agreement functions as a labor contract between an employer and one or more
unions
• Collective bargaining consists of the process of negotiation between representatives of a union
and employers in respect of the terms and conditions of employment of employees , such as
wages, hours of work, working conditions, grievance-procedures, and about the rights and
responsibilities of trade unions
Wage Fixation
Wage Boards:
• In the 1950s and 1960s, when the organized labour sector was at a nascent stage of its development
without adequate unionization or with trade unions, without adequate bargaining power, the Government
of India, in appreciation of the problems which arise in the arena of wage fixation due to absence of such
bargaining power, constituted various Wage Boards.
• Wage board is a triplicate body, having representation of employers and labour besides, independent
members.
• The representatives of the former two interests are nominated by their central organizations; others are
nominated by the government.
• It is an important machinery of state regulation of wages.
• Determine the category of workers to be brought under wage fixation.
• Work out the wage structure based on principles of fair wages.
• Workout the principles of bonus.
• Majority boards are of the recommendations of wage unanimous. They take more time to complete
their task. Implementing the decisions are difficult.
• The Pay Commission is an administrative system/mechanism that the government of India set up in 1956
to determine the salaries of government employees.
Principles of Wage Fixation
1. Difference in pay for different jobs should be based on job requirements. (skill, effort, responsibility,
mental and physical requirements and working conditions)
2. The pay should depend upon the job. It should not depend upon the employee who is fitted to the
job.
3. The wage level should be in line with the prevailing level (generally accepted) in the neighbourhood.
4. Equal pay should be given for equal job
5. There should be a clear procedure for hearing complaints about wage.
6. The trade union should be informed about the procedure used for fixing the wage rate.
7. The wage rate should be sufficient to give the worker and his family a reasonable standard of living.
8. The wage structure should be flexible - to accommodate changing conditions
9. For revision of wages , a wage committee should be setup.
10. Prompt and correct payment of dues should be ensured.
11. The wage structure should be simple and easily understood by all.
Wage Fixation
Two basic methods of wage system:
1. Payment by hour or day (Time rate system)
2. Payment by results (Piece rate system)
1) Time Rate System (Payment by hour or day):
• Most commonly used
• The worker is paid wage for the time he spends on the work.
• Wages are paid at hourly, daily, weekly or monthly rate
• Wages do not depend upon the quantity of output by the workers.
Wages = Number of days worked X Rate Per Day (Or) Wages = Number of hours worked X Rate
Per Hour
Example: If during 1 week the work man X manufactured 200 units. He received wages for a guaranteed
44 hours a week at the rate of rupees 1.50 per hour. Calculate his gross wages using time rate method.
Sol: Number of units produced per week = 200units Wage rate per hour = Rs. 1.50 Wages for guaranteed
working hours per week = 44 hours
Gross wages = Number of working hours per week X Wage rate per hour = 44 x 1.50 = Rs. 66/-
Time Rate System (Payment by hour or day)
Advantages:
1. Simple and calculating wages
2. All workers are treated equally, hence no jealousy.
3. Workers do not hurry up to complete the work, so quality of work is maintained.
4. Suitable for jobs where output cannot be exactly measured.
5. If there is breakdown in production, the workers will not loose their wages.

Disadvantages:
1. Efficient workers not paid any incentives, they loose interest.
2. Productivity is less because workers may not work hard.
3. More supervision is needed
4. Rate of output will be varying, so it is difficult to fix the production schedule.
5. Overhead cost increases
Payment by results (Piece Rate System)
2) Piece Rate System:
• The worker is paid proportional to his output.
• Workers will get a minimum guaranteed wage , irrespective of the output.
• Standard output is fixed.
• When worker produces more than the standard output, will be paid additional called incentive.
Wage = Number of units produced x Rate per unit
EXAMPLE: If per unit rate Rs. 10/- , If a worker produces 10 units then find wage of the
worker? Sol: Wage = 10 x 10 =Rs. 100/-
Important systems of Payment by results:
1. Straight piece rate system
2. Standard hour system
3. Halsay’s 50% plan
4. Rowan’s plan
5. Emerson’s 66 2/3 % efficiency plan
Payment by results (Piece Rate System)
Advantages:
1. Encourages workers to produce more
2. Productivity increases
3. Efficient workers are paid more, got satisfied
4. Production cost is less, Less supervision required
5. Workers take care of their tools and equipment , so that their earnings are not affected.
6. Slow workers are not affected because there is minimum wage.
Disadvantages:
1. Workers work in a hurry, so quality of product will be poor. So more inspection is needed.
2. Workers over strain themselves to earn more, will affect their health.
3. Material wastage increases
4. Leads to more accidents.
5. Clerical work for calculating the incentive increases.
6. Because of difference in wages , there will be jealousy among workers.
Payment by results (Piece Rate System)
Basics for good payment by results:
1. There should be good industrial relations climate
2. There should be sound recruitment, promotion and training policies.
3. The scheme should be well understood by workers and all levels of management.
4. The scheme should be started only after the plant has achieved art least 70% of the rated
output
5. The scheme should be based on work study
6. It should lead to cooperation among employees
7. The payment should be made as soon as possible after job is completed
8. The performance standard fixed should be equal to the average performance of employees.
9. It should be flexible to take care of technological development's
10. It should not be costly to workout – minimum records and minimum calculations
Straight Piece Rate System
1. Straight Piece Rate System:
• The worker is paid at a certain piece rate for the number of pieces produced by
him.
• Standard output quantity is fixed.
• Workers will get a minimum guaranteed wage , irrespective of the output.
• When worker produces more than the standard output, will get proportional to the
number of pieces produced.
Ex. Standard output / day of 8 hrs. = 16 pieces, guaranteed minimum wage Rs24,
the piece rate is Rs1.50 per piece
• If a worker produces less than 16 pieces , will get guaranteed minimum wages
Rs24
• If he produces more than 16 pieces, ex 20 pieces , will get 20 x 1.5 = Rs30.
Standard hour system
2. Standard hour system:
• Similar to piece rate system
• Standard output quantity is fixed in terms of standard hours
• Workers will get a minimum guaranteed wage , irrespective of the output.
• When worker produces more than the standard output, will get the wages proportional to the
standard hours of work produced by him.
• This system is used when a worker does different types of work
Ex. Assume standard time set for a job is 30 minutes , hourly wage is Rs3. Minimum wage per
day of 8 hrs. is Rs.24.
• If a worker produces 12 pieces in 8 hrs., its equal to 12x30=360 minutes , equal to 6 hrs, will get
minimum wage Rs.24
• If produces 20 pieces in 8 hrs., its equal to 20 x 30 = 600 minutes , equal to 10 hrs, will get 10 x
3 = Rs.30
Halsay’s 50% plan
3. Halsay’s 50% plan Advantages:
• Gain due to extra output by the worker 1. Guaranteed minimum wage
is shared equally by the worker and employer 2. Employer also gets 50 % of the savings
• Standard time is fixed for each work 3. Simple and easy to understand and calculate
• Workers will get a minimum guaranteed Disadvantages:
wage , irrespective of the output. 1. Workers get only 50% of the savings
Total Earnings, E = Ha R +((Hs – Ha) / 2) x R 2. Workers are not satisfied
Ha – Actual hours taken by the worker for the
job
Hs – Standard hours allowed for the job
R – Wage rate per hour
Workers are not satisfied , because they are
not given the full benefit for their extra effort
Rowan’s plan
4. Rowan’s plan Advantages:
• Standard time is fixed for each work 1. Guaranteed minimum wage
• Minimum wage is guaranteed for each worker 2. Workers get more incentives than the Hasley plan
• Workers will get a minimum wage , irrespective of3. Employer also get share in the savings
the output. 4. Workers get more incentive than what the employer gets
Total Earnings, E = Ha R +((Hs – Ha) / Hs) x Ha R Disadvantages:
Ha – Actual hours taken by the worker for the job 1. It’s slightly difficult to understand
Hs – Standard hours allowed for the job 2. Workers cannot calculate their incentives easily
R – Wage rate per hour 3. Incentives for the very high producers are not
proportional to their output
• In this system the time saved is expressed as a
fraction of standard time. This is multiplied by
the wage for the actual hours worked. Will give the
incentive to be paid
• Full benefit of the workers extra effort is not given
to them.
Emerson’s 66 2/3 % efficiency plan
5. Emerson’s 66 2/3 % efficiency plan
Efficiency = Standard hours allowed for the work / Actual hours taken by the workers
• Minimum wage is guaranteed
• If the efficiency is 66 2/3 % and below, no bonus is given, only minimum wage is given
• For 100% efficiency a bonus of 20% is given
% of efficiency % of bonus % of efficiency % of bonus
66 2/3 Nil 101 21
67 1 102 22
71 2 103 23
76 4 104 24
81 6 105 25
86 8 - -
90 10 - -
95 15 - -
100 20 120 40
Emerson’s 66 2/3 % efficiency plan
5. Emerson’s 66 2/3 % efficiency plan
Total Earnings, E = Ha R +p x Ha R
Ha – Actual hours taken by the worker for the job
p – % of bonus
R – Wage rate per hour
Incentives paid to the workers is proportionally more than the output
Efficiency of the worker is calculated on monthly basis, and incentives also given on monthly basis, will make the
workers to work steadily throughout the month.
Advantages:
1. Guaranteed minimum wage
2. Worker with less than standard output gets bonus
3. High producers get high rate of incentives
4. More beneficial to workers as the employers gets no share from the savings
Disadvantages:
1. It’s very much difficult for the workers to understand
2. It’s difficult to calculate the earnings
Wage Fixation
Halsey System:
Example:
Suppose a worker gets his wages @ 60 paisa per hour. He finished his work in 15 hours for standard hours. Thus he saves 5
hours. How much total wage he gets?
Sol:
Wages for 15 hours @ 60 paisa = Rs. 9.00
Wages for 5 hours (the time worker saves) @ 50% of the usual hourly rate = Rs. 1.50
Total = Rs. 10.50
He will get Rs. 10.50 and will also earn something more by utilizing the time saved i.e. 5 hours.
Rowan Premium Plan:
Example:
If the worker finished the job in 15 hours for standard time of 20 hours and the hourly rate of wage is 60 paise, then how
much the worker will get?
Sol:
Wages for 15 hours @ 0.60 paise per hour = Rs. 9.00 Premium or bonus (5 x (15/20) x 0.60) = Rs. 2.25 Total = Rs. 11.25
Wage Fixation
Balance or Debt Method:
Example: Suppose the time rate is Rs. 250 per week and the piece rate is Rs. 2 per unit. The
wages of a worker, who produces 150, 100, 125 units in 3 weeks, will be calculated as follows.
Sol:
Given
Time Rate = Rs. 250/- per week
Piece Rate = Rs. 2/- per unit

Note: In this method of wage calculation the maximum value (time rate or piece rate which one is
higher) is given to the worker.
Theories of Wages

1. Classical Wage Theory : This theory is based upon the fundamental concept that
labor is a commodity, and we have to pay the price according to supply and demand.

2. The Just Wage Theory of St. Thomas Aquinas :A just wage is described as wage
which permits the recipient worker to live in a manner in keeping with his position in
the society.

3. The Wage Fund Theory :This theory is expounded by John Stuart Mill and his
followers based on the Malthusian theory of population and the law of diminishing
returns.

4. Bargaining Theory of John Davidson :This theory proposes that the labor is a
commodity like anything that could be bought at a price by the user
Theories of Wages
5. The Marginal Productivity Theory :This theory offers the best explanation of
wages in modern industry.

6. The purchasing Power Theory :This theory tries to establish the relationship
between wages and the level of economic activity.

7. Labor Theory of Value :It emphasizes that labor is the source of all the products
and that without this important component, there could be no goods for human
consumption.

8. The Standard of Living Theory of Wages “A recent development in the labor


market is the theory of living wages that means that wages should be based on the
cost of living.
Theories of Wages
9.Karl Marx: Marx mentions that beyond the supply and demand fluctuations in
the price of labor produced by competition on both sides of the boundary
(e.g. competition between employers for workers and competition between potential
workers for jobs), on average the price of labor will be equal to the “cost of
production” of labor power.
The cost of production of labor power is the “cost required for maintaining the
worker as a worker and of developing him into a worker”.
Wage And Salary Surveys:

• Once the worth of a job has been established, using one of the job ratings systems,
the actual salary to be paid for each job must be determined.

• A major factor in making the determination is the wage survey.


Wage And Salary Surveys
• Salaries paid by other companies have an effect on employment, morale and
turnover rate, close attention is paid to the salary that is prevailing in the
community and industry for specific jobs.

• A survey of employers in the same industry and the same area showing the
wages and salaries they pay to their employees.

• Wage and salary surveys are useful because they show the prevailing
compensation in a given city or other place, which may result in employers
making upward or downward adjustments.

• The actual salary to be paid for each job must be determined.

• Informal surveys may be conducted through telephones or informal interviews.


Procedure in Conducting Wage and Salary Surveys
1. Defining the Labor Market
2. List of key Job Position
3. Detailed Description of Jobs
4. Collection of Salary Data
5. Compilation of Salary Data
6. Results of Survey
Considerations in Making Decisions
• Whether the salaries will be above, below, or the same level.
• Whether pay in a single rate for each job.
• How many pay grades or salary ranges to use, and how wide each pay grade should
be.
• The range of the amount in terms of money value
Wage and Salary Structure
Advantages:
1. Affects the workers’ and standard of living.
2. Eases the recruitment and maintenance of an effective labor force.
3. Develops employee morale and increases work efficiency.
4. Represents cost and competitive advantage in the industry
5. Helps in preparing budgetary allocations.
6. Eliminates pay distortions and inequities in employee compensation.
7. Establishes an equitable salary range for various jobs.
Job Evaluation
It is the systematic process of determining the relative value of different
jobs in an organization.

• It determines the relative worth of jobs, depending upon their characteristics,


values are fixed to each job.
• Based on these values , wage rates and salaries are fixed to different jobs
• Job evaluation deals only with jobs, not with persons doing the jobs
• The HR department performs job evaluations based on the role rather than on the
employee who holds the position.
• There are different methods of job evaluation, but the point of each method is
determining the value the position brings to the company. This ensures the salary
is equal to the work.
Objectives of Job Evaluation
1. Decides the relative value of different jobs
2. Helps to fix correct wage structure
3. Helps to fix equal pay for all jobs of equal value
4. Finds out the authority and responsibility of each job
5. Reduces labour turn over by providing job satisfaction to employees
6. Provides a base for recruitment and selection
7. Provides a base for systematic review of wage structure
Methods of Job Evaluation
1. Ranking method
2. Grading method
3. Factor comparison method
4. Points method
Methods of Job Evaluation
1. Ranking method Advantages:
All jobs are arranged and ranked from top • Simple and easily understood
to bottom in the order of their importance • Easy method to use
• Suitable for small organizations
Factors considered • Less expensive method
• Minimum experience required • Requires less time to workout
• Minimum education required Disadvantages:
• Skill required • Not an accurate method
• Responsibility • No standard base for ranking
• Effort required – physical, mental etc • Ranking is based on personal judgment
• Working conditions and hazards • Cannot used for big organizations having large
number of jobs
• It simply gives ranking. It does not indicate how
much one rank differs from the other.
Methods of Job Evaluation
2. Grading method
• Jobs are classified or graded into different
groups. Advantages:
• For each grade, the minimum levels • Simple and easy to understand
of responsibility, skill, importance and • Easy to apply
other requirements are fixed. • More accurate than ranking method
• It is easy to fix wage structure for different grades
• Each job is assigned to a particular grade
based on the above factors
Disadvantages:
• Each grade is fixed different salary structure, • Not useful for big organizations
Ex. Machine operators can be graded • Time consuming process
as Grade I, Grade II, Grade III etc., • Based on human judgment
• As there is no job analysis, the grading may become
inaccurate.
Methods of Job Evaluation
3. Factor comparison method
Requirement of a job is divided into five main factors
Skill, mental effort, physical effort , responsibility and working condition
Procedure to evaluate a job:
• A few key jobs in the organization are taken as standards (wage structure are accepted by the
employer and employees)
• These key jobs are analyzed with reference to the above factors
• Allocate the salary paid for each key job amongst the five factors (Table 1)
• Gives a money rating scale for each key job
• Construct the job comparison table
• Take the job to be evaluated , analyzed with reference to the above factors
• Fit this job in the job comparison table, add the total monetary value, which gives the
monetary value of the job
Methods of Job Evaluation
3. Factor comparison method
Factors / Salary (Rs) Key Job Job to be
valued
J1 / 800 J2 / 600 J3 / 720 J4 / 880

Skill 200 120 160 80 240

Mental effort, 40 160 80 280 120

Physical effort 240 160 200 120 80

Responsibility 120 40 200 240 80

Working condition 200 120 80 160 240

760
Methods of Job Evaluation
3. Factor comparison method
Rs. Skill Mental Effort Physical Effort Responsibility Physical
condition
40 J1 J2

80 J4 J3 J(E) J(E) J3

120 J2 J(E) J4 J1 J2

160 J3 J2 J2 J4

200 J1 J3 J3 J1

240 J(E) J1 J4 J(E)

280 J4

320
Methods of Job Evaluation
3. Factor comparison method
Advantages:
• It is a systematic method. detailed step by step procedure is available
• The value of the new job is determined by comparing with the existing wage rate
• It finds the wages directly
• It is more accurate and acceptable
Disadvantages:
• It is a complicated method. it is not easily understood
• Costly procedure
• If a job with incorrect wage structure is selected as key job, it will lead to error in job
evaluation
• Different persons may allot different monetary value for each factor of the job (Evaluation based
on individual judgment)
Methods of Job Evaluation
4. Points method
• The point method is an extension of the factor comparison method.
• Each factor is then divided into levels or degrees which are then assigned points.
• Each job is rated using the job evaluation instrument.
• The points for each factor are summed to form a total point score for the job.

Factor of Point Method


• Skills
• Effort
• Responsibilities
• Working Conditions
Methods of Job Evaluation
4. Points method
Sub-factors of Point Method
Skill • Experience • Education • Ability

Responsibilities • Fiscal • Supervisory

Effort – Mental – Physical

Working Conditions – Location – Hazards – Extremes in Environment

• Jobs are then grouped by total point score and assigned to wage/salary grades
so that similarly rated jobs would be placed in the same wage/salary grade.
Methods of Job Evaluation
4. Points method – Procedure
Step 1 Select jobs to be evaluated We choose what job division that will be evaluate.
Step 2 Input the job information. As with all job evaluation approaches, the jobs must
be analyzed and job descriptions/specifications prepared.
Step 3 Select compensable factors. Just as with other methods or other job evaluation
methods, the point method generally uses a set of factors like skill, effort, responsibility
and job conditions.
Step 4 Define compensable factors After we know the compensable factors from the step
3, we must define one of them and make it specifically.
Step 5 Define Factor Degrees After that, we must define how many degrees that will
used and make the points for each degrees. Don’t forget to make the factors that will be
analyzed, like job knowledge, mental, training accountability and so on.
Step 6 Determine the total point of degrees From the degrees that we have, we calculate
total points for each factors in degrees.
Methods of Job Evaluation
4. Points method – Procedure
Step 7 Assign points to degree within factors or sub factors. Make a clear
calculating of the degrees with separate the job to sub factors points.

Step 8 Evaluate the Jobs If the problem is with a key job, you return to Step 1; if it
is with a compensable factor, return to Step 3.
• Done to validate the job evaluation; the wage rate (for example, mean, median)
used for comparison with the hierarchical order is not important.
• Once fit between the market rates and key job evaluation rates is established, the
job evaluation plan is validated and should not be changed until the jobs and
compensable factors for those jobs are changed.
Methods of Job Evaluation
Step 9 Write the job evaluation manual
• The results of the committee's activities must be written up in a job evaluation
manual.
• Without a well documented job evaluation plan, the plan is not usable except by
the original committee.
• Documentation of the committee's work should include the rationale for the
factors chosen, the rationale for weighting the factors, the rationale and procedures
for assigning points to factor degrees, and, finally, a description of the factors, sub
factors, and the degrees assigned to each.
Methods of Job Evaluation
4. Points method
Advantages
• The value of the job is expressed in monetary terms.
• Can be applied to a wide range of jobs.
• Can be applied to newly created jobs.
• Minimized human error, More accurate and reliable
Disadvantages
• The pay for each factor is based on judgments that are subjective.
• The standard used for determining the pay for each factor may have built-in biases
that would affect certain groups of employees (females).
• It needs skill and experience
• Costly and time consuming
Methods of Job Evaluation
4. Points method
Factor Weightage Grade I Grade II Grade III Grade IV

Education & Training 20 20 40 60 80


Experience 10 10 20 30 40
Initiative 15 15 30 45 60
Physical Effort 8 8 16 24 32
Mental Effort 12 12 24 36 48
Responsibility 15 15 30 45 60
Working condition 10 10 20 30 40
Merit Rating
• People differ in abilities and aptitudes.
• Management should know these differences so that employees are assigned jobs
according to their capability.
• Merit rating is the process of deciding the relative worth of an employee.
• In terms of Job performance, Integrity, Leadership, Intelligence, Behaviour
• Merit Rating Job evaluation evaluates the job and the merit rating assess the worth of a
person performing the job.
• Merit rating is also called the performance appraisal.
• It evaluates, controls and reviews the performance.
• Both job evaluation and performance appraisal are aimed at systematically
determining the wage rates paid to the employees.
Merit Rating
Objectives of merit rating :
1. To assess the work of employees in relation to their job requirements.
2. To consider employees/workers for promotions, transfer, layoffs etc.
3. To assess the good and bad points in working of employees and then making
suggestions for improvement.
4. To help in wage and salary administrations and taking decisions about
incentives and increments to be given to the workers.
5. To evaluate skill and training capabilities of employees and helping in
planning suitable training and development programmes for workers.
6. To know the problems faced by workers while doing various jobs.
7. To provide a basis for comparison to segregate efficient and inefficient
workers.
Merit Rating
Objectives of merit rating :
8. To help management in placement/transfer to workers according to their capacity,
interest, aptitude and qualifications.
9. To help supervisors to know their subordinates more closely for increasing their
efficiency and improving productivity.
Benefits of Merit Rating
• Useful in rewarding the person and the reward can be linked to the performance.
• Helps to identify the person's potential to perform the assigned jobs and to decide the
future positions he can take up.
• To identify the training needs of the employees.
• Helps in counselling employees regarding their strengths and weaknesses.
• It motivates employees to perform better.
• Acts as a constructive performance appraisal system.
Merit Rating
Purpose and uses of Merit rating
1. Employee Performance
• The employee informed about his performance level, he will try improve himself, leads
to self improvement
2. Employee Development
• Finds out the deficiency of individuals, helps to find out the need of training
3. Incentives
• Helps to grant merit incentives to employees
4. Promotion & Transfer
• Reliable tool for giving transfer , promotion, layoff etc.,
5. Availability quality of work force
• Enables the management to know the quality of employees
Methods of Job Evaluation
Methods
• Ranking Methods
• Paired Comparison Methods
• Grading System
• Forced Distribution Method
• Check List Method
• Critical incident method
• Free essay Method
Methods of Job Evaluation
Ranking Method
• This is the conventional and easy method.

• Normally the employees are ranked in the order from best to worst.

• This is applicable to industries where number of people are few.

• The limitation of this method is that it cannot indicate specific strengths and
weaknesses.

• Ranking becomes difficult as the number of employees increase.


Methods of Job Evaluation
Paired comparison method:
In this method, the rater compares each employee in a group with all the remaining
employees.
The performance is the only parameter for comparison.
This also becomes difficult to compare if the group is large.
Forced choice method: In this method, for each trait or behaviour number of
statements' are given and the rater is required to select only one statement which
describes the particular behaviour of the employee being evaluated.
This method is called forced choice because the rater is forced to check only one
statement and is not allowed to describe behaviour in his own words.
This is most popular method used for rating of lower cadre staff.
Methods of Job Evaluation
Check list method:
• These are the lists made up of series of questions or statements which are
concerned about the important aspects of employees performance on the job.
• The process of rating simply consists of checking those questions concerned to
rate and answering the question in "YES" or "NO".
• It is easy to compare the employees by this method.
Methods of Job Evaluation
Scale plan: This is widely accepted method in industries.
The scale is constructed to define the various degrees of the traits.
There are two types of scale plans:
Continuous scale: Here the scale is constructed to represent the highest to lowest
degree of required trait: (a) Numerical scale, (b) Description scales.
Discontinuous scales: This is the scale which gives elaborate description of facts
needed for rating.
Incentive scheme
What is incentives?
• The term INCENTIVES mean, something which encourages a person to do something. Or the
“extra financial reward/ motivation”.
Why Incentives are Important?
• Incentives are considered beneficial to both employers as well as employees in following ways.
• Workers are likely to work at their best when they are offered monetary rewards for good
performance.
What makes an Incentives plan effective?
• In the absence of mutual trust between management & workers, an incentives may be viewed as
an attempt to improve production/ profit only.
• Payment of incentives should be free from bias & established through scientific/ proper work
study.
• It should be easy to understand & simple to operate so that employee can calculate their own
earnings.
Incentive scheme
What makes an Incentives plan effective?
• It should be easy to understand & simple to operate so that employee can calculate
their own earnings.

• It should provide equal opportunity to all workers to earn incentives pay.

• Plan should be flexible to adopt any changes later on.

• Payment of incentives should be prompt i.e. as early as possible.

• It should be adequate to motivate each employees.

• Every plan should be reviewed periodically.


Basic forms of incentives

Basic forms of incentives Bonuses Merit Commission for sales people Salary plan
Commission plan Combination of both
Incentive scheme
Bonus
• Incentive payment that is supplemental to the base wage for cost reduction,
quality improvement, or other performance criteria.
Merit Pay Program (merit raise)
• Lump-sum Merit Program under which employees receive a year-end merit
payment, which is not added to their base pay.
Classification of Incentives Plans

• Profit sharing
• Co-partnership
• Gain-sharing
• ESOPs
• Stock Options
• Incentives plans
• Output-based
• Individual Time-based
• Organization- wide Group, Time-based
Incentive scheme
Time based incentive plan
– Under time based plan, per hour wage rate is determined & incentives paid on the
bases of time saved.
Time based incentives plane is divided in four different ways.
• Hasley plan,
• Rowan plan,
• Emerson plan,
• Bedeuax plan.
– This all plan more or less follow same method i.e. (pay bonus on the basis of
timed saved by employee), but with different formula.
Incentive scheme
Output based incentive plan
– Under output based plan, per piece wage rate is determined & incentives paid on
the bases of output produced. i.e. more output in standard time OR standard output
in less time.

– For output based incentive following 3 method can be used.

• Taylor plan,

• Merrick plan,

• Gnatt plan.
Incentive scheme
Profit sharing
– Profit sharing is an arrangement by which employees receive in addition to wages, a share is
fixed in advance in profit of the enterprise.
– It is an agreement between employer & his employee.
– According to International Labour Organization, “Profit-sharing is a method of industrial
remuneration under which an employer undertakes to pay to employee, a share in net profit of the
enterprise in addition to regular wages”
Co-partnership
– Co-partnership is an extension of profit-sharing.
– Under this method worker’s share in company’s profit is paid in the form of share by which they
become entitled to participate in decision-making process.
Incentive scheme
Gain-sharing
– This method aims at increasing productivity & decreasing labour cost & sharing the result gains
wit employee.
– It is based on a mathematical formula which compares a standard perform with actual
performance during given period.
– When actual performance exceed the standard performance, shaving are shared with employees.
ESOPs (Employee Stock Option Plans)
– This method is originated in the USA in early 90s.
– Under this plan, the eligible employee are allotted company’s share below the market
price.
– The term “stoke option” implies the right of eligible employee to purchase a certain
amount of stoke in future at an agreed price.
– The eligibility criteria may include length of service, contribution to the department
etc…
Incentive scheme
Stock Options
A stock option is an incentive offered to employees that want to invest their money
into the company stock by purchasing stock with pre-tax money.
According to HR Guide, employees that participate in a stock option incentive plan
are able to defer paying income tax on the gains realized by their stock purchases
until the stock is sold.
The company itself does not get any kind of tax break by offering a stock option
incentive, but it does reap the benefits of selling more stock.

Group based or team-based incentives plans reward all team members equally
based on overall performance of the team member.
Under group based incentive plan, individual out put can’t be measured.
Incentive scheme
• So team performance is evaluated on the basis of time taken rather than output
produced, if team complete their target in well advanced to standard time the
team member are eligible for incentives.
• Payment to team members may be made in the form of cash bonus or in the
form of non-cash reward such as pleasure trip, times off or luxury items.
• Team based incentives foster cohesiveness among tem members.
• Methods for team based incentives plans are – Preistman’s production plan –
Rucker plan – Scalon plan – Town plan and so on…
Incentive scheme
Non-Financial (Non-Monetary) Incentives
Status
• It is one’s social or professional position. In an organization, this refers to the
position in the hierarchy of the organizational chart.
• Management-level employees have more authority, responsibility, recognition,
salary, etc., than those of the rank-and-file employees.
• The level of authority and responsibility determine the status of an employee in
an organization. Status increases the self-esteem, confidence, and psychological
needs of an individual resulting in a motivated attitude at work.
Incentive scheme
Non-Financial (Non-Monetary) Incentives
Organizational Climate
• Organizational climate refers to the environmental characteristics of an
organization as perceived by its employees.
• It conveys the impression that people have towards the internal environment of
the company within which they work and have a key influence on their
performance.
• This differs from one organization to another.
• Several factors may influence the organizational climate of a company, such as
organizational structure, individual responsibility, risk and risk-taking, warmth,
and support within the company, its tolerance and conflict, and more.
• A positive organizational climate tends to increase the efficiency of employees at
work.
Incentive scheme
Non-Financial (Non-Monetary) Incentives
Career Advancement Opportunity
• Organizations have to establish the appropriate skill and career development
programs, and even a sound promotion policy for their employees, that serves as
a booster for them to perform well and get promoted.
• Upward progress in one’s career, such as promotion, shows recognition and
appreciation of an employee’s work, motivating him to do better.

Job Enrichment
• It refers to the designing of jobs in such a way that it involves challenging and
variety of tasks, requiring a higher level of knowledge and skill, more autonomy
and responsibility, and more growth opportunities and thus, could also increase
employees’ pay.
Incentive scheme
Non-Financial (Non-Monetary) Incentives
Job Security
• Job security offers future stability and a sense of security among the employees in an
organization.
• Not having to worry about the future gives a sense of enthusiasm at work.
• While there is an undesirable aspect of this incentive, like employees taking their jobs
for granted, the increasing rate of unemployment in our country makes this a great
work incentive.
Employee Recognition Programs
• The organization adopts this to raise employee morale, attract and retain key
employees, elevate productivity within an organization, and increase competitiveness.
• This pertains to employers’ initiatives to reward their employees for achievements,
new behaviors, anniversaries, and milestones unlocked during their stay in the
company.
Characteristics of a Good Incentive Plan
a. Simple and easy to understand
b. Lessor is not costly to operate
c. Must be discussed with employees before implementation
d. Assist in supervision
e. Able to evaluate employee’s performance
f. Induce cooperation among the employees
g. Encourage workers to perform better
h. Acceptable to employee and employer
i. Ensure sufficient monetary compensation and recognition to employees
j. Ensure reduction in unit production cost
k. Standardized methods of implementation
l. Eliminate distrust between the employee and employer

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