12 WAGES AND SALARY ADMINISTRATION

Concept, Wage Determining Factors, Wage Levels,

Methods of Wages, Incentive Plans, Wage Differentials,
Wage Regulation, Wages Policy in India, Profit Sharing

CONCEPT
Wages have at least two connotations from the standpoints of employers and employees in
organizational settings. First, the employers perceive wages as a cost of their business efforts and are
keen to reduce labour cost per unit of output. Explicitly, wages form the largest cost factor for the
enterprise. Although the employers are inclined to save this cost, they have also come to realize that
it would not be possible for them to attract and maintain an effective work force without
compensating it adequately. Second, employees consider wages as a means for satisfying their needs
in terms of an expected standard. They desire to receive at least as much remunerations as other
individuals with similar skills get for doing similar work. Notwithstanding this simple logical
reasoning, the financial compensation of human resources is a highly perplexing problem involving
several emotional components.
Traditional theorists define wage and salary administration as the process by which wage and
salary levels and structures are determined in organizational settings. Wages are payments for labour
services rendered frequently, expressed in hourly rates, while a salary is a similar payment,
expressed in weekly, monthly or annual rates. Thus the term “wage” frequently connotes payments
in terms of the number of hours worked and may fluctuate depending upon hours actually worked,
while the concept of salary implies the remuneration which is uniform irrespective of the number of
hours worked. However this distinction, between wage and salary is disappearing. However, modern
theory emphasizes the entire compensation systems embracing both intrinsic and extrinsic rewards.
Intrinsic rewards are those which individuals give themselves for accomplishing a good work itself,
while the extrinsic rewards are those which the organisation provides to them for their contributions
towards the attainment of objectives. Thus the entire compensation system incorporates the
components of the immediate work itself, wages, salary and the fringe benefits, promotion, relation
with supervisor and relation with work force.
Wages in widest sense mean any economic compensation paid by the employer under some
contract to his workers for the services rendered by them. Wages, therefore, include family
allowance, relief pay, financial support and other benefits. But in the narrower sense wages are the
price paid for the services of labour in the process of production and include only the performance
wages or wages proper. They are composed of two-parts the basic wage and other allowances. The
basic wage is the remuneration, by way of basic salary and allowances, which is paid or payable to
an employee in terms of his contract of employment for the work done by him. Allowances, on the
other hand, are paid in addition to the basic wage to maintain the value of basic wages over a period
of time. Such allowances include holiday in the definition of wages.
“Wages are the compensation of wage earners, the numerous employees who use the tools and
equipment of their employers to produce goods and services that are sold by their employers.”
-Yoder and Henceman
 “Wages are a sum of money paid under contract by an employer to a worker for service
rendered.” -Benham
However, in India, different Acts include different items under wages, though all the Acts include
basic wage and dearness allowance under the term wages. For example, under the Workmen’s
Compensation Act, 1923, Section 2(m), wages for leave period, holiday pay, overtime pay, bonus,
attendance bonus and good conduct bonus form part of wages.
Under the payment of wages Act, 1936, Section 2 (vi), “any award of settlement and production
bonus, if paid, constitutes wages”. But under the Payment of Wages Act, 1948, “retrenchment
compensation, payment in lieu of notice and gratuity payable on discharge constitute wages.”
The following types of remuneration, if paid, do not amount to wages under any of the Acts:
(i) Bonus or other payments under a profit-sharing scheme which do not form a part of the contract
of employment.
(ii) Value of any house accommodation, supply of light, medical attendance, traveling allowance or
payment in lieu there of or any other concession.
(iii) Any sum paid to defray special expenses entailed by the nature of the employment of a
workman.
(iv) Any contribution to pension, provident fund, or a scheme of social security and social
insurance
benefits.
(v) Any other amenity or service excluded from the computation of wages by a general or special
order of a appropriate Governmental authority.
A wage level is an average of the jobs of an organization, an establishment, a labour market, a
region or a nation. A wage structure is a hierarchy of jobs to which wage rates have been attached.

Wage and Salary Determining Factors

There are several considerations or criteria which help in determining wages in an enterprise.
These criteria include law of supply and demand, prevailing wages, ability to pay, governmental
factors, standard and cost of living, productivity, bargaining power and job requirement.
First, the law of supply and demand must be taken into account in determining wage rates in an
enterprise. An analysis of supply of employees in terms of the demand of their services reveals the
price it will pay for the labour.
Second, prevailing wages for the same category of workers in the same labour market or
industry provides a basis to determine wage rates in the company. Explicitly, there are several
reasons for similar wages in the same wage labour market or industry. Competition necessitates
adherence of the same wage level. Unions fight for industrywide “equal pay for equal job” and
remove regional differences. Trade associations stimulate uniform wage structures by conducting
periodic wage surveys.
Third, notwithstanding the prevailing wages, ability to pay forms a crucial determinant of the
general wage level in an enterprise. Within the same industry, enterprises which enjoy substantial
profits pay higher wages than those which have low profits. Marginal enterprises are able to pay
even less than the average for their labour market or industry.
Fourth, there are numerous governmental factors such as rules, regulations and laws which
exert considerable pressure in determining wage levels.
 Fifth, wage levels are adjusted in accordance to standards with changes in the consumer price
index. This maintains the purchasing power of individual’s wages irrespective of the variations in
the general cost of living in the economy.
Sixth, productivity forms an effective consideration in the determination of wage level in a
company. Productivity can be measured vis-à-vis output per man-hour and is a function of several
factors such as technological innovations, improved organisation and management, better methods
of production, increased skills of work force and allied factors. Because of higher productivity,
employees are paid higher wages.
Seventh, strong bargaining power of workers through their union ensures higher wages than
those who have weak bargaining power or have no unions although increase in wages more than
productivity may cause inflation or unemployment.
Last, job requirements indicating measures of job difficulty provide a basis for determining the
relative value of one job to another in an enterprise. Explicitly, jobs may be graded in terms of a
relative degree of skill, effort and responsibility needed and the adversity or working conditions.
This form a basis for job evaluation plans and thus, determines wage levels in an industry.

WAGE LEVELS
The Fair Wage Committee explained in its report the three concepts of wages: (1) minimum
wage to improve the standard of living of people who live below the poverty line (2) fair wage
assuring equal pay for equal work and (3) living wage assuring maintenance of living standards in a
locality.
1. Minimum wage: It is the wage to cover bare necessaries of life, i.e. food, shelter and clothing. It
may provide a little for worker’s sufficiency, e.g. for his health and education.
In most countries we have minimum wage legislation to fix the minimum wage for each type of
occupation in the various industries. The statutory minimum wage fixation removes the evils of
sweating and exploitation of labour and tries to improve standard of living of the workers who are
getting too low wages and whose living conditions are deplorable.
Such legislative action is essential for workers who are illiterate, ignorant, isolated, unorganized
and hence whose bargaining power with fully organized employers is too weak. Minimum wage set
up by law is the lowest limit or the floor level below which no worker shall be paid. If a business is
unable to pay minimum wage, it has no right to exist in industry.
2. Living wage: It is a wage which can offer an employee, incentive to work and produce enough in
quantity, without sacrificing quality so that the payment of such a wage is justifiable by the industry.
Components of living wage are:
(1) Bare necessaries,
(2) Insurance cover against ill health, disability, old age, etc.,
(3) Reasonable expenditure in children’s educations,
(4) Some margin for self-development and recreation,
(5) Saving for the rainy day.
A literate and intelligent worker will use living wage for steady rise in his standard of living, i.e.
healthy living with a few comforts and provision for contingencies. Hence it is a boon to workers in
highly developed countries. Illiterate, backward and ignorant workers may waste the remuneration
given by living wage on vices such as drink and other useless avenues of expenditure. Hence, in the
context of current social and educational background in India, living wage may be luxury or even a
cures and it may not yield desirable and happy result.
3. Fair wage: whatever the terms ‘minimum wage’ and ‘living wage’ may mean, one of the most
important and persistent demands of labour in the present day is for the guarantee of fair wage which
is reflected in the slogan equal pay for equal work. It is the wage equal to that equal difficulty and
equal unpleasantness. Equal work is to be considered not only in the same job but also work in
similar and comparable jobs.
In a narrower sense, fair wage is the rate of compensation current for similar workers in the same
area or industry. In a wider since, fair wage is the predominant rate available for similar jobs and
occupations throughout the country or in all industries.
Interrelation between the Three Wage Levels
1. Living wage is the target, the cherished goal or objective and the ultimate aim in all
countries. Nothing short of ‘living wage’ can be a ‘fair wage’ if under competitive conditions an
industry can be shown to have capacity to pay in full the ‘living wage’. A fair wage goes through the
process of approximation a living wage.
2. Fair wage is a step towards ‘living wage’. It indicates conscious effort of progressive
realisaton of ‘living wage’ sooner or later.
3. Fair wage is definitely more than the ‘minimum wage’ but it is usually lower than the ‘living
wage’.
4. Fair wage is settled by the employer’s capacity to pay. It will be fluctuating between two
limits: (i) Lower limit set by minimum wage, (ii) Higher limit determined by the firm industry
capacity to pay.
A firm requires minimum 25 per cent of return of income for its survival and normal growth and
to keep itself in a healthy condition. If the earnings of the firm exceed 25 per cent, it means that it
can pay higher than the minimum wage. If the earnings are e.g. 30 per cent it must pay fair wage. If
they are e.g. 35 per cent it can pay even the living wage.
Upper limit of wages in the long urn is always governed by the firm’s ability to pay, e.g. excess
of net income over above normal and reasonable profit margin. If the profitability is very high e.g. in
an affluent society, we may have even comfort level of above living wage.
METHODS OF WAGE PAYMENT
Wage operates both on the circumference, i.e., outer limit and also at the centre, i.e., inner core
of industrial relations. The greatest bone of contention in the conflict between labour and
management is the problem of wages and salaries, i.e., compensation or the price to be paid to labour
services offered by the employees. Give satisfactory and fair amount of compensation, probably
more than 60 per cent labour disputes may be eliminated.
There are three fundamental methods of compensating the workers:
1- Time Wage: It is also called day work system.
2- Piece Wage: It is also called commission system.
3- Balance Wage: It is a combination of the existing systems.
Time Wage
It is based on the amount of time spent or the passage of time, e.g. hour, day, week or month.
Wage is measured on the basis of unit of time, e.g., per day, per week or per month. It is also called
salary and it is fixed for the specified time, i.e., income is not variable and it does not depend at all
on the performance or the amount of output given by the employee. The chief this system are:
(1) It is more widely used as it is very simple.
(2) It facilitates payroll function.
(3) Computation of earnings is quite easy.
(4) It provides guaranteed and secured income, thereby removing the fear complex of uncertainty
and irregularity of income so that he can concentrate his attention on improvement in the quality
and his workmanship. It is very suitable for pioneering work.
Advantages
(1) Greater care and attention of quality and workmanship can be ensured.
(2)Worker knows exactly the amount is to get.
(3) Sense of security of income–regular and stable.
(4) Conducive to harmony and better labour–management relation.
Conditions Favoring Time Wage
Time wage is preferable and it is always a practical proposition under the following conditions
(i) Unit of output is not measurable, commodity is non-standardised, it is not uniform and have
varieties of output. In short, the amount of output cannot be accurately measured, counted and
standardised.
(ii) Volume of work is not always within the control of labour. Delays on interruptions in the
work may be inevitable due to conditions of word, i.e., speed of work is set by the machine, e.g.,
assembly line of production industry. In chemical industry, paper industry, the process controlled
operations and in such continuous process industries time wage is always preferable.
(iii) If speed of work is risky and to minimise risks of accidents.
(iv) When workers are new and learning the job or trade.
(v) When it is difficult to fix the unit of output, e.g. clerical work.
(vi) When quality of work assumes special importance.
(vii) When competitive conditions and cost control do not require precise advance knowledge of
labour cost per unit of output.
(viii) When employees have little control over the quality of output, e.g., automation or
computer-controlled industry.
(ix) When supervision is good and supervisors know what constitutes a fair day’s work.
Disadvantages of Time Wage
1. There is no close control over labour costs because of unequal output by workers. In the
absence of positive correlation between pay and output, wage cost determination is very difficult and
no plan, no control over unit labour cost. This is the greatest weakness of time wage system.
2. Time wage system by itself offers no incentive for employees to put forth their best efforts,
because the incentives to produce more effort and reward have no direct positive correlation. Hence,
employee merit rating and incentive wage plans have to be adopted.
3. Time wage system is inequitable. All are paid equally irrespective of ability, skill or
experience. There is no encouragement for better performance. On the other hand merit is discounted
and inefficiency is at a premium. All receive the same salary.
4. It is an unsound basis of wage payment. A worker loses initiative. Ambitious workers receive
no monetary reward for their talents. Hence, it is unscientific and arbitrary.
5. It demands adequate, intensive and strict supervision over workers. This will increase
managerial cost. If the boss is absent, the employees just while away the time in gossiping.
Piece Wage System
 It is based on the amount of work performed, i.e., on the basis of output of productivity and not
on the basis of time spent. Piece work is one of the simplest and most commonly used of all
incentive plans. The standard is expressed in terms of certain sum of money for every unit produced,
such as Rs. 2/- per piece or Rs. 4/- per kilo or Rs.6/- per dozen. The earnings of the employee are
directly proportional to his output or performance. It is called a 1 for 1 plan-for each 1 per cent
increase in production the worker is paid a 1 per cent increase in wages.
Main Features
1. It can offer direct connection between effort and reward. Hence, a worker has incentive to
produce more. Merit, skill and efficiency – all these are at a premium. Hence, it is the best method to
ensure higher productivity.
2. It can ensure adequate planning and close control over labour costs. Wage determination easy.
Labour cost per unit of output is measurable.
Both these features are conspicuous by their absence under the time wage system but they are
duly available under the piece wage system. Hence, if the piece rate is fair and satisfactory to both
parties, piece wage is undoubtedly superior to time wage and it is an ideal system of wage payment,
because it is beneficial to all-more wages, more profit, lower unit cost of labour etc.
Job evaluation can determine basic hourly rate, i.e., Rs. 10/- per hour. Standard time of three
minutes per unit or 20 units per hour is set by industrial engineer. This is equal to Rs. 10/- = Re. 0.50
per unit. If the guaranteed minimum wage is Rs. 10/- per hour and if the worker’s output was less
than 20 units necessary to earn the minimum, would still be paid Rs. 10/- per hour. But with straight
piece work (without a guaranteed minimum) the worker would be paid purely on the basis of output
at the rate of 50 paise per unit. Under piece wage direct labour cost per unit to the employee is fixed.
However, in a well regulated piece wage system, a piece work plan has a guaranteed minimum
which is also required under the Minimum Wages Act.
Advantages
(1) Direct connection between effort and reward given incentive to produce more.
(2) It is simple and easy to understand.
(3) It is fair in its rewards, since earnings are directly proportional to output.
(4) Cost accounting and control by management if facilitated as labour cost is constant for
output-easy estimate of labour cost and control over unit cost of labour (5) Specialised
industry with huge capital investment expects maximum output. Piece wage system is the best
method to maximise output.
(6) The worker is interested in higher efficiency, self supervision, saving of time, etc. There is no
need for elaborate inspection and strict supervision by the managerial group.
Conditions Favoring Piece Wage
Piece wage system is eminently suitable under the following conditions:
(1) If the amount of work can be accurately measured, standardised and counted.
(2) If productivity is closely related to skill and effort.
(3) If the unit cost of labour can be easily determined and controlled.
(4) If there is no fear of unwarranted rate cutting by the management and employer realises the
distinct advantage of piece work.
(5) If labour offers full co-operation.
Disadvantages
(1) Danger of overwork in temptation to earn more. This leads to excessive fatigue, ill health and
risk of accident.
(2) If quality is given top preference, it is an ineffective method.
 (3) In the absence of mutual confidence, fixation of piece wage rate is difficult.
(4) Under piece wage system a lot of supervision is required to maintain the quality and standard.
Workers are tempted to ignore quality.
With all the drawbacks, a well regulated piece wage system (with guaranteed minimum base rate
of compensation) is undoubtedly superior to the pure time wage system.
Piece Rate be based upon: (1) Work study, (2) Time and motion study and (3) Job evaluation
technique. It should be neither too high nor too low.
Balance or Debt Method
This is a combination of time and piece rates. The worker is guaranteed an hourly or a day rate
with an alternative piece rate. If the earning of a worker calculated at the piece rate exceed the
amount which he would have earned if paid on time basis, he gets credit for the balance, i.e., the
excess piece rate earnings, the question of excess payment does not arise. Where piece rate earnings
are less than time rate earnings, he is paid on the basis of the time rate; but the excess which he is
paid is carried forward as a debt against him to be recovered from any future balance of piece work
earnings over time work earnings. This system presupposes the fixation of time and piece rates on a
scientific basis.
Let us suppose that the piece rate for a unit of work is Re. 1.00 and the time rate is Rs.0.37 an
hour the weekly work hours are 40 and the number of units to be completed during these 40 hours is
16.
It will be seen that the debit during the second week completely eliminated the credit of Re.1.00
obtained during the first week. The worker will be paid his guaranteed time rate, in the case Rs.
15.00 in the first week and the same amount in the second week, although his earnings during the
first week are Rs. 16.00 and during the second week they are Rs. 14.00. An adjustment will be made
periodically to find out the balance to be paid to him.
The obvious merit of this system is that an efficient worker has an opportunity to increase his
wages. At the same time, workers of ordinary ability, by getting the guaranteed time wage, are given
a sufficient incentive to attain the same standard, even though the excess paid to them is later
deducted from there future credit balance. The example is as under.

Name of Units of Total Total Credit Debit Balance

Worker Completed Earnings under Earnings under
Piece rate Wage rate
Ram 16 Rs.16 Rs.15 Rs.1 Nil Rs.1/-
(First week)
Ram 14 Rs.14 Rs.14 Rs. Nil Nil Rs.1/-
(Second week)

INCENTIVE WAGE PLANS

It is said that ‘Piece rate ’affects quality but increases production, ‘time rate’ improves quality
but affects production. A system of wage payment which would maintain both quality and quality is
called incentive wage plan and it is naturally a judicious combination of both basic system of wage
payments, viz, time and piece wages.
Essential Requirements of a Sound Wage Incentive Plan
 Most incentive plans involve (i) measurement of the amount of work done (management
measures it, (ii) establishment of quota of standard output or the norm on the basis of which the
incentive has to be worked out, and (iii) utilization of a formula for relating pay to production or
performance, i.e. setting up of a suitable rate of, incentive, which may be subject to modification in
the light of actual experience.
The quota or the norms of production fixed as a basis of wage incentive should neither be too
high nor too low. If it is too high, it will be pre judicial to labour and acceptance by trade union
would be difficult. If it is too low, it would not be worthwhile for management to introduce the
incentive scheme as the wage bill will be large, while productivity will be low. The characteristics of
sound incentive wage plan are stated below:
1. Approval of Management, Workers and Trade Union: All the interested parties must
accept, support and co-operate in the incentive plan. In the absence of employee support, the
programme of incentive will rest on a shaky foundation. The plan should be formulated through
discussion and participation between management (lower level supervisors) and labour (union
officials). Workers should get full explanations and they should be trained by the management for
ensuring smooth working of the plan.
2. O. & M. Studies: Before a work standard is established, a standardised procedure or method
should be evolved on the basis of organization and methods analysis of each operation Employees
must be taught how to perform the work according to the optimum or standard methods and
procedure.
3. Work Standard: The norm or standard upon which wage incentive is based should be fixed
through careful work measurement devices, e.g., time and motion studies, work sampling of work
standard is usually measured in time.
4. Guaranteed Base Wage: Normally the base rate is determined by job evaluation. There may
be differential base rates reflecting properly differences in skill effort, responsibility and job
condition. The employee should be dropped due to the circumstances beyond his control. Base rate
of compensation incorporates the desirable advantage of time wage in incentive plan, viz., security
of income.
5. No Unwarranted Rate Cutting: The work standard or quota, in time or money per unit,
most be guaranteed by management against unilateral and unwarranted rate cutting. The practice of
rate cutting by the employers at their will during the early days of scientific management killed the
every purpose of incentive plane, viz, higher productivity and lower unit cost of labour. A change in
the work standard is justifiable only when there is a change in the method, tooling, equipment our
design of the product.
6. Easy Calculation of Earnings: An incentive plan should facilitate ready and easy
calculation of the employee’s earnings. This will build up the confidence and trust in the
programme. Complexity is one of the basic drawbacks of many incentive plans. Management should
try to simplify it as for as possible.
7. Grievance procedure: An incentive plan of wage payment should have effective grievance
procedure to deal with complaints and dissatisfaction ventilated by employees. The work standard or
the incentive rate may be too tight-rates difficult to meet can be adjusted through grievance
procedure.
Unless mutual confidence and good relationship exist between management and labour in a
business unit, the chances of full success of a new incentive system are very poor.
Important Wage Incentive Plans
1. Halsey Premium Plan
2. Rowan Premium Plan
3. The 100 Per cent Premium Plan
 4. The Bedeaux Point Plan
5. Taylor’s Differential Piece-Rate Plan
6. Merric’s Multiple Piece Rate Plan
7. Gnatt Task Plan
8. Emerson Efficiency Plan
9. Co-Partnership System
10. Accelerating Premium Systems.

1. Halsey Premium Plan: This is a time saved bonus plan which is ordinarily used when
accurate performance standers have not been established. Under this plan it is optional for a
workman to work on the premium plan or not. His days wage is assured to him whether he
earns a premium or not, provided that he is not so incompetent to be useless. A standard
output within a standard time is fixed on the basis of previous experience. The bonus is
based on the amount of the time saved by the worker. He is entitled to a bonus calculating on
the basis of 33.33 per cent of the time saved. He thus gets wages on the time rate basis. If he
does not complete the standard output within the stipulated time, he is paid on the basis of a
time wage. The plan is not combination of the day wage and the piece wage in a modified
form.

Example: Suppose the standard time is 20 hours, the number of units to be completed is 10 and
the hourly rate is 25 paise. Then, the working of the scheme will be.
Time taken (hrs) - 14
No of hrs saved - 6
Amt. of wage recd. - Rs.3.50
Amt. of bonus - Rs.0.75
Total earnings - Rs.4.25
Example: If 8 hours is the standard time of a job and Re.0.50 is the guaranteed wage per hour, the
worker, if he takes 8 hours to perform the work, receives Rs.4.00. If he performs the task in less than
8 hours he receives an extra premium on the time saved (i.e. for 2 hours).
Premium Total Wages
(Half of the Time Saved) Rs.
If the work is completed in 6 hours 0.66 4.66
-do- in 4 hours 2.00 6.00
-do- in 2 hours 6.00 10.00
-do- in 1 hour 14.00 18.00

Merits: The merits of this plan are:

(a) It guarantees a fixed time wage to slow workers and at the same time offers extra pay to
efficient workers.
(b) The cost of labour is reduced because of the percentage premium system, the piece rate of
pay gradually decreases with increased production.
(c) The plan is simple in design and easy to introduce.
(d) As the wage are guaranteed, it dose not create any heartburning among such workers as are
unable to reach the standard.
Demerits: the disadvantages of the plan are:
(a) It depends upon past performance in instead of making new standards.
(b) The workers can beat the game by spurting on certain of the guarantee of day wages.
(c) From the point of view of the administration, the policy is one of drift, for, in this plan, the
worker is left alone to decide whether or not to produce more after the standard has been
reached.
2. Rowan Premium Plan: This plan differs from the Halsey plan only in regard to the
determination of the bonus. In all other respect, the two are the same. In the Rowan plan, the
time saved is expressed as a percentage of the time allowed, and the hourly rate of pay is
increased by that percentage so that total earnings of the worker are the total number of hours
multiplied by the increased hourly wages. The plan aims at ensuring the permanence of the
premium rate, which is often cut by the employer when the workers efficiency increase
beyond a certain limit. The premium is calculated on the basis of the proportion which the
time saved bears to standard time.
Example: If 8 hours are the standard time for doing a job and Rs.4.00 per day wage, the
premium and total wages would be as follows:
Premium Total Wages
Rs. Rs.
If the job is completed in 5 hours 1.00 5.00
-do- in 4 hours 2.00 6.00
-do- in 3 hours 3.00 7.00
-do- in 1 hour 3.50 7.50

Formula bonus = time saved/time allowed x time taken x hourly rate.

The Rowan plan has all the merits and demerits of the Halsey plan except that, because of the
limitation on earnings, it does not provide an incentive for maximum productivity. Moreover, the
complex method of premium calculation is generally unintelligible to the worker. He can not,
therefore, be expected to take much interest in the plan.
These premium plans may be classified as differential piecework systems and have been
evolved with a view to giving the benefit to both parties. They are based on the fundamental
principle that a worker’s earning should increase when his production rises above a pre-
determined target. As his extra earning is not in proportion to his usual wage rate, the overall
production cost per piece falls when the output increases. The bonus paid and the total earnings
under each of these schemes are as follows:

Table
Plan Bonus (B) Total Earnings (E)
Halsey B=1/3(Hs-Ha) Rh E=Ha. Rh+ 1/3 (Hs-Ha). Rh.
=1/3(Hs+2Ha) Rh.
Halsey-Weir B=1/2(Hs-Ha) Rh E=Ha.Rs+1/2(Hs-Ha).Rh.
=1/2 (Hh+Ha) Rh.
(Hs – Ha) (Hs – Ha)
Rowan B= x Ha. Rh E= Ha-Rh+ Ha. Rh
Hs Hs
= Ha/Hs (2 Hs Ha) Rh

Hs= the hour allowed or standard time.

Hs= the actual time taken on a job.
Rh= the worker rate per hour.
 It will be seen that, for a little time saving Rowan Plan gives more bonus than the Halsey or the
Halsey-Weir Plans. Up to 50 per cent of the time saved, the bonus earned under the Halsey-Weir or
the Rowan Plan is equal; but above 50 per cent of the time saved, the Rowan Plan pays more than
the Halsey Plan. However, under, the Rowan Plan a worker gets his maximum bonus when he
completes the task in half the standard time allowed. If he saves more than 50 per cent of the time,
the bonus he earns decreases, and his increase in wage is at a diminishing rate. But under the Halsey
and Halsey-Weir Plan, it is progressively higher.
3. 100 Per Cent Time Premium Plan:
1. Guaranteed base rate received by the worker even if he fails to meet standard performance.
2. Earnings are directly proportional to production above the standard.

Worker gets Rs. 36/-(Rs.8 x 3 + Rs.4 x 3, i.e., Rs.36/-)

As his efficiency is 150 per cent he would get 50 per cent more remuneration. Entire benefit of
efficiency or time saved is passed on to the worker. There is no gain sharing as such.
4. The Bedeaux Point Plan: This plan is used when careful assessed performance standards have
been established. It differs from the 100 per cent plan in that the basic unit of the time is the minute
termed as B. Every job is expressed in terms of Bs (after Bedeaux), which means that a job should
be completed in so many minutes. If a particular work is rated at 60 Bs (or one B hour), the worker
is allowed one hour for its completion and receives a bonus of 75 per cent for the number of Bs, i.e.,
time, saved. Suppose a worker earns 600 Bs in a day; if the rate per point is Re.0.01, his total
earnings would be:
Rs.4.80 x 0.01+ ¾ (600-480) x 0.01.
= Rs. 480 x Re. 0.90 = Rs. 5.70.
The chief advantage of this plan is that it can be applied to any kind of a job. It is particularly
suitable for plants in which worker are assigned diverse kinds of job, shifted from one job or
department to another. All the points which a worker earns in a day are recorded, and the bonus is
calculated on that basis.
5. Taylor’s Differential Piece-Rate Plan: It provides two piece rates:
(a) a lower rate when the output is below the standard amount or quota and the performance
is average or below the average.
(b) a higher rate of payment when the worker exceeds or equals the standard output. The
standard output is fixed after careful analysis and study. It penalizes rather severely those
who are not able to attain the standard.
Illustration
Standard output = 40 units per hour.
1st rate for output below 40units = 30 paise per unit.
If a worker produces of 39 units he will get only Rs. 11.70(39 x 30).
2nd Rate for output of 40 units and above may be, say 40 paise per unit.
If a worker produces 40 units, he will get Rs 16/-i.e., if he produces just one more unit, he will
have Rs. 4.30 increase in his remuneration. The differential piece rate gives a premium on efficiency
and can certainly secure higher productivity. But it is very harsh for those who are a little less
efficient. i.e., who are just on the marginal output. It is not a practical method and trade unions
cannot accept such a plan as it breaks the solidarity of labour.
6. Merrie‘s Multiple Piece Rate System: This system, too, is based on the principle of a low piece
rate. For a slow worker and a higher piece rate for higher production; but the plan differs from
Taylor’s Plan in that it offers three graded piece rates instead of two: (i) Up to, say 83 % of standard
output as piece rate + 10% of time rate as bonus; (ii) Above 83% and up to 100% of standard output-
same piece rate + 20% of time rate; and (iii) Above 100% of standard output – same piece rate but
not bonus.
Such a scheme is usually introduced in an organisation where the performance level is already
high and management is aiming at 100% efficiency. Management has some discretion in distributing
the 20% of time rate over 17% of production above 83%.
7. Gannt Task and Bonus Plan
1. It guarantees hourly base rate. Substandard worker gets guaranteed wage.
2. It is simple, easily understandable and it can be easily introduced.
3. It offers both-Security and Incentive (handsome bonus).
4. It also facilitates planning and supervision.
5. It becomes a piece rate when workers exceed the standard.
6. For less than 100 per cent Bonus.
100 per cent efficiency we have 20 per cent bonus. Efficient worker gets wages on the piece rate.
Beyond the standard time fixed, the piece rate is on the diminishing scale. Hence, no speeding up of
work is allowed.
8. Emerson’s Efficiency plan: It provides a sliding scale of bonuses.
For efficiency below 66.66 per cent only, time wage and no bonus.
At 66.66 per cent efficiency-Time wage + 1 per cent of day wage.
At 90 per cent efficiency-Time wage + 10 per cent of day wage.
At 100 per cent or more efficiency-Time wage + 20 per cent of day wage.
Illustration:
Standard Time is 8 hours.
If a worker does it in 16 hours his efficiency is only 50 per cent; if he does it in 4 hours, his
efficiency will be 200 per cent, if he is able to do it in just 8 hours, his efficiency will be 100 per
cent.
If the standard output is 80 units in 8 hours and daily wage is Rs. 25/= per day, and if the worker
produces only 80 unit in 8 hours, he will get Rs. 25/= + 20 per cent of Rs. 25/= I.e. Rs. 25+ Rs. 5/=
Rs. 30/= for 8 hours work.
If he needs 12 hours to produce 80 units, his efficiency is only 66.66 per cent and he will get Rs.
37.50/= for 12 hours work, i.e., time wage for 1.5 days.
Advantages of Emerson’s plan
(1) It is easy to understand. (2) It is suitable for beginners. (3) It gives incentive for skilled and
efficient works. (4) Calculations are logical as we have a fair basis for incentive to produce more. (5)
It can be applied to both individuals as well as group of workers.
However, it has one draw back. Once you reach the standard efficiency. i.e. 100 per cent, further
incentive is very mild. Hence it is unsuited for ambitious workers.
9. Co-Partnership System: This system tries to eliminate friction between capital and labour.
Under this system, not only does a worker share in the profits of the undertaking but he also takes
part in control and therefore, shares responsibilities. There are different cases but in a complete co-
partnership system, the following factors are present:
(a) The payment of the existing standard wages of labour;
(b) The payment of a fixed rate of interest on capital;
(c) The division of the surplus profit between capital and labour in an agreed proportion;
(d) The payment for a part of the worker’s labour by the allotment of a share in the capital;
(e) The sharing in the control of the business by the represntatives of labour.
The system arouses and sustains the interest of the workers in their work. By giving them a voice
in the management of the factory it raises their status as well. As they have become partners in the
business, they try to make it a very profitable enterprise.
10. Accelerating Premium Systems: These are the system which provide for a guaranteed
minimum wage for output below standard.
For low and average increases in output above the standard, small increment in earnings are
allowed. Increasingly large earnings are concerned for above average output, the increment being
different for each 1% increase in output. Very significant increases in earnings are given for really
high output.
In this system, the production is pushed up higher and higher by discouraging low output and
rewarding at an increasingly effective rate higher putputs.
Such schemes are generally adopted when much higher outputs than what are currently obtained
are to be achieved.
Wage Differentials
Several grievances and dissatisfactions with wages are the result of pay rate differences between
jobs and individuals. Explicitly, the individual despite his/her concern for the total pay is also
interested in the comparative pay. Wage differentials are of several kinds including supervisory
differentials, skill differentials, occupational differentials between wage and salaried individuals, and
differentials based upon job variations.
First, it is recognised that increased responsibility in supervisory positions should accompany
higher earnings. Several companies attempt to maintain as high as 25 per cent differential between
supervisors and their subordinates as a measure to provide status and prestige to the former. This
type of differential is a source of satisfaction with pay for the supervisors.
Second, attempts are made to maintain differentials between skilled and unskilled jobs. Despite
increases in the minimum wage, union pressures for uniform wages and allied factors, there prevail
wage differentials among jobs involving varied skill levels.
Third, there may arise wage differentials in view of varying occupational proficiencies. Thus,
individuals from divergent occupational groups are paid different amounts of remuneration. These
differentials induce individuals to accept more exciting work assignments as well as motivate time
and effort to jobs.
Fourth, there are differentials between wage and salaried personnel insofar as the former receives
a general wage increase and the latter does not.
Last, wage differentials steam from job variations. Frequently, job rating is used to determine
wage rates as a measure to remove unfairness and inequalities. Attempts are made to establish rates
which link the factors of productivity of human resources with their compensation in a tangible
form. Thus, there exist two types of compensation differentials relating to the worth of different jobs
as well as differential qualities of personnel leading to divergent productivity.
As Bealtty and Schnneier point out, merit pay differential must be taken into account in the
process of pay determination. Its use relates to individual equity purposes. Notwithstanding the
efforts to build wage and salary structures, there must be some provision for rewarding the above
average individual performance in each job category.
There are regional, intra-industry, skill and sex differentials. At the very outset, it may be noted
that wage rates differ in terms of geographic area in the country. In the western region there are
relatively higher wages due to worker awareness, union power and implementation of legislation.
Moreover, there are also obtained intra-region variations in wages steming from the nature of
technology used and level of development of a particular sub-region. Likewise, wage rates for the
same skills differ across industries. Thus, an electrician may be paid varied wages for the same level
of skills in different industries. The Boothalingam Committee cites the example of sweepers who
had divergent wage rates for the same skills across government departments, municipal corporations
and private sector organisations. Then, there exist varied wage rates within a particular industry,
such as, textile for the same or similar skills.
Further, although DA has somewhat narrowed down the gap, there is divergence in wage rates in
terms of skills. Thus, the skilled jobs fetch greater wages than the unskilled and semiskilled ones.
For rare skills, the employers are bound to pay more than the prevailing rates in a particular industry.
Conceptually, the payment of higher rates than the contract rate is called wage drift. Again, with the
exception of supervisory and management cadre and packaging industry, women employees get
lower wage rates than their male counterparts for doing similar work. Finally, significant issue
relates to wide gap between the wages of workers and salaries of executives. The Boothalingam
Committee suggested measures to reduce the differentials between executives and employees
remuneration to 1:10. The Sachar Committee suggested that certain norms should be evolved for
fixing salaries of top executives in place of the prevailing government regulation. While the
Bhoothalingam Committee recommended the establishment of a National Pay Commission to
resolve this issue, the Sachar Committee stressed that corporate annual meetings should work out the
details of the prescribed norms to regulate salaries of the top executives.
Due to the paucity of relevant data on wage differentials, it is not possible to analyse them in
India; yet the main features of the Indian wage structure may be stated thus: “As a characteristic of
the unorganised labour market, personal differentials because of job selling, individual bargaining
and wage discrimination have tended to persist in India especially in the unorganised sector of the
economy, and even in the organised and unorganised sections in industry.”
The tendency appears to be towards the elimination of wage differentials because of government
interference through the fixation of the minimum wages and of late, through the appointment of
Wage Boards and pressures from trade unions. Wage differentials by sex are quite common. Despite
the fact the Constitution of India enjoins upon the State to direct its policy toward securing “equal
pay for equal work” for men and women, awards of some Industrial Tribunals provide for “different
wages for men and women workers, not on the ground that the work done is unequal but on the
ground that the wages of women workers support a smaller family, that the cost of employing
women workers is high.”
As regards inter-industry differentials in India the former were quite important and frequent in
the past, particularly in the jute mill industry. Of late, however, there has been a tendency towards
the elimination of inter-firm differentials. The forces which tend to eliminate inter-personal
differentials in the country operate in this case as well.

WAGE REGULATION IN INDIA

The major wage laws include the Payment of Wage Act, 1936 and its subsequent amendments,
the Minimum Wages Act, 1948 and Equal Remuneration Act, 1976.
The Payment of Wage Act, 1936
Except Sikkim, The Payment of Wages Act, 1936, extends to whole of India and applies to
persons employed in any factory as defined in the Factory Act, 1948 and in the railways, receiving
wages and salaries. Neither employers can withhold the wages earned by workers nor can they make
any unauthorised deductions. Payments must be made prior to the expiry of a specified day after the
last day of the wage period. While there is a provision to impose fines for only those acts of
omission which have been approved by the appropriate government, the fines cannot exceed an
amount equal to three praise in a rupee of the wage payable. If the payment of wages is delayed or
wrongful deductions are made, the workers or their trade unions can file a claim. The employees
employed in agriculture have been outside the purview of the Act.

The Minimum Wages Act, 1948

The Minimum Wages Act, 1948 relates to the employment situations embodied in parts I and II
of the Schedule to the Act. The appropriate government is empowered to include other employment
situations in the schedule and fix or revise the minimum wage rates. It is obligatory on the part if the
employer to pay the minimum rates of wages fixed in terms of the procedures prescribed by law,
irrespective of his capacity to pay. The Act provides for fixing minimum wages in certain
employment situations where sweated labour prevails or where there exists possibility of
exploitation of labour. However, minimum wages are not to be fixed in an industry which employs
less than 1,000 employees in the entire state, although this condition has been relaxed in a
subsequent amendments of the Act. Thus, the Act empowers the central and state government to fix
minimum rates of wages in woolen, carpet-making or shawl-weaving establishments, rice, flour or
daal mills, tobacco or bidi-making industry, plantation, oil mills road construction or building
operations, stone breaking or stone crushing, lac manufactories, mica works, public motor transport,
tanneries and leather manufactories and agriculture. The Act provides for the fixations of a minimum
time rate or a minimum piece rate, a guaranteed time rate and an overtime rate suitable for various
occupations and classes of workers. A minimum wage rate incorporates wages of a cost of living
allowance and the cash value of the concessions regarding supplies of essential commodities at
nominal rates. The Act further prescribes for the payment of wages in cash although the appropriate
government is empowered to pay wholly or partly in kind. The Act further provides for the
appointment of committees, subcommittees, advisory subcommittees advisory boards and a central
advisory board for assisting the appropriate government in fixing and revising the wages. The Act
also provides for revision of minimum rates fixed at suitable intervals not exceeding five years.
Accordingly, wage revisions are done by different state governments and union territory authorities.
The facts taken into account for initial fixation of wages as well as for the subsequent revisions
under the Act include minimum wage rates fixed by other states in similar industries, prevailing
wage rates in adjacent areas/industries, increases in the cost of living since the last fixation, etc.
The Act, however, does not provide any guidance to the wage fixing authorities with respect to
the content of minimum wages, factors to be taken into account while fixing the minimum rates of
wages, size of the family unit for which minimum wage rates have to be fixed, weightage to be
assigned to different factors such as cost of living, needs of workers, etc. Therefore, it is left to the
individual committee to the government to determine their own standards and arrive at conclusions.
Historically, the first to lay down the guidelines for fixation of minimum wages was the fifteenth
session of the India Labour Conference held in July 1957. It passed a resolution stressing that the
minimum wage should be need-based to meet the minimum requirements of the workers. The
resolution embodies several norms for the fixation of such wages in industry.
This was followed by the one-man committee headed by K I Vidyasagar who, in his report dated
19 December 1966, suggested a number of norms which must be taken into account while fixing/
revising minimum wages. Likewise the National Commission on Labour (1969) provided a number
of recommendations with regard to the statutory minimum wage. A committee of secretaries
belonging to six states with additional secretary of the Ministry of Labour as chairman was formed
in 1981. The committee made a number of recommendations with respect to the criteria for fixation
of minimum wages and evolves a formula for variable dearness allowance to be attached thereto.
 Although the Minimum Wages Act originally include 13 industries/employments, the minimum
rates of wages have been fixed in 207 employments till 2005.
The Equal Remuneration Act, 1976
The Equal Remuneration Act, 1976 provides for payment of equal remuneration to men and
women workers for the same work or work of similar nature. It prevent discrimination on the ground
of sex against women in the matter of employment and for matters connected therewith except
where the employment of women in such work is prohibited or restricted by under any law for the
time being in force. The Act has been enforced in several spheres such as plantation, local
authorities, Central and state government banks, educational institutions, mines, hospitals, hotels and
restaurants, manufacture of textiles and textile product, whole sale and retail trade, construction,
agriculture and air transport industry. In June 1978 it was extended to community, social and
personal services.
The National Labor Law Association has proposed to widen the scope of the Equal
Remuneration Act and to provide that no employer shall pay to any employee employed by him in
an establishment or employment remuneration at rates less favourable than those at which
remuneration is paid by him to any other employee in the same establishment or employment for
performing the same work or work of similar nature instead of limiting it to members of the opposite
sex only. Thus, it should cover employees on casual or temporary basis or in a project.
Wage Boards
The establishment of tripartite (non-statutory) wage boards was recommended by the Fair wages
Committee with a view to determining wages on an industry-cum-region wise basis. In March 1957
the first Wage Board was established for the textile industry (followed by the second formed in
1964). Thereafter, several wage boards were established for sugar (1957,1965,1985), cement
(1958,1964), Jute(1960), tea plantations (1960), rubber plantations (1961), coffee plantations (1961),
iron and steel (1962), iron ore mining (1962), limestone and dolomite mining (1963), coal mining
(1962), working journalists (1963,1985), non-working journalists (1964-1985), ports and docks
(1964), engineering (1964), heavy chemicals and fertilizer (1964), leather and leather goods (1966),
electricity undertaking (1966) and road transport (1966). The composition of wage boards is
tripartite in character and thus, involves the representatives of employers and workers and an
independent chairman. An equal number of representatives of the employers and workers are
appointed by the government in consultation with them. The chairman and two other independent
members (including consumers representative) are nominated by the government. Usually the
chairman is a judge serving or retired, while the consumers representative is a member of
parliament. The total number of members of the wage boards formed hitherto varies from seven to
nine. Although the wage structure recommended by a wage board remains in operation for five
years, it may not be necessarily implemented by the management.
The objectives of wage boards include more durable results, improved climate for industrial
relations, promotion of interests of consumers and the community, standardization of wage of wage
structure and support to social and economic policies of the government. Explicitly, wage boards
have not succeeded in accomplishing these objectives largely. Specifically they have failed to tackle
the problem of wage differentials and payment by results. There are several drawbacks in the system
of wage boards which are responsible for their ineffective working. These include delays in
completing the work, lack of unanimity in recommendations, inability to work out a suitable wage
structure and industrial harmony by providing suitable wage structures. Despite several
inadequacies, it is admitted that the system has provided machinery for bipartite collective
bargaining on wages and allied issues on an industry wise basis at the national level. It has been
suggested that wage boards should be provided statutory support to make them effective. However,
as Subramaniam observes, if wage boards are made statutory and their recommendations made legal
binding, they will be inseparable from industrial tribunals and lose whatever advantage they have
under a voluntary system of being a convenient forum for collective bargaining, Moreover, wage
determination on all India basis is inconsistent with the requirements of developing country
involving uneven levels of development in various regions and industries. Indeed, collective
bargaining of wage claims are likely to be effective when limited to an industry in a small area or
region than when embracing the national level.
Wages Policy in India
Wage policy forms a highly sensitive and complex dimension of labor policy in view of a
widespread impact of wages on the relative status of workers, their commitment to industry and their
level of motivation, morale and productivity and standard of living. It is not merely an economic
phenomenon but also a multidimensional social issue which is of interest to the consumers, the state
and the society as a whole. It is a determinant of the shares of the rival claimants of the product of
industry and the national dividend. Thus, it has to resolve conflicts over it’s short-and long term
objectives and public and private interests. Despite several theoretical guidelines for the formulation
of a wage policy, there are varied concrete social facts which must be taken into account in
designing a wage policy. Accordingly in view of the realities of the situation, there are several
hurdles in the formulation of a wage policy in a developing economy like India’s which adheres to a
democratic system. It is in this context that the National Commission on Labour examines various
issues of wage policy.
Although there has been a laissez faire policy towards wage problems for quite a long time,
settlement of wages through third party intervention can be traced to 1918 when at the initiative of
Gandhi, there took place a wage settlement in Ahmadabad, Government’s intervention for regulation
of wage came with the enactment of the Indian Trade Disputes Act, 1929. The Whitley Commission
dealt with issues such as minimum wages, standardization and intersectoral wages, and incentives,
suggested survey for collection of data and recommended a minimum wage fixing machinery of a
wage board type. Specifically the commission stressed the need for preventing unfair deductions
which holds true even today was that the problem of the industrial workers cannot be considered in
isolation and that in adopting measures for the betterment of industry or industrial workers, interests
of the community at large cannot be ignored. Although there were no immediate developments in the
wage policy in response to this report attempts were made in the late thirties to appoint ad hoc
committees to settle the wage structure in certain provinces. The government initiated its active
intervention on all India basis only during the World War II by allowing additional payment of
dearness allowance for rise in prices and share in war-time increased productivity through bonuses to
the works. However as the Rage Committee felt this short time strategy without a scientific attitude
can be damaging both to the workers and the industry. Lastly a major development was the 1946
programme which stressed the following three elements of wage policy: (1) the statutory
prescription of minimum wages in sweated industries and occupations in agriculture, (2) promotion
of fair wage agreements, and (3) steps to secure for workers in plantation a living wage. Of course,
the living wage amounted to a minimum wage in this context.
Wage policy after Independence
In response to an aftermath of the industrial unrest, the Industrial True Resolution, 1947 was
adopted. As the resolution asserts, the system of remuneration to capital and labour should be
advised in a way which promotes the interest of the consumers and the primary producers by
preventing excessive profits through suitable measures of taxation and otherwise to labour and a fair
return on capital employed in the industry and reasonable reserves for the maintenance and
expansion of the undertaking. Then Industrial Policy Resolution, 1948 was evolved. It stressed (a)
fixation of statutory minimum wages in sweated industries and (2) promotion of fair wages
agreements in the more organized industries. While the former was facilitated by the Minimum
Wages Act, 1948 which had already been passed the latter took place through the appointment of a
committee on fair wages (CFW) which aimed at the determination of principles to evolve fair wages
and suggest measures to implement these principles.

PROFIT SHARING
Profit-sharing is regarded as a stepping stone to industral democracy. Prof. Seager observes:
“profit-sharing is an arrangement by which employees receive a share, fixed in advance of the
profits.” The International Co-operative Congress held in Paris in 1889 considered the issue and
defined profit-sharing as “an agreement (formal or informal) freely entered into, by which an
employee receives a share fixed in advance of the profits.”
Profit-sharing usually involves the determination of an organisation’s profits at the end of the
fiscal year and the distribution of a percentage of the profits to workers qualified to share in the
earnings. The percentage to be shared by the workers is often predetermined at the beginning of the
work period and is communicated to the workers so that they have some knowledge of their potential
gains. To enable the workers to participate in profit-sharing, they are required to work a certain
number of years and develop some seniority. The theory behind profit-sharing is, that management
feels its workers will fulfill their responsibilities more diligently if they realise that their efforts may
result in higher profits, which will be returned to the workers through profit-sharing.
Features of Profit-sharing: The main features of the profit-sharing schemes are:
(a) The agreement is voluntary and based on joint consultation made freely between the
employers and employees.
(b) The payment may be in the form of cash, stock of future credits of some amount over and
above the normal remuneration that would otherwise be paid to employees in a given
situation.
(c) The employees should have some minimum qualifications, such as tenure or satisfy some
other condition of service which may be determined by the management.
(d) The agreement on profit-sharing having been mutually accepted, is binding and there is no
room on the part of the employer to exercise discretion in a matter which is vital to the
employees.
(e) The amount to be distributed among the participants is computed on the basis of some agreed
formula, which is to be applied in all circumstances.
(f) The amount to be distributed depends on the profits earned by an enterprise.
(g) The proportion of the profits to be distributed among the employees is determined in
advance.
It should be noted that profit-sharing is not a system of wage payment as such; it is something
else. Profit-sharing and bonus (also profit-sharing bonus) are two different things, for the former
sharing implies sharing on an equal footing rather than yielding on the part of a management to a
persistent demand. Profit-sharing bonus on the other hand refers to the distribution of profit on the
basis of a certain percentage of one’s monthly wages. Moreover, it is not voluntary and is not based
on agreement.
Profit-sharing is a distinctly progressive measure towards industrial harmony. It may be
considered as a step short of joint consultation or co-partnership schemes. Wage-business affairs are
managed and shared on a footing of equality. Essentially the means “the creation of a mental climate
in which a strong sense has to grow that the business is the business of all, since it is the joint effort
of the workers and the management and since the one cannot carry on a business without the help of
the other. This is the inner essence of profit-sharing which has often been overlooked.”
There are three main characteristics of labour remuneration in the form of profit-sharing, which
distinguish it from gain-sharing and form an ordinary system of wage payment. These features are:
(a) A share in profits is payable at long intervals when the final accounts of a firm are prepared
and its profit or loss ascertained.
(b) The payment is of an uncertain nature because of the uncertainty of profits. Sometimes there
may be no profits or very high profits; in other cases there may actually be some losses.
(c) The payment is not based on individual work, efficiency or merit, but is a remuneration for
collective effort, the total remuneration due to workers being equally divided among them or
in some agreed proportion.
(d) The payment is sometimes regarded as windfall gain or as something to which a worker is
entitled and not as something in recognition of his efficiency.
Objectives of Profit-Sharing: Profit-sharing is more than just another employee benefit. It may
be the most important part of progressive personnel policy. It may incorporate incentive features and
produce results not possible by the implementation of other programmes. Companies which offer
this incentive have realised higher profits and increase efficiency and have created a climate for
better employee relations.
The critical ingredient in profit-sharing is the desire of the employees and the management to
ensure the success of a programme. The programme is formulated at the top because profit-sharing is
first and foremost, a principle and technique of leadership.
The real objective of profit-sharing is to foster “the unity of interest and the spirit of co-
operation”. From the point of view the employees, profit-sharing may serve a multiple of objectives,
depending upon the type of plan which is adopted. A cash plan contributes directly to an employee’s
immediate economic gain. Deferred plans and combination plans contain features very similar to
benefit plans which provide for retirement benefits and against loss of income following disability,
for benefits to dependants in the event of the death of an employee, and for other related benefits.
From the view point of the organisation, employee productivity is the overriding objective of profit-
sharing. At the same time, it may contribute to employee satisfaction because profit-sharing provides
for rewards which are related to employee needs.
A profit-sharing scheme is generally introduced to achieve the following objectives:
(a) To promote industrial harmony and stabilisation of the work force;
(b) To eliminate waste in the use of materials and equipments.
(c) To instill a sense of partnership among employees and employers and to increase employee
interest in the company in which he works;
(d) To attract desirable employees and retain them, thereby reducing the rate of turnover;
(e) To encourage employee thrift;
(f) To provide a group incentive for a large output;
(g) To insure employee security; and
(h) To demonstrate some measure of social justice to employees.
The purpose of profit-sharing is the achievement of industrial harmony.
Forms of Profit-Sharing: Profit-sharing may be on-
 (a) Industry Basis: Here the profit of a number of industrial units in the same industry may be
pooled together to determine the share of labourers. Such a scheme has the advantage of putting the
whole labour force in a particular industry on a uniform basis. Moreover, if a certain industrial unit
somehow shows a loss in a particular year, its workers are not deprived of their remuneration
because other units have made a good profit.
(b) Locality Basis: Industrial units in a particular locality may pool their profits to determine
labour’s remuneration by way of profit-sharing. However, if there are heterogeneous industrial unit
in a locality, where labour’s work is for a widely divergent natures, there may be great difficulties in
bringing about an adjustment in their share.
(c) Unit Basis: This is the simplest way of giving a labourer a share in the profits of the
individual undertaking in which he is employed. This mode of profit-sharing establishes a close
relationship between the efforts of labour and rewards it receives. In the first two schemes, the
reward of workers depends on the combined efforts of all in a number of units.
(d) Department Basis: Sometimes the various departments of industrial unit may have their
separate profit-sharing schemes. The workers in a particular department share in the profits made by
that department. This aims at bringing about an even closer relationship between a worker’s efforts
and the reward he receives.

REVIEW QUESTIONS
1. What do you understand by wage? Discuss the main characteristics of an ideal wage system.
2. Define wages. Explain the factors determining wages.
3. “One basic problem in wage administration is that of prescribing satisfactory wage structure.” In
the light of this statement discuss the wage regulation in India.
4. Critically examine the wages policy in India.
5. What do you understand by time wage system? How it is different from piece wage stystem?
6. What are the important incentive plans? Explain any one of the plans.
7. Give a comparative analysis of Taylor’s differential piece wage and Emersons efficiency plan.
8. What is profit sharing? Explain its objectives.
9. Define Co-partnership. What are its advantages and disadvantages?
10. Write notes:
a) Wage Boards
b) Levels of wages
c) Wage Differential
d) Profit sharing in India

OBJECTIVE QUESTIONS
1. Which is not a wage determining factor?
a) Ability to pay
b) Productivity
c) Trade union
d) Job evaluation
2. Which is not included in wages under Wages Act?
a) Compensation
b) Medical facility
c) Bonus
d) Overtime
3. In which year Minimum Wages Act was enacted?
a) 1947 b) 1949
c) 1948 d) 1950
4. The oldest method of wage payment is:
a) Piece wage
b) Time wage
c) Balance wage
d) Incentive wage
5. Differential piece rate plan is propounded by:
a) F.W.Taylor
b) James Rowan
c) Merrick
d) Emerson
6. To which incentive plan the equation P = ts/st + T + r belongs?
a) Taylor plan
b) Halsey plan
c) Rowan plan
d) Gantt’s plan

7. The minimum premium payable under Halsey Premium Plan of wages is:
a) 20 Percent
b) 33.33 Percent
c) 30 Percent
d) 50 Percent
8. The minimum bonus payable is:
a) 8.33 Percent
b) 7.50 Percent
c) 8.15 Percent
d) 9.00 Percent
9. Which is not a factor of differential wage?
a) Inter firm
b) Inter industry
c) Personal factors
d) Environmental factors
10. Under which the combination plan accounts for?
a) Profit sharing
b) Wages
c) Copartnership
e) None of the above
11. Where labourer becomes a partner in management?
a) Incentive plan
b) Profit sharing
c) Co-partnership
d) Debt mehtod

Answer: )d 2)b 3)c 4)b 5)a 6)c 7)b 8)a 9)d 10)a 11)c