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“Time-based work and compensation provides stability but may risk the danger of

inefficiency and low productivity among employees.”

For the longest time, most organizations have adopted time-based pay scheme, under
which workers are paid on the basis of the time spent on their work. Specifically, this means that
workers are paid a fixed amount of salary per month in relation to a standard working week,
assuming work is at least eight (8) hours a day, five (6) days a week. This also entails inclusion
of time related benefits such as additional remuneration for work rendered beyond normal
working hours, on rest days, and even holidays.

There are a number of reasons why organizations have adopted time-based compensation
scheme in paying their employees. For one, time rates are simple for a business to calculate and
administer. This is because the computation of salaries, being fixed, and necessarily, the trend of
personnel expenses, is predictable and convenient for financial projections. Also, since workers
work on regular working hours and expected to be in the workplace within a particular time,
timelines can be easily fixed and predicted. Further, communication and collaboration in the
workplace can easily be done since the workers are expected to be in the workplace at a specific
time. Further, the use of office resources such as electricity and office equipment can be
controlled. Most importantly, the predictable working hours of an establishment make customer
service and follow-ups more consumer friendly. On the part of the workers, time-based
compensation scheme provides certainty in terms of their finances as they are receiving fixed
amount of salary. Also, due to its simplicity, time-based pay scheme is easy to understand from
the workers’ perspective as their hourly rate is simply multiplied with the number of hours of
work rendered.

Despite several advantages, one main critic on time-based compensation scheme is that it
has no incentive to achieve greater output since employees will be paid the same based on the
hours worked regardless of the number of output produced. To illustrate, let us say two factory
workers (Worker A and Worker B) are both receiving a daily rate of P600 for an eight-hour work
shift. There would be not much significance if Worker A produces more output than Worker B
as both of them are paid the same amount, regardless of their individual delivered output. Thus,
there would be very little, if not zero, incentive for Worker B to increase his output similar to
that being produced by Worker A, as he will be paid the same amount regardless. For Worker A,
since he is not getting any incentive for being productive and efficient as he is receiving salary
similar to the other worker who has less output, chances are he will become less motivated to
work harder and to produce high quality output. Another example is when two employees are
given assignments to be completed within an eight-hour shift, where one was able to finish
his/her work early. Instead of rewarding the said employee for being efficient, the norm under
this compensation scheme is to give the said employee another task to ensure that he is working
for the expected number of hours, as “work” is tied to hours worked and not to output produced.
As can be seen from these examples, it would seem that time-based compensation scheme risks
the danger of inefficiency and low productivity among employees.

As a response to the identified dangers of time-based compensation scheme, output-based


salary has become a popular alternative. Under this scheme, employees are paid based on the
output produced regardless of the number of hours they come to work. In our jurisdiction, this
arrangement can be seen in workers paid by results or workers who are engaged on pakyao, task,
and other non-time work. They are paid not on the basis of the time spent on their work but
according to the quantity, quality or kind of job and the consequent results thereof. There are also
arrangements of mixed time-based and output-based pay scheme wherein an employee is given
additional remunerations in the form of commissions on top of his fixed salary which are
calculated as a percentage on the amount of transactions/deals closed.

Under the output-based pay scheme, the concern is not on how long did it take for an
employee to produce an output, but how much output did he produce. Going back to our
previous examples, Worker A, the factory worker who is producing more output than Worker B,
will now be rewarded for being more productive and efficient as he will be paid based on the
output produced and not simply on the number of hours worked. Similarly, the employee who
usually finishes his work early may not worry anymore about being given additional tasks for
being efficient than his co-workers as he is not required to stay in the office within a specified
number of hours after finishing his assigned deliverables. As can be seen from these examples,
output-based compensation also promotes competition so there may be no need to implement
additional incentive programs to motivate employees as high output means high compensation in
as much as low output means less compensation.

While there is no question as to how output-based compensation scheme promotes


efficiency and productivity in an establishment, this should not be interpreted to mean that this
scheme is absolutely better than time-based compensation scheme under all circumstances. For
instance in the case of service oriented jobs such as security guards and service crews, their
output is their very presence in the workplace, rendering the service required of them and not the
number of people served or assisted. Same goes with the employees hired to perform general
roles such as office secretaries, admin staff, hotel and restaurant crew and maintenance staff,
where by the very nature of their jobs require them to be present in the workplace. Under these
circumstances, it would be more viable to measure their performance based on the hours of work
rendered. Thus, the idea is to examine the demands of the industry and how they should be met
as both compensation schemes have their advantages and disadvantages.

References:

Lengstorf, J. Rewarding Incompetence: How Time-Based Management Kills Motivation.


Retrieved from https://lengstorf.com/results-based-work

Sky, Z. (2012, August 1). Why Work Efficiency Should be Judged on Output not Time.
Retrieved from https://www.zacsky.com/blog/2012/08/why-work-should-be-judged-on-output-
not-time

Love, S. (2011, May 10) Attendance Based vs. Output Based. Retrieved from
https://www.lovehr.ca/2011/05/attendance-based-vs-output-based/

Hourly or Output-based Wages: Which is better?. Retrieved from


http://www.canon.com.sg/thinkbig/hourly-or-output-based-wages-which-is-better

https://www.tutor2u.net/business/reference/time-based-pay

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