WAGES

INTRODUCTION

A wage is monetary compensation (or remuneration, personnel expenses, labor) paid

by an employer to an employee in exchange for work done. Payment may be calculated as a
fixed amount for each task completed (a task wage or piece rate), or at an hourly or daily rate,
or based on an easily measured quantity of work done.

Payment by wage contrasts with salaried work, in which the employer pays an
arranged amount at steady intervals (such as a week or month) regardless of hours worked,
with commission which conditions pay on individual performance, and with compensation
based on the performance of the company as a whole. Waged employees may also receive
tips or gratuity paid directly by clients and employee benefits which are non-monetary forms
of compensation. Since wage labour is the predominant form of work, the term "wage"
sometimes refers to all forms (or all monetary forms) of employee compensation.

The very idea of wage-labour requires two difficult conceptual steps. First it requires
the abstraction of a man's labour from both his person and the product of his work. When one
purchases an object from an independent craftsman one has not bought his labour but the
object, which he had produced in his own time and under his own conditions of work. But
when one hires labour, one purchases an abstraction, labour-power, which the purchaser then
uses at a time and under conditions which he, the purchaser, not the "owner" of the labour-
power, determines (and for which he normally pays after he has consumed it). Second, the
wage labour system requires the establishment of a method of measuring the labour one has
purchased, for purposes of payment, commonly by introducing a second abstraction, namely
labour-time.

ESSENTIAL CHARACTERISTICS OF A GOOD WAGE SYSTEM

The system of wage payment should be such that it is acceptable and beneficial to
both management and workers. Such a system must contain the following features:

Motivation: a good wage system should be providing an incentive to the workers

to produce more. This can be done by linking wages and with the output.

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 Workers should be given a share in the gains of higher productivity. Incentive and
sound judgement should be rewarded.

Stability: the system of wage payment should be permanent and stable.

Fluctuating system may create a doubt in the mind of workers. There should be no
fear of rate cutting with increases in the output. Changes in the wage plan should
not be made unless is a substantial change in the methods of work.

Flexibility: the wage plan must be capable of being adjusted quickly to the
changing requirements of the enterprise. It should permit an early detection and
correction of mistakes.

Equity: the wages differentials should be based on some rational and objective
criteria. The wage system should ensure equal pay for the equal work. The system
should be fair, it should not discriminate among individuals. Variations in skill,
responsibility job conditions etc must be taken care of. The wage rate should be
based on an equitable evaluation of contributions and performance. The wage
system should be just and equitable to all types of employees.

Result oriented: the wage plan should establish a direct relationship between
effort and reward. It should provide for the higher wages to more efficient
workers. Incentive, payments under the plan should be large enough to attract the
workers towards higher productivity.

Simplicity: the system of wage payment should be easy to understand and simple
to operate. A complicated system which can -not be readily understood by the
workers is of little value.

Economy: the cost of designing and administering the system should be

reasonable. The wage system should permit maximum efficiency and minimum
labour cost of unit. The cost of supervision should not be unreasonably high.
Benefits accruing from the wage plan should be more than its costs.

Reasonable standards: standards of work used in a wage plan should be

reasonable and attainable. They should be neither tow easy or too difficult to

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 achieve. Too easy standards would increase the costs and there by defect the very
purpose of the incentive wage plan. Standards beyond the reach of workers will
not be acceptable to them.

Security: a good wage payment system should guarantee a minimum wage to the
workers.

Minimum wages should be sufficient to meet the psychological needs for workers
so that they are saved from uncertainly and mental worry. Real wages should be
protected against the inflation.

Mutual cooperation: the wage system should promote co - operation between the
employer and workers. The wage plan should be installed with the co operation
and understanding of the workers.

Gantt task and bonus system: the system consists of paying a worker on time basis if
he does not attain the standard and on piece basis (high rate) if he does. Emersons efficiency
system: Under this system minimum time wages are guaranteed, but beyond a certain
efficiency level, bonus in addition to minimum day wages is given. Minimum wage is known
the world over. It is a contentious issue in developing countries. In order to understand the
wage system. Living wages are currently being debated in developed countries, with
implications in recent industrial disasters such as the Bangladesh factory collapses.

TAYLORS DIFFERENTIAL PIECE RATE SYSTEM

Differential Piece Rate System was introduced by Taylor, the father of scientific
management. The underlying principle of this system is to penalise a slow worker by paying
him a low piece rate for low production and to reward an efficient worker by giving him a
higher piece rate for a higher production. Taylor was of the view that an inefficient worker
should have no place in the organisation and he should be compelled to leave the organisation
by paying him a low piece rate for low production.

Taylor proceeded on the assumption that through time and motion study it is possible
to fix a standard time for doing a particular task. To encourage the workers to complete the
work within the standard time, Taylor advocated two piece rates, so that if a worker performs
the work within or less than the standard time, he is pad a higher piece rate, and if he does not

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complete the work within the standard time, he is given a lower piece rate. Thus, if the
standard production has been fixed at 8 units per day of 8 hours (taking normal piece rate as
Re 1), the higher piece rate for 8 units or beyond may be Rs 1.20 per unit and the lower rate
for an output of less than 8 units per day, may be 80 P. per unit.

Calculate the earnings of workers A and B under Straight Piece-rate System and
Taylors Differential Piece-rate System from the following particulars:

Normal rate per hour = Rs 1.80

Standard time per unit = 20 seconds

Differentials to be applied:

80% of piece rate below standard

120% of piece rate at or above standard.

Worker A produces 1,300 units per day and worker B produces 1,500 units per day.

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CONCLUSION

The system is very harsh to the inefficient workers because they earn much less wages
on account of lower output and lower rate. Moreover, minimum wages are not guaranteed
under this method. Another drawback of the system is that if a worker just fails to complete
the work within the standard time earns much less wages than a worker who just completes
the job within the standard time. Therefore, the system is now almost out of use.

REFERENCES

http://www.expertsmind.com/questions/essential-characteristics-of-a-good-
wage-payment-system-30181763.aspx
http://www.educationobserver.com/forum/showthread.php?tid=12881
http://accountlearning.blogspot.in/2010/05/wage-payment-system-its-
importance-and.html
http://www.yourarticlelibrary.com/cost-accounting/straight-piece-rate-
system/straight-piece-rate-system-advantages-and-disadvantages/55504/
http://www.yourarticlelibrary.com/cost-accounting/wages-cost-accounting/top-
13-features-of-a-good-wage-system/55505/