Unit – II: Job Evaluation – Methods – Performance and Reward Systems – Methods of

Wage Payment – Incentive Plans – Wage Differentials – Minimum Wages Act, 1948.

Concept of job evaluation:

In simple words, job evaluation is the rating of jobs in an organization. This is the process of
establishing the value or worth of jobs in a job hierarchy. It attempts to compare the relative
intrinsic value or worth of jobs within an organisation. Thus, job evaluation is a comparative
process.

The objectives of job evaluation, to put in a more orderly manner are to:

1. Provide a standard procedure for determining the relative worth of each job in a plant.

2. Determine equitable wage differentials between different jobs in the organisation.

3. Eliminate wage inequalities.

4. Ensure that like wages are paid to all qualified employees for like work.

5. Form a basis for fixing incentives and different bonus plans.

6. Serve as a useful reference for setting individual grievances regarding wage rates.

7. Provide information for work organisation, employees’ selection, placement, training and
numerous other similar problems.

8. Provide a benchmark for making career planning for the employees in the organisation.

Methods of Job Evaluation: Job-evaluation methods are of two categories:-

a) Analytical Methods

Point Ranking Methods

Factor Comparison Method

b) Non-analytical Methods

Ranking Method

Job-grading Method
  NON-ANALYTICAL METHODS

Ranking and job-classification methods come under this category because they make no use of
detailed job factors. Each job is treated as a whole in determining its relative ranking.

Ranking Method

This is the simplest, the most inexpensive and the most expensive method of evaluation. The
evaluation committee assesses the worth of each job on the basis of its title or on its contents, if
the latter are available. But the job is not broken down into elements or factors. Each job is
compared with others and its place is determined.

The method has several drawbacks. Job evaluation may be subjective as the jobs are not broken
into factors. It is hard to measure whole jobs.

Job-grading method

As in the ranking method, the job-grading method (or job-classification method) does not call for
a detailed or quantitative analysis of job factors. It is based on the job as a whole.The difference
between the two is that in the ranking method, there is no yardstick for evaluation, while in the
classification method, there is such an yardstick in the form of job classes or grades.

Under the classification method, the number of grades is first decided upon, and the factors
corresponding to these grades are then determined. Facts about jobs are collected and are
matched with the grades which have been established.

The essential requirement of the job-grading method is to frame grade descriptions to cover
discernible differences in degree of skill, responsibility and other job characteristics. Job grades
are arranged in the order of their importance in the form of a schedule. The lowest grade may
cover jobs requiring greater physical work under close supervision, but carrying little
responsibility. Each succeeding grade reflects a higher level of skill and responsibility, with less
and less supervision.

The advantages of the job-classification method include its simplicity and inexpensiveness.
Secondly, in organizations where number of jobs is small, this method yields satisfactory results.
The disadvantages of the method are:

(i) job grade descriptions are vague and are not quantified;

(ii) difficulty in convincing employees about the inclusion of a job in a particular grade because
of vagueness of grade descriptions; and

(iii) more job classification schedules need to be prepared because the same schedule cannot be
used for all types of jobs.

 ANALYTICAL METHODS

These include the point-ranking method and the factor-comparison method

Point-Ranking Method

The system starts with the selection of job factors, construction of degrees for each factor, and
assignment of points to each degree. Different factors are selected for different jobs with
accompanying differences in degrees an points. The National Electrical Manufacturer’s
Association (NEMA), USA, has given the factors, degrees and points for hourly rated.

The range of score and grades is also predetermined-for example, from 210 to 230 points, the

5th grade; 231 to 251 points, the 6th grade; and so forth. A given job is placed in a particular
grade, depending on the number of points it scores.

The advantages of point system are:

1. A job is split into a number of factors. The worth of each job is determined on the basis of its
factors and not by considering the job as a whole.

2. The procedure adopted is systematic and can easily be explained to the employees.

3. The method is simple to understand and easy to administer.

At least two defects are noticed in the point system. First, employees may disagree with the
points allotted and the factors and their degrees identified. Second, serious doubts are expressed
about the range of points allotted and matching them with the job grades. For example, a score
range of 238 to 249 is grade seven and the next range of 250 to 271 is grade six. A variation of
one point makes all the difference.

Factor-Comparison Method

The factor-comparison method is yet another approach for job evaluation in the analytical group.
Under this method, one begins with the selection of factors, usually five of them: mental
requirements, skill requirements, physical exertion, responsibility, and job conditions. These
factors are assumed to be constant for all the jobs. Each factor is ranked individually with other
jobs.

For example, all the jobs may be compared first by the factor ‘mental requirements’. Then the
skills factor, physical requirements, responsibility, and working conditions are ranked. Thus, a
job may rank near the top in skills but low in physical requirements. Then total point values are
then assigned to each factor. The worth of a job is then obtained by adding together all the point
values.

An advantage of the factor-comparison methods that jobs of unlike nature – for example,
manual, clerical and supervisory – may be evaluated with same set of factors. But the method is
complicated and expensive.

PERFORMANCE MANAGEMENT AND REWARD PRACTICES

Today organizations are showing a high degree of commitment towards reinforcement of reward
practices which are aligned with other HR practices and the goals of the organization for
attracting, retaining and motivating employees. Efficient reward practices helps in attracting
result driven professionals who can thrive and succeed in performance based environments.
Hence, it is a crucial motivator and may contribute towards the enhancement of the productivity
of the employees if implemented properly. For example, Continental Airlines as a part of their
turnaround strategy introduced on time bonus incentive package according to which an employee
will gain a bonus of $65 every month for ensuring on time flight operations.

An effective reward system should be linked with the performance development system, which
focuses on performance based pay and offers ample learning opportunities along with a healthy
work environment. Variable pay can play a crucial role in boosting the performance of the
employees especially the star performers instead of the fixed pay packages. Few such reward
practices may take the forms of gain sharing, bonuses, team based incentives, profit sharing,
ESOP’s and equity based incentive awards.

An efficient management of reward system may have a beneficial effect upon the performance in
several ways - instilling a sense of ownership amongst the employees, may facilitate long term
focus with continuous improvement, reduces service operating costs, promotes team work,
minimizes employee dissatisfaction and enhanced employee interest in the financial performance
of the company. Few organizations like General Mills, reward their employees for attaining new
skills which may add value to the organizational performance and thereby facilitate job rotation,
cross training and self managed work teams. Few organizations also recognize exceptional
performance by providing recognition awards and lump-sum merit awards for winning employee
commitment and attaining long term beneficial results. Example, TISCO, offers instant or on the
spot rewards, monthly rewards and annual rewards to its employees under its ‘Shabashi scheme’.

A healthy pay for performance strategy should incorporate the following components as is
provided in the table given below:

Rewards can be a vital source of motivation for the employees but only if it is administered
under right conditions. Few strategies which improve the effectiveness of rewards are given
below:

 Linking rewards with the performance

 Implement team rewards for the interdependent jobs for example Xerox.
 Ensuring that the rewards are relevant. Example Wal-Mart, rewards bonuses to the top
executives which is based on the company’s overall performance whereas the frontline
employees earn bonus on the basis of the sales figure or targets attained by their store.
 Ensuring that the rewards are valued by the employees.
 Checking out for the undesirable consequences of administration of any reward practice.

Besides the monetary rewards, the contemporary employees desire for non monetary rewards
which may be in the form of better career opportunities, skills development and recognition
programs. Many IT and project based organizations give much importance to non-monetary
rewards for maximizing employee satisfaction.
  WAGE PAYMENT

There are two basic methods of labor remuneration:

a) Time Rate System; and (b) Piece Rate System Time Rate System

Under the time rate system, workers are paid according to the time for which they work.
Payment may be on hourly basis, daily basis or monthly basis. In this system, no consideration is
given to the quantity or quality of work done. When payment is made on hourly basis, total
wages payable are calculated as follows:

Wages = No. of hours worked x Rate per hour Piece Rate System

Wages under this system are paid according to the quantity of work done. A rate is fixed per unit
of production and wages are calculated by the following formula:

Wages = Rate per unit x No. of units produced.

Incentive Plans Both time rate system and piece rate system have their merits and demerits.
Incentive plans attempt to combine the good points of both the systems. The primary purpose of
an incentive plan is to induce a worker to produce more to earn a higher wage. Naturally,
producing more in the same period of time should result in higher pay for the worker. Because of
greater number of units produced, it should also result in lower cost per unit for fixed factory
cost and also for labor cost.

Various Incentive Plans Following is the list of many incentive plans being practiced by
various organizations.

(i) Straight Piece Rate Method

(ii) Flat Time Rate Method

(iii) Co-partnership

(iv) Guaranteed Day Work

(v) Taylor Differential Piece Rate Method

(vi) Different Time Rates

(vii) Rowan Premium Bonus Plan

(Variable Sharing Plan)

(viii) Halsey Premium Bonus Plan (Halsey Plan and Halsey-Weir Plan)

(ix) Group Incentive Schemes

(x) Standard Hour Plan

(xi) Merrick Multiple Piece Rate

(xii) Gantt Task Bonus Wage System

(xiii) Bedaux Point System

(xiv) Emerson Plan

(xv) Barth Premium System

(xvi) Accelerating Premium Bonus

We will discuss some of the above mentioned incentive plans in detail.

1) Straight Piece Rate Method : The method rewards employees based on their output. A fixed
rate of wage is paid for each unit produced, or number of operations completed or job completed.
The wages payable is calculated by multiplying the number of pieces produced by the wage rate.
There is generally a guaranteed hourly rate for workers who are unable to attain the standard in
order to pay the minimum ‘day wages’.

2) Flat Time Rate Method: This method is used for paying remuneration to employees based
on their attendance. A fixed rate of wage is paid hourly, or daily, or weekly on the basis of time
spent on the shop floor (i.e. production department) in production. The wages payable is
calculated by multiplying the hours/days spent in production by the hourly/daily wage rate.

3) Halsey Premium Bonus Plan (Halsey Plan and Halsey-Weir Plan): This plan was
introduced by F A Halsey in 1891. It is a simple combination of time and piece rate systems. A
worker is paid a guaranteed base rate and is rewarded when his performance exceeds standard. A
standard time is established in respect of each job or unit. Bonus is paid on the basis of 50% of
time saved.
The total wages payable is calculated as under:

= (Hourly rate X Time taken) + (50% X Time saved X Hourly rate)

As a result of increased productivity, conversion cost per unit falls. This is because fixed
overhead gets distributed over larger volume of output. Thus, the firm finds it possible to reward
workers directly in proportion to production. In the case of Halsey Weir plan, the percentage
used is 30 instead of 50.

4) Rowan Premium Bonus Plan (Variable Sharing plan): A standard time is established in
respect of each job or process. There is a guaranteed base rate. A bonus is paid on the basis of
time saved computed as a proportion of the time taken which the time saved bears to the standard
time. The total wages payable is calculated as under:

=(hourly rate x time taken) + ( time saved x time taken) x hourly rate time allowe

5) Taylor Differential Piece Rate Method: This system was introduced by F. W. Taylor, the
father of Scientific Management. The main features of this incentive plan are as follows: a. Day
wages are not guaranteed, i.e. it does not assure any minimum amount of wages to workers. b. A
standard time for each job is set very carefully after time and motion studies. c. Two piece rates
are set for each job- the lower rate and the higher rate. The lower piece rate is payable where a
worker takes a longer time than the standard time to complete the work. Higher rate is payable
when a worker completes the work within the standard time. In other words, lower piece rate is
payable to inefficient workers and higher piece rate is payable to efficient workers. It will be
seen that there is a great difference between the wages of an efficient and an inefficient worker.

 MINIMUM WAGES ACT 1948

The Minimum Wages Act 1948 is an Act of Parliament concerning Indian labour law that sets
the minimum wages that must be paid to skilled and unskilled labours. The Indian Constitution
has defined a 'living wage' that is the level of income for a worker which will ensure a basic
standard of living including good health, dignity, comfort, education and provide for any
contingency. However, to keep in mind an industry's capacity to pay the constitution has defined
a 'fair wage'.

Fair wage is that level of wage that not just maintains a level of employment, but seeks to
increase it keeping in perspective the industry’s capacity to pay. To achieve this in its first
session during November 1948, the Central Advisory Council appointed a Tripartite Committee
of Fair Wage. This committee came up with the concept of Minimum Wages. A minimum wage
is such a wage that it not only guarantees bare subsistence and preserves efficiency but also
provides for education, medical requirements and some level of comfort.
India introduced the Minimum Wages Act in 1948, giving both the Central government and State
government jurisdiction in fixing wages. The act is legally non-binding, but statutory. Payment
of wages below the minimum wage rate amounts to forced labour.

Wage Boards are set up to review the industry’s capacity to pay and fix minimum wages such
that they at least cover a family of four’s requirements of

a. calories,
b. shelter,
c. clothing,
d. education,
e. medical assistance, and
f. entertainment.

Under the law, wage rates in scheduled employments differ across states, sectors, skills, regions
and occupations owing to difference in costs of living, regional industries' capacity to pay,
consumption patterns, etc. Hence, there is no single uniform minimum wage rate across the
country and the structure has become overly complex.

The highest minimum wage rate as updated in 2012 is Rs. 322/day in Andaman and
Nicobar to Rs. 38/day in Tripura.

CONTENTS OF ACT
the Act provides for fixing wage rate (time, piece, guaranteed time, overtime) for any industry .

1) While fixing hours for a normal working day as per the act should make sure of the following:

The number of hours that are to be fixed for a normal working day should have one or more
intervals/breaks included.

At least one day off from an entire week should be given to the employee for rest.

Payment for the day decided to be given for rest should be paid at a rate not less than the
overtime rate.

2) If an employee is involved in work that categorises his service in two or more scheduled
employments, the employee’s wage will include respective wage rate of all work for the number
of hours dedicated at each task.

3) It is mandatory for the employer to maintain records of all employee’s work, wages and
receipts.
4) Appropriate governments will define and assign the task of inspection and appoint inspectors
for the same.

DEFINITION OF WAGE DIFFERENTIALS:

Wage differential allocates labour among different occupations, industries and regions in a
manner so as to maximise national output. Wage differential is one of the important features of
wage structure, wage and salary administration. It serves both economic and social functions.
Wage differential also serves a useful social function by determining the social status of workers.

In analyzing wage differentials, the following aspects are generally taken into account:

(1) Degree of wage differential:

(Wage differentials between the lowest and the highest paid employees in different
organisations)

(2) Occupations/Skill wage differential: (Wage differentials on the basis of occupation/skill)

(3) Regional wage differential: (Wage differentials based on region)

2. Degree of Wage Differential:

The degree of wage differential has been measured by taking the earnings of lowest and highest
paid employees.

Wage differential has been calculated on the basis of:

(i) Basic pay

(ii) Basic pay and D.A. and

(iii) Total earnings.

On comparison of the degree of wage differentials in different undertakings in India, it appears

that the wage differential in Rourkela Steel Plant is little higher than the all India average of 1: 9.
But it is much higher than what the trade unions advocate.

The INTUC wants that the difference (based on basic pay) between the lowest and highest paid
employees in Iron & Steel Industry should not exceed 1:8, while AITUC wants it 1 : 4. But the
actual difference (on the basis of basic pay) is 1: 12.
The degree of wage differential in private sector undertakings is less than 1: 68. Risks and
uncertainties being greater and managerial talent of the requisite calibre being still relatively
scarce, the differential can be higher in the public sector.

The problem of degree of wage differentials in private sector undertakings was also examined by
the Boothalingam Committee which has suggested that under existing circumstances a ceiling be
fixed on the total earning of the highest paid employees.

3. Wage Differential Based on Occupation:

Of the various types of differences that exist in wage structure the difference on the basis of skill
is most common. An unskilled worker gets less pay than a semiskilled or skilled worker.

The skill differential serves three basic functions:

(i) It induces the worker to undertake more demanding or risky jobs.

(ii) It provided incentive to incur the cost of training and education, and encourages workers to
develop skill in anticipation of higher earnings in future, and

(iii) It performs a social function by determining the social status of workers.

Wage differential on the basis of skill can be studied in two ways:

(a) Differentials based on occupation.

(b) Differentials based on skill.

The Fair Wage Committee was of the view that the differentials should be based on occupation
and had suggested the adoption of a standard occupational nomenclature so that the work of
classification and assessment may be undertaken on a uniform basis throughout the country.

Same wage boards, for example, wage boards for Sugar, Iron & Steel, Cement and Cotton
textiles tried to standardize occupational nomenclatures, but failed. This is why the wage boards,
instead of adopting a standard common occupational nomenclature, have divided the various
occupations in different grades depending on the degree of skill involved.

In analysing wage differentials based on occupation, various difficulties may be faced, like
standardisation of occupations, absence of job description and job specifications etc.; owing to
which it is generally decided to take a few common occupations which may be considered as
standard.
Wage Differentials Based on Region:

Wage differentials have been examined also on the basis of regions. Regional wage differential
refers to differences of workers earnings doing the same job in different units of an industry
located in different regions. It is used also to denote the difference in average wages of all
workers employed in an industry in different regions.

Wage Differentials and Labour Market:

The equalizing forces act in labour market, although less quickly and easily than in the other
markets. In a given technological set up, however, while some movements are possible and easy
others are not so, at least in the short-run.

The equalizing tendency would, therefore, be found among the jobs between which movements
are possible and not among the jobs between which movements are not possible. Therefore, the
analysis of the labour market should make this distinction, arid then try to evaluate its com-
petitive efficacy in equalizing the wage-rates in the technologically limited areas.

The various types of differentials, inter-industry, inter-firm, inter-occupation and inter-area have
varying implications for labour market analysis. Modern technology makes inter- occupation
movement highly difficult, and therefore, the wage-differentials among occupations, at least in
the short-run, do not reveal anything about the degree of competitiveness in the market.

In the long-run, however, if competition is effective, people may be expected to be more

attracted towards, and therefore, get themselves or their children trained in, higher wage
occupations, thus bringing down the extent of occupational differentials.

Inter-industry differentials again do not reveal much on account of significantly different skill-
mix required in the workforce of different industries under modern technological conditions. In
the long-run, however, competitive forces that bring about a narrowing tendency in occupational
differentials may also effect a narrowing tendency in inter-industry differentials.

Geographical differentials and inter-firm differentials, more particularly in the same

occupation and industry, are thus the reliable indexes of the working of competition in the labour
market. In a competitive national labour market with a high degree of inter-regional movements
of labour in response to better earnings opportunity, the inter-regional differentials in wage will
tend to disappear.