Pay & productivity


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Pay & productivity

  1. 1. PAY & PRODUCTIVITY: Wage Determination within the firm
  2. 2. Definition of Contract Employment  Oral or written, express or implied, agreement specifying terms and conditions  Every employee is under the obligation to carry assigned duties, or the employer's instructions to the best of his or her abilities.  The employer is under the obligation to protect the employee from harm or injury, and make fair compensation for any loss or damage resulting from any job-related accident.
  3. 3. Definition of Payment or Salary  a fixed amount of money or compensation paid to an employee by an employer in return for work performed.  An employee who is paid a salary is expected to complete a whole job in return for the salary.
  4. 4. Definition of Productivity  Productive workplaces are built on teamwork and a shared vision of where a business is heading.  There's willingness at all levels to keep learning and investing in skills. In a productive workplace everyone's role is valued and all staff is encouraged to contribute ideas.
  5. 5. Important of Payment  To the employer  To the employee  To the Government Payment:  Basic Salary • a set wage based on a set of expected duties to be performed  Piecework • Incentives can work in a number of ways.
  6. 6. Important of Motivating Workers  Motivating your employees is vital to any business.  A motivated workforce means a highly productive staff, all of which will help you achieve your business goals. And this should be a main objective in your organizational and business plan. Types of Motivation:  An intrinsic Reward  An Extrinsic Reward
  7. 7. Compensation Sequencing Scheme to Increase Worker Motivation
  8. 8. Types of Compensation  Monetary & Non monetary Pay  Merit Pay  Incentive Payment  Group Incentives & Productivity gain sharing  Profit Sharing  Long Term Incentives  Performance Bonus
  9. 9. Problem & Issue in work place  The failure of compensation and some of the problems and issues facing employers flow from a variety of circumstances:  The absence of regular feedback on performance.  Non-recognition of the fact that performance, especially profit, is sometimes (even often) dependent on factors outside the control of employees  e.g. management decisions, exchange rates, recessions.
  10. 10. Productivity & The basis of Yearly Pay Time wage system:  wages are calculated on the basis of time worked irrespective of the quality of work done. Advantages: 1)Simplest system 2)minimize material wastages 3)work best on artistic jobs Disadvantages:  has no positive inducement for workers  It requires continuous supervision  under this process the workers generally adopt the policy of go slow Piece rate system:  the wages are paid to a worker on the basis of output produced by him without considering the time taken in performing the work. Advantages: 1)work as an inducer for workers to produce more 2)here reward is related to efforts 3)fairs to all. Disadvantages:  In an effort to produce more and earn more workers may exert themselves to fatigue.  workers feel insecure in this system because they will lose wages for the period of absence.  requires an up-to-date record of output produce by workers.
  11. 11. 2) Types of piece rate pay? o Piece-rate pay gives a payment for each item produced. The piece rate system is of the following types: (a) Straight Piece Rate:  This is the simplest and the most common type of piece rate system. Each operation, job or unit of production is termed as a piece. The wage rate fixed for each piece is called piece rate. (b) Piece Rate with Graduated Time Rate:  Under this system, workers are actually paid on the basis of output and if the piece rate wages fall below the time rate wages, the worker is paid on time rate basis. (c) Differential Piece Rate System  Under the differential piece rate system, the payment of wages is made to labor on the basis of piece rates varying with the level of efficiency of workers.
  12. 12. Productivity & The level Pay Does increasing pay increase productivity?  While many workers claim that job satisfaction and a sense of purpose drive their productivity, salary also plays a distinctive role in how well your employees perform. Base  Salary usually connotes a set wage based on a set of expected duties to be performed. Piecework  Piecework is common among a home-based workforce, such as freelance writers and seamstresses. Warnings  Increasing salaries in the hopes of encouraging higher productivity can backfire on you. Considerations  To effectively motivate workers to increase productivity, you need to employ a set of tools that incorporates salary increases while placing added emphasis on non-monetary rewards. What are efficiency wages?  Higher than market wage paid to encourage higher output and to raise worker morale, and to discourage absenteeism and inventory shrinkage.
  13. 13. Productivity and the Sequencing of Pay  Wages acceptance by workers is based on the criteria of the PV of wages/ promotions/ benefits over time are more than PV of the market wage. Vice versa, the firm would be willing to offer these wages as long as the compensation scheme increases productivity.  The possibility is whether to underpay earlier in career and overpay later, which also known as delayed compensation plan.
  14. 14. The advantages of delayed compensation Plan  Retirement incomes  Savings  Tax benefits  Earning potential
  15. 15. Age-earnings profiles (sample)  Age-earnings profile shows that increases in earning happen in the early years, a peak around middle age, and a decline thereafter.
  16. 16. The constraints upon delayed compensation: a) PV of delayed compensation plan to the worker must be more than the PV of the market wage for the worker to accept. b) In return, the firm will not offer delayed compensation unless the PV of career marginal productivity is more than PV of career compensation. a)Risks to the firm and workers: Worker’s risk is that firm reneges on paying higher compensation later in career. Firm’s risk is that workers do not retire as agreed to but continue to work.
  17. 17. Application of the theory 1. Promotion Tournaments  Three characteristics:  Uncertainty about the winner  Winner is based on relative productivity  Rewards increased productivity largely go to the winner  Worker compensation paid based on:  Person effort + random error affecting person output + random error affecting all workers’ output.  Time and attempt to monitor output  The factors of successful or unsuccessful of tournament promotion:  Winning based on luck is not successful whether winning based on effort or productivity is called success.  If you win and disparity increases, the marginal benefit also increases.
  18. 18. 2. Relationship between Earnings rise and Job Tenure • According to human capital, productivity increase will bring to increase in wages. • As mentioned earlier, productivity increase is interrelated with the job satisfaction they get. Therefore it is important to increase worker’s wages to increase productivity.