10

JOB EVALUATION, MERIT RATING AND WAGE

INCENTIVES

10.1 INTRODUCTION
Production operations management problems connected with wages and
incentives have a great beneficial effect on the continuity, profitability and
in general productivity of the enterprises since these are all directly linked
with human motivation. The analysts and researchers for boosting industrial
productivity are thus concerned with the need of the workers and the worth
of the jobs they are performing.

10.2 JOB EVALUATION

Job evaluation is described as a systematic and orderly method of
determining the relative worth of an individual job and of establishing an
adequate wage structure. It is a system of determining the relative worth and
not the absolute pay or price for a job. Job evaluation, so to speak,
establishes a job hierarchy in a company.

10.2.1 Objectives of Job Evaluation

The main objectives of a job evaluation programme are :
1. To establish a sound wage structure.
2. To eliminate wage inequities.
3. To establish sound wage differentials among the jobs.
4. To provide a sound wage base for incentives and bonus plan.

To achieve these objectives, job evaluation is performed through

several steps. These are :
1. Preparing standards of jobs.
2. Preparing descriptions of jobs.
3. Evaluation of jobs.
4. Converting evaluations to money values.
5. Providing for evaluation of new jobs.
192 INDUSTRIAL ENGINEERING AND MANAGEMENT

It begins with job standardization to ensure that the same job will be
done in the same way in a company. Next there is a job description based on
job analysis.
10.3 JOB ANALYSIS
A job is a grouping of work tasks, duties and responsibilities assigned to an
individual employee. In a company, there are different types of jobs, which
differ with respect to the demand made on the employee. One might demand
a prescribed level of education; require a certain physical ability, whereas
another job may not require so much of these qualities. So jobs are
evaluated primarily to establish a sound wage structure on the basis of
varying demands on workers.
A job description lists and describes the duties and responsibilities of a
particular position, states the conditions of work, rate of pay and factors
relevant to training and promotion.
A job description is obtained from a job analysis. Job analysis means
the careful determination of what workers do on a job.
It provides information regarding:
1. Identification of the job.
2. The duties performed on the job.
3. The responsibilities required by the job.
4. The working condition under which the job is performed.
5. The qualification required for the job.
6. Physical requirements by the job, and
7. Tools and processes used.
Job Analysis is a process to identify and determine in detail the
particular job duties and requirements and the relative importance of these
duties for a given job. Job Analysis is a process where judgments are made
about data collected on a job.
An important concept of Job Analysis is that the analysis is conducted
on the Job, not the person. While Job Analysis data may be collected from
incumbents through interviews or questionnaires, the product of the analysis
is a description or specification of the job, not a description of the person.
Job analysis is most frequently done by observing directly the
employees at work, but in some companies a questionnaire rather than direct
observation is used. These two methods, observation and questionnaire, are
studied along with three others:
1. Group interview with workers.
2. An individual interview, and
3. A technical conference with a group of experts on the particular job in
question.
 JOB EVALUATION, MERIT RATING AND WAGE INCENTIVES 193

From job descriptions, individual job specifications are prepared. The

job specification is a description of the requirements, an individual worker is
expected to possess for a given job. Thus job description and job
specification supplement each other. The job description with its
specification obtained from job analysis sets forth what the job entails and
what is expected of the worker.
Once all such job descriptions and job specifications have been agreed
upon both by management and worker‟s union covering all jobs in the plant,
the management can proceed to determine the relative worth of each job
through one of the several methods of job evaluation.

10.4 METHODS OF JOB EVALUATION

There are four conventional job evaluation methods under two
classifications based on individual‟s judgments of job characteristics. These
are listed below:
1. Qualitative methods: 2. Quantitative methods:
(a) Ranking method (a) Point method
(b) Classification method (b) Factor comparison method
It should be noted that, of the four methods, there are difference in the
technique of evaluation and in the basis of evaluation. These are shown in
Table 10.1.

Table 10.1 Technique and basis of job evaluation

Technique of evaluation

By comparison with By evaluation against a

other jobs „Standard‟
Basis of Whole job Ranking method Classification method
evaluation
Job factors Factors comparison Point method
method

10.4.1 Ranking Method

As the name implies, this method consists of ranking the jobs from the
highest to the lowest. Picking up the most important and least important jobs
first and then several key jobs somewhere in between accomplishes this.
The other jobs to be evaluated are then placed in proper place among the
jobs first selected. A committee or a person familiar with all of the jobs
should do the ranking. Then by a comparison of ranking given, jobs
common to several raters‟ lists may be grouped into job classes for affixing
wage rate.
194 INDUSTRIAL ENGINEERING AND MANAGEMENT

The reliability of ranking can be increased by “paired comparison”

method in which the rater compares each job with every other job by pairs.
The jobs are randomly paired. The job most often considered most valuable
is ranked as the first key job, the one picked next most often becomes the
second job, and so forth.
The ranking method is the least costly, simplest and easiest to
understand, but it does not indicate how much one job differs from another.
It only indicates that one job is relatively higher or lower in worth than
another.
The ranking method is usually most suitable for use in small
organizations with limited number of jobs; on the other hand, when there are
many jobs to be evaluated in large organisations, it is usually impossible to
find individuals familiar with all of them. Also, the biases of the raters will
tend to influence their evaluation of the jobs, as there is no specific point of
reference in this method. Other disadvantage is that it assumes equal spacing
between ranks.

10.4.2 Classification Method

In the classification method, several classified or graded jobs are determined
by management or by a committee. The evaluators judge the overall worth
of each job. Each job is then assigned to one of the grades. This method is
illustrated by such classifications as unskilled, semiskilled, skilled and so
forth.
The principal disadvantage that arises in using this method is the
problem of describing and defining each class and placing a borderline job
in the correct class. As a result, it can permit a tendency to perpetuate any
inequalities that may already exist in wage rates, or the evaluation may be
influenced with present incumbent of the position in question.

10.4.3 Point Method

The point rating method consists of:
1. Breaking jobs down into various compensable factors such as skill,
effort, and so forth,
2. Assigning numerical values or „point‟ to varying „degrees‟ or levels to
each factor.
3. Evaluating individual jobs in terms of their „degree‟ or level on each
factor, and
4. Summing the point values for the individual factor to derive the total
point values for each job.
These total point values are then used in setting up the monetary wage
scale. As an aid, each factor is described by a suitable definition, and
 JOB EVALUATION, MERIT RATING AND WAGE INCENTIVES 195

appropriate benchmark jobs may be selected for comparison purposes. One

of the most widely used plans of the type is that put out by the National
Electrical Manufacturers Association (NEMA) whose evaluation form is
illustrated in Table 10.2.
The meaning of each „degree‟ is clarified by specific degree definitions,
which are integral part of NEMA system. For example, the „degree‟
definitions for various amounts of experience required by the job are given
in Table 10.3. Similar degree definitions are included for the various degrees
of each factor.
The point method is undoubtedly the most common because it
possesses a number of advantages over other qualitative methods. By using
graphic and other rating scales, it is possible to attain consistency among
rates. The factors and point values may be agreed upon in advance by the
employer and the union. Also, it tends to minimise the effect of personal
biases of the raters on the job. The total point values make it easy to group
the point values into job classes.
On the other hand, it has the disadvantages that selection of proper
factors or assignment of proper points to each factor is difficult. In addition,
the method is time-consuming and costly.

Table 10.2 Job characteristics and point values in the National

Electrical Manufacturers Association job evaluation system
196 INDUSTRIAL ENGINEERING AND MANAGEMENT

Table 10.3 Allocation of points corresponding to degree for experience

Degree Amount of experience Points

1. Upto three months 22
2. Over three months upto one year 44
3. Over one year upto three years 66
4. Over three years upto five years 88
5. Over five years 110

10.4.4 Factors Comparison Method

In this method, fifteen or twenty tentative „key jobs‟ are first selected whose
pay covers the entire range of pay of the jobs to be evaluated. These jobs are
compared with respect to factors common to all jobs. These factors are
mental requirements, skill, physical requirements, responsibility, and
working conditions.
The „key jobs‟ are ranked in order of each of the factors mentioned,
with all of the jobs appearing on each of the factor lists. Several evaluators
forming a committee usually make this ranking independently. All
differences in ranking are resolved by consensus. Next the key jobs are
subjected to a rating process in which the „going rate‟ i.e. present hourly rate
is divided into the individual factors according to the judgement of the
individual evaluators as to how the money should be distributed among the
factors. The average of these values are then used as the final rate for each
factor. In turn, the money rate for the key jobs are then assigned rank orders.
All other jobs in the plant are broken into the five factors and compared
factor by factor with these key jobs (considered as bench mark jobs or basic
yardsticks). The amounts to be paid to the job for the various factors are
then added to get the final rate for the job. A hypothetical example of the
results of these procedures is given in Table 10.4.
This method has the advantage that it is not difficult to set up a job
comparison scale, and this scale is tailor made for the organisation for which
it is to be used. Since the job is evaluated in terms of these monetary worth,
there is no use of converting from points or job classes into money.
The major disadvantage of this method is the design of the rating scale.
If the going rates of the key jobs are incorrect, the other job will be
evaluated at incorrect rates.
 JOB EVALUATION, MERIT RATING AND WAGE INCENTIVES 197

10.5 CONVERSION OF EVALUATION RESULTS TO WAGE

SCALES
It has been seen that the result obtained from any of the four job evaluation
methods is a grading of all jobs with reference to their worth. Although in
some plans, the evaluation is
made in terms of monetary
values, the grading in other
plans are made without any
reference to the wage or
monetary expectation of the
work. A wage structure is
therefore necessary to
determine the relationship
between evaluations of a
sample of key jobs rates of
wages for corresponding jobs
in the locality, community or
existing industrial
undertakings. While evaluating Figure 10.1 Relationship between job-
the wage structure it should be evaluation points and pay rate
kept in the mind that the job
evaluated wage curve must not have too much deviations from the existing
industry wage line, i.e. wage differentials must not be too high or too low.
The difference between the highest and lowest paid job is called wage
differential.

10.5.1 Setting Organisation Wage Structure

In developing a wage structure, it is first necessary to determine the
relationship between evaluations of a sample of key jobs and rates of pay for
corresponding jobs in other organisations. The relationship of such 22 key
jobs is shown in the Fig. 10.1. This shows the straight line of best fit
between pays and point ratings. The line of best fit is the going rate curve,
which reflects the relationship of the evaluation points to going rates. The
existing wage scale is close to the relative standings of the jobs with one
exception. The curve of best fit between pay and
Figure10.1 evaluation points
Relationship does job
between not
have to be a straight line as shownevaluation
in Fig.10.1. But when it approximates
points and pay rate a
straight line, it is believed to be more satisfactory to make the curve a
straight line for the sake of simplicity.
It is desirable to find the average level of wages in the community for
five or six jobs, which are common to the organisation and to the
198 INDUSTRIAL ENGINEERING AND MANAGEMENT

community. These are called benchmark jobs. A straight line of best fit is
drawn through the coordinates of these jobs.
In practice most companies use a wage range in pricing jobs and job
classes. The wage range usually consists of a minimum rate and maximum
rate for each job and enough money is spread between the two to cover the
inherent lack of prefect accuracy in the judgment that underline in a set of
evaluations.

Table 10.4 Average rank and average rate per hour assigned

Extracted from Amrine H.T., et al, Manufacturing organisations and Management,

Prentice hall, Inc.

Fig.10.2 illustrates such a wage structure where point values are

converted into seven pay grades, each of which has range of rate. Wage
ranges can be made with or without overlap. Too great an overlap may
cause dissatisfaction among the workers. Also, as shown in Fig.10.2 the
increasing range of rates with higher pay grades is not always desirable. It
may be made constant or may be made greater or less than what is
illustrated in the figure.

10.6 PERFORMANCE APPRAISAL

Any system for evaluating staff performance is merely a tool of
management and not an end in itself. Appraisals can be a positive means in
assisting staff members in improving job performance, and an appraisal
system further affords management an opportunity to make known to the
staff the objectives and goals of the organisation, and what is expected of
 JOB EVALUATION, MERIT RATING AND WAGE INCENTIVES 199

the employee toward the attainment of the objectives and goals of the
company.
Many
organisations, of
course, employ a
system of progression
based on the relative
merit of the employee
as assessed by his
efficiency, job
performance, and
overall job efficiency.
Such a system of Figure 10.2 Wage rate determination against
assessing the merit of job evaluation points
employees for the
purpose of promotion, pay increase and other functions is called merit rating
or employee appraisal.

10.6.1 The Performance Appraisal Process

The performance appraisal process typically consists of four inter-related
steps as follows:
1 Establish a common understanding between the manager (evaluator)
and employees regarding work expectations; mainly, the work to be
accomplished and how that work is to be evaluated.
2 Ongoing assessment of performance and the progress against work
expectation. Provisions
Figure
should
10.2 beWage
made forrates
the regular
determination
feedback of
information to clarify and job
against modify the goals
evaluation and expectations, to
points
correct unacceptable performance before it was too late, and to reward
superior performance with proper praise and recognition.
3 Formal documentation of performance through the completion of a
performance and development appraisal form appropriate to the job
family.
4 The formal performance and development appraisal discussion, based
on the completed appraisal form and ending in the construction of a
Development Plan.

10.7 METHODS OF MERIT RATING

There are in practice various methods of merit rating / performance
appraisals which may be tailored to suit to different organisations depending
on the purpose for which the merit rating is performed. And the rating may
include such factors as experience, skill, judgement dependability,
200 INDUSTRIAL ENGINEERING AND MANAGEMENT

adaptability, attitude, and other matters that have a bearing on job

performance. Fig.10.3 shows various methods of merit rating
System of merit rating

Point rating Employee comparison Weighted Preference

scale system check list check list

Graphic Multiple
rating scale rating scale

Paired comparison Rank order Forced distribution

system system system

Figure 10.3 Merit rating methods

Point Rating Scale aims at comparing the individuals to a standard

based on the most essential traits or factors such as knowledge, mental
ability, attitude, efficiency, etc.
required of them depending upon the
nature of the job. There is a
graduated scale and the number on
scale corresponding to evaluation of
the individuals on the factor/trait
being considered in his or her rating
for that trait on the job. An example
of a point rating scale is shown in
Fig10.4.
In the Graphic Method, making
a check along a horizontal line Figure 10.4 A point-rating scale
indicates the rating. Appropriate
descriptive phrases as given to help guide the rater are frequently written
underneath the line. Eventually the total score describes the performance of
the individual on the job. In multiple scales, the numbers are established in
steps such as 2,3,4 and the rater must make a judicious selection of the exact
number or point to be applied.
Employee Comparison System establishes the relative overall
performance of individuals.
 JOB EVALUATION, MERIT RATING AND WAGE INCENTIVES 201

In the Paired Comparison System, each employee is paired with other

employees working on similar type of jobs on the basis of more than one
trait or factor. Points are then allocated for each employee and the entire
result is documented in cards, which are ranked from highest to lowest in
order of total points obtained by each employee.
In the Ranking System the rater ranks the employees in order of their
merit with the poorest employee on the bottom and the best on the top. No
attempt is made to systematically fractional what is being appraised into
component element.
In the Forced Distribution System, the rater can distribute or consider a
limited number of traits for the purpose of having a specialised labour
group.
In any rating system where human judgement is involved there are
errors. The rating errors that must be taken into account are:

1. Halo effect. The tendency of rater to rate the individual high or too low
on every trait because of bias.
2. Leniency effect. The tendency to rate the individual higher than he or
she should be.
3. Central tendency. The tendency to avoid the extremes of the scale in
rating the individual.

However, the rating errors can be reduced to a minimum through proper

design of the rating methods and training the raters in their use to make the
merit rating system as an indispensable tool of well-managed organisations.

10.8 WAGE INCENTIVES

Wages or job rates supposed to increase effective motivation. While wages
represent the minimum money that is paid to any employees to perform the
job satisfactorily, wage incentives are intended to increase workers
motivation by letting them to earn additional income, or proportionally
higher returns, with greater effort. In fact, incentives are monetary rewards
to workers/employees in recognition of their outstanding performance for
the cause of higher production and productivity. Unlike the wages and
salaries, which are fixed, incentives generally vary from individual to
individual and from period to period for the same individual.
The incentives can be classified into two groups : (a) Financial, (b)
Non-financial.
Financial incentives are designed to meet the needs of employees to
earn more in proportion to their productive output, and these are considered
as the strongest motivator. Non-financial incentives in the form of leave
202 INDUSTRIAL ENGINEERING AND MANAGEMENT

with pay, free housing and transportation, free medical facilities, and other
fringe benefits and perquisites that are commonly found to exist in almost
all industries are given for higher motivator and improved productivity.

10.9 WAGE INCENTIVE PLANS

Historically incentive plans were part of the scientific management
movement at the turn of this century. They are many and various in forms.
The incentive plans can be classified into four categories. These are :

1. Schemes where the workers‟ earnings vary in the same proportion as

output.
2. Schemes where earnings vary proportionally less than output.
3. Schemes where earning vary proportionally more than output.
4. Schemes where earning differ at different levels of output.

Incentive plans may again be classified according to the method of

payment as given in Table 10.5.
Table 10.5 Wage incentive plans

Type of plan Methods of payment

1. Time based Straight hourly or day rate.
2. Piece rate Straight piece rate, piece rate with a guarantees
base, Tailor differential piece rate, group piece
rate.
3. Gain sharing or bonus Halsey plan, Rowan plan, Halsey-Weir plan,
Gantt task and bonus plan, 100 percent bonus
plan, Bedaux plan, measured day rate.
4. Indirect payment (fringe Yearly bonus, profit sharing, pension plans, group
benefits) insurance, etc.

It is important to note that the starting points for wage incentive plans
are job base rates and production standards.
Some form of job evaluation plan establishes the base rates. The
production standards are set by work measurement such as stopwatch time
study or a predetermined time system.

10.10 TIME BASE PLANS

In this plan, payments are made to the workers according to the time spent
on the job irrespective of their output. Thus if the rate is Rs. 5.00 per hour
and a worker is put to work in a 8-hour day, he will be getting Rs. 40 per
 JOB EVALUATION, MERIT RATING AND WAGE INCENTIVES 203

day. In the case of hourly wages, wages are paid at weekly or biweekly
intervals.
Wages in this case is very simple and easy to calculate but it does not
give any motivation to increase quantity and quality of production and
productivity. Since it has no provision for any monetary recognition for
increased effort and performance on the part of the worker. What is more? It
is very difficult to compute the unit cost requiring time standards. Because
of these inherent deficiencies, this plan is gradually becoming unacceptable
to both management and the worker's union.

10.11 PIECE RATE PLANS

Under straight piece rate plan, worker is strictly paid on the basis of
performance since a prescribed amount of money is paid for each unit of
output produced. If a worker completes 10 units a day and the standard rate
is Rs. 5.00 per piece, his earning is Rs. 5×10 or Rs 50. That is, worker's
earning is directly proportional to his output. The monetary rate per piece is
determined by dividing the worker's hourly base rate of pay by the number
of pieces to be produced per hour. The rate of fixation of the standard time
is determined by work measurement. The formula for computation of the
wage under this plan is :
Wage = Output × piece rate
The straight piece rate plan is clear, simple and easily understood by the
workers, and it provides a constant unit labour cost which helps in
estimating cost of production well in advance. The worker‟s earning being
proportional to output, they are motivated to do more work.
On the other hand, this plan has the disadvantage that the quantity of
product is stressed in favour of quantity. Any change in the design of
products necessitates new rates for every job, complicating the overall
administrative work. Also there is no guarantee of any specified earnings
regardless of his output. Consequently, no security of earnings is provided in
this plan.
This can be overcome by straight piece rate with a guaranteed base.
Piece rate with a guaranteed base: This is almost identical with the
straight piecework except that it has the guaranteed base, which is lacking in
the straight piece rate plan. This is why this plan is becoming popular
present days.
In this system, a standard time in terms of hour is fixed for completion
of the job. The basis 1 for or 100 per cent premium plan has set of wage for
production up to a level designated 100 per cent- a normal day's work
determined by work measurement. Beyond the 100 per cent, workers are
204 INDUSTRIAL ENGINEERING AND MANAGEMENT

paid an additional 1 percent of their base pay for each 1 percent above the
standard. For example, if the standard rate of output is 10 piece per hour
considered as 100 per cent level, and a worker produces 100 pieces during
an 8-hour day, the worker's base rate for the day is increased by

Actual production 100

=
Standard production 80

or 125 per cent. If the hourly base rate is Rs. 5.00, the new base rate per
hour will be Rs. 5 × 5/4 or Rs. 6.25. This increase of Rs. 1.25 in the base
pay is due to 25 per cent bettering of the standard. If the worker would
produce only 70 percent, his hourly rate for the job would be Rs. 5.00 due to
guaranteed minimum. The formula for this plan is :

Wages = Standard hours of output × base rate per hour

The manner in which incentives are added to the minimum is the

subject of numerous proposals. For example, with another plan known as
profit sharing incentives a worker's earning might be increased by 1/2
percent for every 1 percent by which his efficiency exceeds 100 percent. On
an other plan known as step plan, the base rate is guaranteed, and the worker
becomes eligible for an incentive payment when his earning reaches 100 per
cent. Therefore, for efficiencies up to but not including 100 per cent, his
actual earning would be equal to his base earning, i.e. Ea = Eb, where, Ea
represents actual earnings, and Eb the base earnings.
This plan has the advantage that it facilitates adjustment of wages from
time to time, since al that is needed is to change the hourly base rate of the
worker.
Group piece rate plan : When a job is performed by a group of
worker, and the contribution of each worker in the group cannot be accurate
ascertained, or where the output of an individual can be measured but is
dependent on the output of other worker's for example, in an assembly shop,
maintenance of plant and machinery, boiler fittings, etc. group piece rate
plans are often used. The total earnings of a group are first determined and
this is then distributed among the workers in the group on an equitable basis
specially when the workers are of same skill. The earnings of the group are
divided among the workers in proportion of their individual time rate or
according to a specified percentage.
Taylor differential pay rate: This plan is named after F.W. Taylor who
developed it. Under this scheme, standard production is determined by a
 JOB EVALUATION, MERIT RATING AND WAGE INCENTIVES 205

time and motion study. The plan has two-piece rates, one high and the other
low rate, for each job. The purpose is to encourage workers to produce
higher than the standard level for that production. However, the high piece
rate is given to those workers whose performance is equal to or higher than
the prescribed standard, and the low piece rate to those who fail to reach the
standard. To illustrate, the standard output might be 100 units per day. The
high rate is 120 per cent above the standard and low rate is 80 per cent
below the standard. If the rate per units is Rs. 0.20, a worker producing 120
units would get 120 × 120 / 100 × 0.20 or Rs. 28.80 while a worker
producing 60 units would get 60×80/100×0.20 or Rs. 9.60.
The advantage of this plan is that it is good for those who are efficient
and want to earn more by increasing their output. The disadvantage is in the
fact that it has no 'bottom' wage, and inefficient workers are not „benefited‟
by this plan. Also, if the standard are not properly determined even the
efficient workers may not like the plan.

10.12 GAIN SHARING OR BONUS PLANS

The common feature of all the plans under this category is that a guaranteed
base rate is paid to the workers, and the amount in excess of this base is
divided between the management and the workers performing the job. Since
the gains arising out of the time gain saved by the workers is shared between
the employer and employee, the plan is known as gain sharing plan.
Halsey plan : Under this plan, a standard time is fixed for each job and the
standard rate is guaranteed even if the output of the worker is less than the
standard time. If the worker performs his job in less than the standard time
he is paid for the actual time spent at the prescribed time rate plus a bonus
calculated on a specific percentage of the time saved. This varies from 30 to
70 per cent. The bonus for the total time saved is divided between the
management and workers on a 1/3 – 2/3 basis.
Halsey-Weir plan : This is similar to the Halsey plan but the bonus for the
total time saved is split between the management and worker on a 50-50
basis. If the time saved is more than 50 percent of the standard time, Halsey-
Weir plan pays more than Halsey plan.
Both Halsey and Halsey-Weir plans are easy to introduce because
establishment of no time standards is acceptable to day since this practice
penalizes slow and rewards fast workers. However, both the plans,
particularly 50-50 plan is sometimes used as a transitional plan in order to
allow the workers to earn extra money for extra work while provisional are
being made to established a well-conceived plan.
206 INDUSTRIAL ENGINEERING AND MANAGEMENT

Rowan plan: This is similar to the Halsey plan, except that it pays t a
decreasing rate and has an upper limit of twice of the standard rate. Rowan
plan gives higher bonus up to 66.67 percent and up to 50 percent, of the time
saved than Halsey and Halsey-Weir plan respectively. This is illustrated in
Fig.10.5. The wages and bonus paid by each one of the plans are shown in
Table 10.6.
Thus for example, in the Halsey-Weir plan, with a standard of 30 units per
hour and base rate of pay of Rs. 5.00 per hour, a worker producing 20 units
per hour for an 8-hour day would receive Rs. 40.00. If, however, the worker
produced at the rate of 40 units per hour, he would produce 40×8 or 320
units per day. In terms of standard hours it comes to 320/30 or 10.7 hrs. His
wages(W) and bonus(B) therefore would be:
W = (5×8) +(5/2)(10.7–8) = Rs 46.75
B = Rs. 6.75

The advantages of the Rowan

plan are that a good incentive is paid
for comparatively slow workers and
learner and even a loose standard
gives adequate protection to the
workers.
On the other hand, it is more
complicated and costlier than Hasley
plan. Furthermore, the incentive
value is low at higher output.

Table 10.6 Wages and bonus of Hasley , Hasley-Weir and Rowan plans

Plans Wages (W) Bonus (B)

Hasley
_ _
W = R. Ta + R(Ts Ta)/3 B= R(Ts Ta)/3

Hasley-Weir
_ _
W = R. Ta + R(Ts Ta)/2 B= R(Ts Ta)/2

Rowan
_ _
orTs Ta) Ta/ Ts
W = R. Ta + R(
Figure 10.5 Gain-sharing B= R(Ts Ta) Ta/ Ts
bonus plans
R = base rate of wages, Ta = actual time spent (Hr), Ts = standard time
 JOB EVALUATION, MERIT RATING AND WAGE INCENTIVES 207

Bedaux plan : In the Bedaux plan, work unit is a measuring yardstick of

worker's performance. The units of work are expressed as "B's" where one
'B' is equal to 1 minute or 1 work unit, which includes work plus rest. Sixty,
"B's", therefore would be standard performance for one hour. Under their
plan, a worker receives in addition to his base rate, a bonus for all units
(points) earned in excess of the normally expected 60 "B's" per hour. Under
the original Bedaux plan, the bonus is equal to 75 of the number of points
earned in excess of 60 per hour. For example, if the
Standard time is 6 hours
The rate per hour is Rs. 5.00
And the actual time taken is 4 hours, then
Time saved equal to 2 hour. Therefore, the number of "B's" saved is 2
hours of 120 points, then
Wages = 4×5 = Rs. 20.00
Bonus = 75/100 × 120/60 × 5.00 = Rs. 7.50
Total earnings = Rs. 20 + Rs. 7.50 = Rs. 27.50
It may be noted that under the Bedaux system, only 75 per cent of the
bonus is paid to the direct worker and the remaining 25 percent to indirect
workers, such as set up men, labour, etc. in most installations, today, the
direct workers under this plan get 100 per cent of their savings. In that case,
the plan is, in effect, a straight piece work with a guaranteed base.

Gantt task plan : This plan was developed by H.L. Gantt, one of the
associates of Taylor. Under this plan, the workers is guaranteed a day rate
below the standard. On reaching a standard output or task which is set at a
high level, the worker is paid a 20-50 percent bonus for higher performance.
For output above the standard, higher rates are paid. Although quite popular
around the turn of the century this is no longer widely used. However, this is
illustrated as follows :

Piece rate per hour = Re. 1.00

Piece rate/hr above standard = Re. 0.20
Standards output = 100 units
Time taken = 8 hrs
1. When output = 80, earnings = 8 × 1 = Rs. 8.00
2. When output = 120, earning = 120 × 0.20 = Rs. 24.00
208 INDUSTRIAL ENGINEERING AND MANAGEMENT

3. When output = 100, earnings = Wages + bonus =Rs. 9.60

Here wages = 8×1 = Rs. 8.00
and bonus = 8 × (20/100) = Rs. 1.60 assuming 20 per
cent bonus
thus earnings = 8 + 1.60 = Rs. 9.60
Merrick differential piece rate
Also called Merrick multiple price rate, this incentive wage plan establishes
three different piece rates on the basis of performance – one for beginners,
one for average workers, and one for superior workers. This plan is intended
to reward efficient and penalize inefficient workers and is similar to Taylor
plan except three rates are established

Measured day rate

It is attempted to combine the advantages of incentive pay with the
advantages of straight time work. The plan is similar to other plans in
paying incentives for increased production, but the major difference is a
longer period of measurement- one to two/three months.
As in other plan, it has a standard output established on the basis of
work measurement, and a base rate determined on the basis of job
evaluation. If the policy is to measure work over a one-month period, for
example, a worker's performance is tabulated considering such thing as skill,
efficiency, dependability, knowledge, initiative and so forth, and this
established his pay rate for the next month. His performance during next
one-month period determines his pay rate for the third one-month period,
etc. As a result, depending on his performance, his final hourly rate may be
greater or less than the base rate originally fixed.
The advantage of this plan from a worker's stand point, is that his pay
check remains relatively constant since many bad days during the period of
evaluation is made up. In general, this plan is most successful where some
measure of output is desired. The disadvantage is that it is lacking in desired
incentives available to the workers.
10.13 INDIRECT PAYMENTS
In addition to fixed wages, salaries, and incentives, indirect payments in the
form of fringe benefits are also paid, to daily-rated or weekly-rated workers
and other employees. Fringe benefits include any benefits that the employee
receives in addition to direct compensation for services rendered by the
workers. These are all paid in terms of money to motivate the workers and
to safeguard their interest in the management and security in the retirement.
 JOB EVALUATION, MERIT RATING AND WAGE INCENTIVES 209

On a rough estimate, it has been found that fringe benefits, in averages come
to about 25 percent of each employee's wages.
On the many indirect payments, profit sharing scheme is gaining
popularity in many industries. In this scheme, a bonus or equity share in
proportion to the net profit of the enterprise is given to the workers in
addition of their wages. It is primarily intended to create an interest in the
success of the enterprise and to take active part in its managements as one
its co-sharer.
Profit sharing has its primary objectives: greater output and efficiency,
elimination of industrial unrest, development of cooperation, greater
economic security for the employees, reduction of labour turnover,
prevention of the growth of union, and social justice.

REVIEW QUESTIONS
1. (a) What do you understand by Job Evaluation? Explain the ranking method of
job evaluation.
(b) Differentiate between an incentive and a wage.
2. Differentiate clearly between Halsey , Halsey-Weir and Rowan plans
3. What are the factors to be taken into account when designing incentive schemes
for direct labours employed in batch production?
4. Discuss any three types of incentive schemes used in manufacturing industry,
commenting on their applications, advantages and disadvantages.
5. Discuss the various method of wage payment.
6. Discuss how incentives help increasing the production.
7. A company intends to implement annual merit rating reviews for staff as a basis
for salary increment. Discuss the factors, which should be explained to the
managers who have had no previous experience of merit rating.
8. How will you examine the effectiveness of an incentive scheme in use?
9. Describe the following :
Normal wages, Real wages, Minimum wages, and Fair wages.
10. What is meant by non-financial incentive? Name few non-financial incentive
schemes.
.13 State the essential of good financial incentive plan. Outline a plan suitable for a
mass production shop in which performance are measured individually in some
cases, and group wise in the others..
11. Discuss the application of group incentives versus the use of individual
incentive.
12. Of four ways to pay workers based on (1) time worked, (2) amount of output,
(3) gain sharing or bonus plans and (4) fringe benefits - which would be most
suitable for: Industrial engineers? Auto mechanics? Sales clerk?
13. Summarize what you feel are the good and the bad features of employee
participative plans.