Different methods of wage payment

PUBLISHED : Thursday, 22 October, 1998, 12:00am
UPDATED : Thursday, 22 October, 1998, 12:00am

The factors of production such as labour, land, capital and entrepreneurship have to be used in the production process; their returns of income are wages, rents, interest and profits respectively. Here are the payment methods of wages for labour.

Time-rate payment According to this payment method, workers are paid by a fixed and pre-determined wage per period of time, regardless of their output amount of productivity. Examples are typists, teachers, clerks and managers who are all paid by this method.

The following are factors favouring time-rate payment: 1. Workers do not normally accomplish their jobs alone. They require the co-operations and co-ordination of fellow workers because division of labour is practised in most firms.

As a result, it is difficult and costly to measure the exact amount of each worker's output. For example, a team will be involved in working out an advertisement project in an advertising agency, eg, designers, artists, cameramen, lighting and sound technicians.

The production of the advertisement depends on team work instead of individuals so it is impossible to separate or determine the effort contributed by each member of the team. Payment by a fixed amount regularly is less costly and easier to administer.

2. In certain types of jobs, a worker may have to carry out different tasks. The job nature is not regulary fixed so it would be very difficult to measure the value of each task. For example, an office assistant may have to type letters, send fax messages and answer phone calls during the working hours. It is difficult and time- consuming for employers to count each type of work the employees are involved in.

Advantages: (a) Since the output of the time-rate workers do not depend on the quantity of output, they need not hurry to speed up their production. As a result, they can spend more time and effort on improving the quality of the products. This is especially beneficial to the creative work, eg, interior designers and writers.

(b) Since employers only need to work out an estimate on workers' pay, the factor payment is fixed so that it can be administered easily. It enhances the efficiency of the cost control because the firms can estimate the cost of production more accurately.

(c) This method of payment assures workers of a regular income.

Disadvantages: (a) Workers receive the same amount of income payment regarless of their performance, shirking (laziness) may happen and supervision is therefore needed. However, internal control involves an operating cost so a firm's production cost will go up as well.

(b) Since the wage payment is not directly related to their working performance, there is no motivation for the workers to strive hard and raise their productivity.

Piece-rate payment Workers are paid according to the quantities of their input in a given period of time. For example, a factory owner may offer $20 for each calculator assembled. If a worker produces 30 calculators a day, his income payment for one day would be: $20 30 = $600 The following factors favour piece-rate payment: 1. It is more favourable to practise piece-rate method if the output can be calculated easily, eg, toys, bags and shoes.

2. The job nature is simple and the workers only engage in one production stage of work.

Advantages (a) Since the income payment for the workers depends on the quantity of output, workers would put more effort in producing as many units as possible. It increases the productivity of the workers and it benefits the firm's profitability.

(b) Piece-rate payment promotes fairness to the workers because they will get a bigger income if they work harder.

Disadvantages Workers will try hard to in crease their output but pay less attention to quality. It is necessary for employers to implement product inspection so that the products can meet a reasonable standard.

Profit-sharing method Worker will receive a given percentage of profits as income according to their working performance in a given period of time, eg, insurance and car salesmen. If the profit of the compnay increases, workers can also enjoy a greater percentage part. It gives a great motivation to the workers to try their best.

The following are factors which favour the profit-sharing method: 1. Some kinds of work involve outdoor activities and it is impossible for the employers keep track of their staff outside the office. The profit- sharing scheme can serve as a monitoring system on the employees.

2. This method is more suitable for tertiary industries such as hotel and catering, insurance, motor sales because their production is closely related to customers and only customers have a better judgment towards the performance of the workers.

It is also a strong motivation to workers because they can have a bigger share of the profit if the profit of the company increases at a higher growth rate.