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Workers are compensated for their efforts in two principal ways: by hourly rates and by financial-type incentives. An hourly rate is paid to the worker for the number of hours worked and usually is not dependent upon the quantity or quality of the worker’s output. Each worker is assigned a job title depending upon qualifications, experience, and skill. Under a structured system of wages, jobs are grouped into classifications, and a similar range of rates is applied to all jobs in a classification. The bottom of the range is paid to beginners, and periodic increases to the top of the range may be automatic or may depend upon the supervisor’s appraisal of the individual’s performance.
Job evaluation is a formal system for ranking jobs in classes. Each job is studied in relation to other jobs by analyzing such factors as responsibility, education, mental skill, manual skill, physical effort, and working conditions. A total numerical rating for job comparison is obtained by assigning points for each factor.
Merit rating is a point-scale evaluation of an individual’s performance by a supervisor, considering such factors as quantity of output, quality of work, adaptability, dependability, ability to work with others, and attitude. These ratings serve as criteria for pay increases within a job classification.
The general level of hourly rates, or base rates, for a company should be determined with reference to the community level of rates. ‘‘Going rates’’ for the community are obtained from wage surveys conducted by the company, a local trade group, or a government agency. Generally, a company which offers wages noticeably lower than the community rates will attract less-competent and less-permanent employees.
Under financial-type incentives—or piece rates, as they are commonly called—the worker’s compensation is dependent upon his or her rate of output. Ordinarily, there is a minimum hourly guarantee below which pay will not decline. Penalties for substandard work may reduce the worker’s pay. In some instances, a maximum for incentive earnings is established. The incentive may be calculated so that only the individual’s output affects his pay, or when the individual’s output cannot be measured, a group incentive may be paid, where the pay of each member of the group is determined by his or her base rate plus the output of the group. Group incentives tend to promote cooperation among workers. The administration of incentive plans requires careful management attention if abuses are to be avoided. Restrictions on output and deteriorated standards may lead to higher unit labor costs rather than the anticipated lower costs.
Gainsharing plans are becoming increasingly popular in labor-intensive industries as an additive means of compensation in piecework systems. Gainsharing measures and rewards employees for those facets of the business they can influence. Thus, gainsharing rewards are based on some measure of productivity differing from profit-sharing which uses a more global measure of profitability.
Improshare gainsharing plans measure performance rather than dollar savings. They are based on engineered standards and are not affected by changes in sales volume, technology, or capital expenditures. Productivity generally is measured on a departmental basis where gains above a predetermined efficiency are shared according to formulas which allocate a portion of the gains to the individual department and a portion to the total plant group and a portion to the company; it is not unusual to share 40 percent of the gains to the department, 20 percent to the plant group, and 40 percent to the company. The theory is to measure and reward each department and also to achieve recognition that ‘‘we are all in this together.’’ The base, where gains commence, usually is computed from actual department performances over a period of time such as 1 year. Gainsharing rewards are usually distributed monthly as an additive to piecework plans. In addition to financial participation, gainsharing plans offer:
1. The ability to see the outcome of high performance of work in monetary terms.
2. A means to increase employees’ commitment and loyalty.
3. Group rewards that lead to cohesion and peer pressure.
4. An enlargement of jobs that encourages initiative and ingenuity.
5. Expanded communication resulting in the enhancement of teamwork.
A profit-sharing plan is a form of group incentive whereby each participating worker receives a periodic bonus in addition to regular pay, provided the company earns a profit.
A minimum profit is usually set aside for a return on invested capital, and beyond this amount a percentage of profits goes into a pool to be shared by the employees. Many factors other than worker productivity affect profits, e.g., fluctuations in sales volume, selling prices, and costs of raw materials and purchased parts. To protect the workers against adverse developments outside their control, some plans give the workers a bonus whenever the actual payroll dollars are less than the normal amount expected for a given volume of production. Bonuses may be distributed quarterly or even annually and may consequently be less encouraging than incentives paid weekly and related directly to output.
