Labour Remuneration (management) Vocational accounting A.
EXECUTIVE SUMMARY
"The remuneration of employees at the optimum rate and in the correct manner is critical to ensure efficient operations and to produce a highly motivated, flexible workforce."
This assignment will consist of analysis of the above statement with reference to the various methods of remuneration currently in use within the UK. It will also consider advantages and disadvantages of each method used by employers in the UK.
INTRODUCTION
Labour Remuneration- "It is an amount paid in consideration for services rended by an employee. The major part of remuneration is in the form of wages or salary, but it may also include benefits such as free pension scheme, health insurance or the provision of a car". (Brockingson, 1993)
Labour remuneration is also "a method of rewarding people for their contribution to the organisation. Ideally, systems should be clear and simple to follow so that workers can easily know how they are affected". (www.acas.org.uk)
The definitions indicate that it is important to operate the right payment schemes in the workplace and to ensure that employees understand the methods used.
Methods of Payment
In the UK, employers exercise various methods of payments, however they follow the same principle.
Dickinson (1987) argues that there are two major principles upon within payment to employees are based. The first relates payment to the measured output achieved by the employee, and therefore gives rise to piecework schemes. The second principle relates payments to the time for which an employee works, time based schemes.
Within the two principles, there are various methods that are considered. This is indicated as follows:
Piecework
Straight Piecework- "This is where the worker is either paid an agreed rate per unit for the number of units produced or a piecework time allowed for each unit". (Hussey, 1989).
This can be explained using the following example (1):
The hourly rate for a worker is £3.00 per hour with an agreed rate of production of 300 units per hour. The worker produces 3000 units in 8 hours.
Piecework Basis- £3.00/3000 units = £0.01
£0.01*3000units= £30.00
Piecework Hour basis- 3000units/£3.00= 10 piecework hours
10 hours*£3.00= £30.00
Differential Piecework- This is where the piecework rate differs at various levels of performance.
Example (2):
0-50 units produced, employees are paid £0.20 for each unit
51-100 units £0.25 for each unit
01-150 units £0.30 for each unit
and so forth
Advantages
This scheme is a benefit for the worker as it encourages them to work as quickly as possible in order t increase their output. Hence, this is a method that assists efficient operations.
Disadvantages
However, this method can be a limitation to the employee, as he/she can be penalised through no fault of his/her own. ( circumstances beyond employee's control, such as low productivity, machine breakdown, etc.) . It is also a drawback to the ...
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51-100 units £0.25 for each unit
01-150 units £0.30 for each unit
and so forth
Advantages
This scheme is a benefit for the worker as it encourages them to work as quickly as possible in order t increase their output. Hence, this is a method that assists efficient operations.
Disadvantages
However, this method can be a limitation to the employee, as he/she can be penalised through no fault of his/her own. ( circumstances beyond employee's control, such as low productivity, machine breakdown, etc.) . It is also a drawback to the employer as quality of finished goods under this scheme tends to have poor standards. Also, negotiations over piecework rates and allowances can be a problem.
However, piecework schemes have declined in recent years, as many employers have moved to all-round performance rather than simple results/output based pay. Many bonus schemes integrate quality measurements or customer service indicators in the assessment to avoid the possibilities of workers cutting corners or compromising safe working methods in order to increase output.
Therefore, this scheme independently is not efficient sufficient to produce a highly motivated and flexible workforce.
Time based Scheme
Under this system workers are paid on the basis of a basic rate per hour for the number of hours worked. It is usual to set a number of hours an employee will work, and any additional hours are classed as overtime and paid at a high rate. This is a very common scheme used in the UK particularly in the manufacturing (Production) section.
Example (3):
40 hours at £5.00 an Hour, overtime is time and half. In one week 50 hours worked.
40 Hrs * £5.00= £200
0 Hrs* £7.50= £ 75
Total Gross Pay= £275
Advantages
It is an easy method to calculate and negotiate wages. This method is also considered to be the fair way of paying employees, as they are not being penalised due to circumstances beyond their control.
Disadvantages
There are no incentives for workers to increase output, and efficient and inefficient employees are paid the same, demotivating the high performers.
Under this scheme there is no incentive to work therefore employees are not motivated. To encourage good work, firms in the UK adapt to the high rate system, where employees produce above normal level, and receive above normal rate of pay.
Example (4):
50 units a day at £4.00 per hour
00 units a day at £5.00 per hour.
This will consequently encourage increase of output, motivating employees, however, this can cause poor quality standards.
The analysed schemes are not adequate on their own to motivate employees, although they are used in the correct manner.
As a result, bonus schemes have been researched and utilised by many employers in the UK to successfully run their business in retaining employees and keeping them motivated.
Bonus Scheme
This scheme is mainly concerned with employees who complete their tasks in less the standard time. This bonus system normally rewards the worker in terms of the cost or time he/she saved.
Example (5):
0.5 time saved * hourly rate of pay.
Standard time- 7 hours at £5.00 an hour. Took 5 hours.
Standard pay- 7 hrs * £5.00= £35.00
Bonus- 0.5 * 2 hrs * £5.00 = £ 5.00
Total Pay= £40.00
This is known as the Halsey Type System, and is shown in the graph below.
Bonus
Taken/Standard
Group Bonus
This is a scheme, where the bonus is paid to a group as a whole. For instance, a firm can pay the bonus to the Department that performed better in a specific work period.
Profit Sharing
Under this scheme, employees are rewarded at the end of the financial year if profits are higher that predicted. However, this could lead to dissatisfaction when profits do not exceed predictions. The time of which employees are rewarded is also a problem, as such rewards have to be made immediately to have the right effect on producing a highly motivated workforce. Consequently, employers may offer company shares to its workforce, making them feel part of the company, and so they show interest in the welfare of the business.
Appraisal/performance related pay
This is a method where the reward is an additional amount of money paid as form of a bonus. Here, pay is mainly related to development of performance. This method is a fair rewarding way, however the time lapse is a problem as it weakens the incentive effect.
Competency and skills-based pay
In this incentive method a direct link is created between the achievement, development and effective use of skills and competencies and the individual's pay. This scheme is beneficial as it increases skills and flexibility in the workforce, however, wages costs will increase as workers gain higher rewards for improvement of skills.
These are a few of many other incentive schemes that are exercised by many employers in the UK. Most of these systems are advantageous towards efficient operations, and flexibility of workforce; yet, they are a drawback to the employers as it, for instance, increases costs, weakens incentive effects, etc.
"The Correct manner of selecting and installing a pay system
- Accept the cost
- Be systematic
- Involve your workforce
- Take stock of the existing system
- Identify the objectives
- Select a new scheme
- Shape to local needs
- Keep it simple
- Prepare the way
- Install the system
- Maintain, monitor and evaluate." (www.acas.org.uk)
It is essential that business in the UK use the payment schemes in the correct manner in order to obtain the right effect of those on the objective of the business.
Other methods
Chadwick, (1997) suggests, "Recent development in the labour market, some of which are still taking place, include:
- More business and organisations are using flexi-time, where employees may work their own hours, within certain parameters.
- Because of repaid advances in technology the trend towards certain types of work being done from home, i.e. design, publishing, etc., therefore allowing better deals for women with children". This scheme for example, allows women with children to work, being an incentive on its own as it is serving people with problems. This has been developed in the UK, and employers nowadays are looking to provide the best services and facilities to their employees.
EU proposals have also suggested that employees working through agencies should receive the same pay and benefits as a permanent worker obtains in comparable jobs (equal labour remuneration). The UK government has denied this proposal, as they believe it will destroy the labour market flexibility, as this will "remove the contract work incentives from agencies". (Roberts, 2002)
This example indicates that various methods are suggested by employers, however the government also plays a part on the decision of methods of payment to employees. (i.e. minimum wage).
Although, there are incentives that are operated along side payment schemes to strengthen the effect of those on producing a highly motivated workforce and to ensure efficient operations, there are other non-financial incentives exercised by many employers in the UK.
It is critical that the above-discussed methods are used in the correct manner to ensure efficiency of non-financial incentives. The non-financial incentives include:
- Giving employees the opportunity of job promotions.
- It is important that employers ensure that employees feel self-actualised.
- By giving employees a remarkable job title, makes them feel "good".
- Some firms have holiday schemes to offer their employees.
- Provide staff discounts to the employees.
- The environment in which employees work plays a big part. For example, if the place where an employee work is not clean, it is likely that he/she will not be happy to do the work under such condition.
- Praising the work he/she performs.
- Provide extra facilities, such as, childcare, parking facilities, canteen facilities, etc.
These are ways in which employees are motivated by and therefore they are likely to work hard to efficiently produce (i.e. increase output).
CONCLUSION
It is essential that organisations exercise appropriate payment methods to ensure efficient operations, and to produce a highly motivated, and flexible workforce. However, this is shown in the assignment that it does not work well enough on its own; therefore it requires incentive schemes alongside it. Various incentives schemes can be used, yet, it is important that they are used in the correct manner. Although there are incentives schemes "designed" to reinforce the effect of payment schemes, UK employers consider other non-financial incentives that have been analysed throughout the assignment.
REFERENCE LIST
- Brockingson, R. (1993), Dictionary of Accounting and Finance, Pitman Publishing, London, p.191.
2- Chadwick, L. (1997), Management Accounting, International Thompson, London,p.23.
3- Dickinson, J. (1987), Management Accounting, An Introduction, Longman Group UK Ltd, Essex, p.28.
4- Hussey, R. (1989), Cost and Management Accounting, MacMillan Education Ltd, London, p43.
5- Roberts, Z. (2002) [Abstract of 'People Management', Journal Labour Market, European Union, Equal Pay for equal work, Vol. 8 Issue 5, p10, 1/2p], [Electronic], Available From: http://search.epnet.com/direct.asp?an=6328305&db=buh.
6- Anonymous, n.d., The ACAS online Publication Services, Available from: www.acas.org.uk/publications.
