By using time rates, employees are paid according to the time they spend at work. This will be based on an hourly rate, a weekly rate or an annual salary. This is a very popular payment system and is used in many jobs. This system has many advantages. Some of its advantages are that it is very simple and easy to understand, very easy to calculate and pay does not vary much. The main disadvantage is that it is not a good payment system to motivate workers. It lacks of incentives to improve productivity and efficiency. Still, it can be a motivation for people that get satisfaction from the job itself and not from their wage.
Individual payment by results reward individuals directly according to how much they produce. It is mainly used in manufacturing environment where it is easier to calculate the work output. The main advantage of this system is that it is simple to understand as employees can predict their earnings according to the rate of work. It is also a good motivator, as employees will earn more if they produce more. This payment system can also reduce costs because if an increased number of tasks are completed in the same amount of time and using the same equipment, the cost per unit of output will be lower.
On the other hand, this payment system can be very expensive to install and maintain. It can also result in many disagreements about standards of levels of production. Employees can produce less efficiently in order to increase their work output and this may result in a decrease in quality. Other disadvantages are that the emphasis on personal performance can cause friction between employees and can also cause stress and poor health after a sustained period of working. Another type of payment system is work-measured schemes.
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In this type of system, a standard time is established to perform a job or a component of tasks. Employees are rewarded for performance above the standard time. One of the advantages is that employees will work harder that the standard rate and therefore productivity increases. The main disadvantage is that work should be measured accurately because time to perform tasks could be exaggerated and this will make incentive payments easier to obtain. In measured day work, techniques of work measurement are used to determine the level of performance expected of an employee and then an appropriate level of payment is set.
The levels of performance are agreed by using work-study techniques. This payment system encourages a high and steady rate of output. Its disadvantages are that there are no direct individual incentives for high performance and there is little encouragement for innovation. Another disadvantage is that there is no direct relationship between the individual effort made and rewards obtained. Group incentives are based on the same principles as the individual payment by results system. It rewards the group with a cash payment for production output that meets the agreed target.
This has many advantages namely, employees are usually encouraged to find ways to improve performance and productivity and employees become more interested in how the organisation is managed. It is cheaper to install plant of enterprise-wide payment by results schemes than individual payment by results schemes. Its disadvantages are that there is a weaker link in employees' minds between the bonus and the level of their effort, so it may not be a strong incentive. Schemes can be difficult to understand and bonus payments could be affected by factors such as inflation, which the workforce can do nothing about.
Also, output can be restricted by the group because it is individual employees who determine what level of earnings they wish to earn. Individual bonuses are granted in addition to base salary and paid to individuals as a reward for achievement or for completion of a project. With individual bonus schemes, employees are more motivated to achieve targets and even in less than the standard time. This system has many disadvantages. One of them is that individual bonus systems are difficult to operate where outputs of work are intangible. This system can also encourage individualistic and uncooperative behaviours.
Individual motivation is reduced to a sole concern for achieving bonuses. Performance-related pay is an incentive plan that pays good performers more money than others. Employees receive higher raises or bonuses for their contribution to work. This has many advantages. One of them is that it rewards the individual by linking systematic assessment of their performance to their level of pay or to a bonus. The factors taken into account may be weighed to reflect their relative importance to the organisation. It can be used where an incentive is needed but the actual work rate is difficult to measure.
It can reward factors not easily taken into account in other payment systems. Effective individual performance can be elicited. Variable pay plans also have a downside. These plans may be stressful to workers because pay for performance sometimes encourages an unhealthy degree of competition among employees. It is also very costly to run. Also, employees may concentrate on their objectives related to pay rather than the whole job. It can create inequity if employees feel awards were given through favouritism rather than objective judgement.
Disagreements may also exist about the performance factors to be assessed and if great care is not taken in the choice of factors there may be claims of subjectivity or even of sex bias. In cafeteria or flexible pay systems, employees can choose their own preferred reward or combination of rewards and are usually based on benefit packages. The advantages are that they are flexible and if well-managed they can be tax-effective and reduce employer risks and liabilities during insurance claims. Gainsharing is a profit-sharing plan that calculates the contribution of specific groups.
When employees make labor-saving suggestions and increase productivity, they share in the gains by receiving a bonus. Its advantage is that it encourages teamwork and cooperation. It also allows employees to have control over their work. Recovery insurance group could pay its employees by group incentives. This system makes use of the same principles of the individual payment system. But by implementing group incentives, one would be encouraging more teamwork. If effective teams are build, one would have better outcomes and results. New ideas can arise and the company will better off. And to this, the team will be paid extra bonuses.
Although wages may not be the main motivators, the extra pay should still help to motivate the workers more. As said before this method of payment has many benefits. The differences between this suggested system and the present system used by the company are many. One of them is that an employee that has been working for only three years with the company may be giving better results than the one working for the company for seven years. Because of this, with the present system, the latter is having a higher wage because of the extra increment for every year of service. Also the present system is not a good motivator.
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