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Employee Compensation, Empowerment and Participation
Factors determining wage rates
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Wages refers to assigning of monetary value for labour services
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Wages can be based on an hourly, daily, or weekly basis
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It is a reward for the service rendered or remuneration for the work done
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1
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A profitable enterprise may pay more to
attract good workers
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When the demand for a particular type of skilled labour is more and supply
is less than the wages will be more
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The wage rates paid in the industry or other concerns
at the same place will form a base for fixing wage rates
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It will not be possible to retain good
workers for long periods
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Bargaining of Trade Unions
The wage rates are also influenced by the bargaining power of trade unions
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The strength of a trade union is judged by its membership, financial
position and type of leadership
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Productivity
Productivity is the contribution of the workers in order to increase output
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Workers may also be offered additional bonus, etc
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It is common practice to issue productivity bonus in
industrial units
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Government Regulations
To improve the working conditions of workers, government may pass a legislation for fixing
minimum wages of workers
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7
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Moreover, specialized skills and certifications relevant to the job
market also contribute to higher earning potential
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8
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More experienced workers often have a deeper understanding of their role, industry,
and potential challenges, making them more valuable to employers
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Simple to Understand
The wage incentive plan must be simple, easy to understand and to operate
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The workers should be able to know the extra payments to be given to them
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In spite of correct wages there may be suspicion in the minds of workers
about wages paid to them
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Just and Equitable
Just and equitable system will be successful
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This does not mean that there should be undue load on the employers but wages paid must be
proportionate with the efforts of workers
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Attraction for Workers
Incentive payments should be sufficient to attract workers for improving their performance
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If person is getting Rs
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450 more for raising his output,
this will not be a good incentive for him
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200 to Rs
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So, incentive should be large enough so that workers
are tempted to earn it
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Attainable Standards
The standards fixed under wage incentive plans should be attainable with some extra efforts
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They may not even try to achieve them
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5
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When a wage incentive plan is such
where workers are required to work for long hours or expected to work at much faster speed then their
health may be adversely affected
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Before introducing an incentive scheme, it
should be discussed with workers and their viewpoints should be incorporated as far as possible in the
welfare scheme
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Incentive for Quantity and Quality
The wage incentive plan should provide incentive for both quality and quantity of production
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8
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Delays in
payment of wage costs, inconvenience and hardship to them
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Systems of wage payment
Time wage system
It is the oldest system of wage payment
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Under this system, the organisation decides the wage rate to be paid per hour or
per day worked by the employee
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The wage rate is fixed
as Rs 300 per day worked
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Payment to A Rs 300 per day multiplied by 25 days
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Payment to B Rs 300 per day multiplied by 23 days
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In this system of wage payment, the wages are not linked with the employee performance in terms of
output of work
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Merits of time wage system
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There's no need for complex calculations based on output or performance metrics
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This stability can be beneficial for financial planning and budgeting, providing a sense of
security for workers
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Fairness: It ensures that all employees receive compensation for the time they put into their work,
regardless of their productivity levels
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They may be motivated to avoid
wasting time or to complete tasks promptly to maximize their earnings per hour
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Legal Compliance: Time wage systems often align well with labor laws and regulations, making it
easier for employers to remain compliant with minimum wage requirements and overtime regulations
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Suitability for Certain Industries: In industries where output is difficult to measure or where tasks
require constant monitoring or presence, such as customer service, security, or administrative roles,
time-based wages may be more appropriate than performance-based systems
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Employee Loyalty: The assurance of receiving a regular paycheck regardless of fluctuations in
productivity can foster employee loyalty and satisfaction, reducing turnover rates
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Ease of Monitoring: For employers, tracking employee attendance and work hours is relatively
simple with a time wage system
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Demerits of time wage system

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This can lead to a lack of motivation to work efficiently or effectively since there
is no direct correlation between effort and compensation
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Potential for Time Theft: Since employees are paid based on hours worked rather than output or
results, there may be instances of time theft where employees manipulate time records or engage in
non-work-related activities during paid hours
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Limited Flexibility: The time wage system may not be conducive to flexible work arrangements
such as remote work or flexible hours since it typically requires employees to be physically present
and working for a set number of hours
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Difficulty in Performance Measurement: Evaluating employee performance can be challenging in a
time wage system since it does not directly measure output or quality of work
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This can increase labor costs
without necessarily improving output or profitability
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Inequity among Employees: Since all employees are typically paid at the same rate regardless of
skill level or productivity, the time wage system can lead to feelings of unfairness among employees
who feel they are contributing more but receiving the same compensation
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Resistance to Change: Implementing changes or improvements to work processes may be met with
resistance from employees who are accustomed to the time wage system and may perceive changes as
a threat to their earnings or job security
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Under
this system, the organisation decides the wages rate to be paid per unit of output
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The formula for
calculating the wage is as follows:
Wage= Peace rate multiplied by number of units produced
For example, the piece rate is stipulated at rs 5 per unit of production in an industrial unit
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Calculate the wages to be paid to A and B under piece wage system
Payment to A= Rs 5 per unit multiplied by 180 units
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B will receive Rs 1100
In this system of wage payment, the wages are linked with employees performance in terms of output
of work
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Incentive for productivity: Piece-rate pay can incentivize workers to be more productive since they
directly benefit from increased output
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Workers
have the opportunity to manage their own time and pace of work, potentially leading to improved

work-life balance
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This can be advantageous in industries with
fluctuating demand or seasonal variations
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Merit-based compensation: Piece-rate pay rewards employees based on their performance rather
than simply the number of hours worked
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This can lead to increased motivation,
engagement, and job satisfaction
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Skill development: Piece-wage systems can encourage skill development and efficiency
improvements as workers seek to increase their output to earn more
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Employees who work faster or more efficiently can earn more
than those who are less productive, which can lead to a sense of fairness among workers
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Quality Sacrifice: Employees may prioritize quantity over quality to maximize their earnings,
leading to a decrease in the overall quality of work produced
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Stress and Burnout: Piece-rate workers may experience stress and burnout as they strive to meet
production quotas to earn a sufficient income, leading to physical and mental health issues
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Inequity Among Workers: Workers with different levels of skill or experience may earn vastly
different wages for performing the same tasks, leading to resentment and decreased morale among
employees
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Lack of Job Security: Piece-rate workers may experience fluctuations in income due to variations in
demand or changes in production methods, leading to financial insecurity and uncertainty about future
earnings
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Difficulty in Monitoring: It can be challenging for employers to accurately monitor and measure the
quantity and quality of work produced by piece-rate workers, leading to potential disputes and
disagreements over compensation
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Limited Motivation for Collaboration: Piece-rate workers may be less inclined to collaborate with
colleagues or share knowledge and resources if it does not directly benefit their individual output and
earnings
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Potential for Exploitation: In some cases, employers may exploit piece-rate workers by setting
unrealistic production quotas or underpaying for the value of the work performed, leading to
exploitation and unfair labor practices
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Motivate then to work efficiently and improve productivity
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Two sources of earnings- basic wages and incentives calculated
on basis of performance
It can be – time or output
1
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In this plan, the standard time for completing each
job is established and conveyed to the employees
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Efficient workers who complete the job by saving time is paid
incentive or bonus
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Bonus is calculated by using the following formula
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Rowan Plan
This incentive plan was proposed by James Rowan
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All employees are guaranteed minimum
wages based on the time-based system
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The bonus is calculated by using the following formula
Bonus= Time saved*(Time taken/Standard time) * Hourly rate
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W Taylor In this incentive plan, Taylor said two piece rates for workers
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Efficiency level of workers to be decided by comparing their performance with the standard
established by the organisation
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However, it punishes the poor performance by paying them at a lower rate
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Group Incentive Plan
Provides incentives to the entire group of workers on meeting the standards of work performance
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Profit sharing scheme
It is a group incentive plan where the employer offers to share portion of the profits of the
organisation with the employees, as per the terms and conditions of the agreement
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Based on terms and conditions
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percentage of profits- financial position and management policy
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Normal wages – addition to share in profits

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Improves financial position of the employees
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Helps organisation to maximise profits through collective efforts
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Reduces cost of supervision
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Profits of the organisation are not predictable
2
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Manipulation of profits by the employers is possible
4
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Opposition from employers- only sharing of profits not losses
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Co partnership
Co-partnership involves treating employees as equal partners in the organisation
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In Co-partnership, employees are offered shares by the
company
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They also get the opportunity to participate in the decision-making process of the
organisation
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Change in status of employees- Eearners to co-owners
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Co-partnership can be introduced in the following ways
a) Distributing profits to employees in form of shares
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Merits

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Enables effective decision making
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Provides monetary benefit to employees- dividend
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Boosts moral of the employees- Psychological satisfaction
Demerits
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Inability of employees in influencing decision-making process-minor share holding- no influence
3
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3%
irrespective of profit or loss
4
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Lack of interest of employees
Payment of Bonus
Bonus is a monetary incentive or benefit to the employees in addition to normal wages, it is paid to
the employees as their share in the financial prosperity of the business organisation
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Granting of bonus to the employees is a statutory requirement for business organisation as per the
payment of Bonus Act
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Prior to this act, employers were paying bonus out of the profits to the
employees voluntarily
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33% of salary
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3% to its employees, irrespective of profit earned or loss incurred,
Calculation of bonus under revised rule is as follows
If basic pay plus DA of an employee is below rupees 7000
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If basic play DA of an employee is above rupees 7000
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If salary drawn is above rupees 21,000 then employees not eligible for bonus payment
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The shares may be issued in any of the following ways with the employee
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as a bonus scheme,
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The employer decides the terms and conditions of issue of shares to the employees
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Motivates employees to perform better

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Retaining quality manpower- attractive package
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Bear losses- Falling share price
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Stock market conditions fluctuate
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It is a process of authorising the employees to establish work goals, take task decisions and solve
task issues on their own
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Employee empowerment emphasises on making employee independent by granting them
autonomy and providing them control over the factors influencing their job performance
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Employee empowerment is a modern management approach that enables employees to take
ownership of their work, be more creative and engaged in their jobs, and make independent
decisions
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Forms of empowerment
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They are encouraged to make valuable suggestions to the organisation
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The employees can only give their suggestions, but cannot implement
them
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Best
suggestions are rewarded with awards, felicitations or project in charge etc
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Job involvement
In this form of employee empowerment, jobs are restructured so as to develop the employee skills
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They are given freedom in setting task goals and authorised to take decisions regarding the
task at their level
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The employee is provided feedback regarding his performance
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However, in this type of empowerment, strategic decisions with
reference to organisation structure, distribution of authority, determination and allocation rewards are
made by the top-level management
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High involvement
This method provides scope for employees to develop and contribute to their maximum capacities
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The employees are provided feedback by sharing information on
job performance
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Barriers to Empowerment
1
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They do not support empowerment of
employees being egoistic and selfish in nature
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They are negative in their approach and act as barriers in empowerment programmes
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Unsuitable organisation culture
If the style of Management in authoritarian in nature, then it will act as barrier to employee
empowerment
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When leaders interfere or hesitate to delegate authority, it
undermines employees' confidence and autonomy
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A manager may be unwilling to delegate authority to his subordinates, as if he is there not competent
enough to perform the delegated tasks
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This fear prevents him from delegating authority, and he
performs the task by himself
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The subordinates fear that they may commit mistakes and therefore are reluctant to accept authority
from the superiors
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This attitude of the subordinates is the barrier in employee empowerment
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Lack of interest among subordinates
Many employees do not wish to accept responsibilities
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Such employees prefer to be in their comfort zone and expect managers to shoulder
responsibilities and face challenges
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Unfavourable environment
For employee empowerment to be effective, favourable environment is necessary
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In the absence of these requirements, employee
empowerment will be ineffective
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Cultural Barriers
Cultural barriers such as discrimination, favouritism, or lack of inclusivity can marginalize certain
groups of employees, hindering their ability to fully participate and contribute
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Investing in continuous learning and development initiatives equips
employees with the tools and expertise they need to excel in their roles, boosting their confidence and
sense of empowerment
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And
the situation at that time was not favourable for employee empowerment
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Indian managers also realised the need and significance of employee empowerment
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Employee empowerment aims at motivating employees mainly at group level
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Suggestion programmes are also introduced by Indian business organisations
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Comparatively, the public sector companies have lesser programmes for
empowerment of employees
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However, there are certain barriers to empowerment of employees
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According to Keith Davis, “Workers’ participation refers to the mental and emotional
involve-ment of a person in a group situation which encourages him to contribute to group goals
and share in responsibility of achieving them”
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Lowest level: Information about organisational issues (Raw material, machine, production,
schedules) one way
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Second level: Managers consult and seek suggestions from workers on industrial safety, employee
welfare and working conditions
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Third level: Worker’s decisions are compulsorily accepted (Bonus, Safety, Medical claims,
overtime terms)
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Choose one best option out of
many placed
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Fifth level: Joint decision making by leader of workers and top management (Technology change,
retirement plan, disputes)
Objectives of Worker’s Participation in management
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A company's management must create a
democratic exchange
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The workers must be involved in
this
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That's why one
must establish this democracy in the company
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2
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Participation in policies and decisions will help them understand the working
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Also, if they share profits or business ownership, the employees will be
much more inclined to work harder
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It will ensure better
thinking and understanding for all the employees
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Worker needs and esteem
The objectives of workers' participation in management also fulfil the esteem and needs
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The company policies affect them
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Participation helps bring their issues forward
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Also, the entire process helps build their esteem as
they have a platform
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Workers
can express any issues whenever they want
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They can suggest changes which are beneficial for them and the business
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There will be fewer protests
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The
employees will not have any surprises
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Companies may also provide them with profit shares
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The employees will also be more welcoming of changes if they have a part in it
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The
parties must work on the company's goods and workers' facilities
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Recognition of workers
Some psychological objectives of workers' participation in management include recognition
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It will boost their morale
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It will become better in the company's long run
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There should be reward schemes or other schemes where workers feel valued in decisionmaking
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Works committee
These are committees comprising equal representatives of employees and management
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Establishment of Works Committee is a statutory requirement in India
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Committee members meet periodically to discuss and negotiate on
organisational issues of common interest, such as working conditions, industrial safety, welfare
administration, etc
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Joint Consultation Committees
Joint consultation committees are forums where representatives from both management and labor
come together to discuss matters of mutual interest
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3
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Through collective
bargaining, workers have a direct say in shaping their employment contracts, ensuring that their
interests are taken care of
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Suggestion schemes
Employees are motivated to participate in the decision-making process through the suggestion
programmes
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Such schemes stimulate
creativity among employees
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The drawback of this method is that employees can only use suggestions, but
cannot implement them
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These representatives advocate for the interests of workers at the
highest level of decision-making, ensuring that their perspectives are taken into account in strategic
planning and governance
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Profit Sharing
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Quality Circle (QC)
A Quality Circle (QC) consists of 7 to 10 people drawn from the same work area, who meet regularly
to define, analyse and solve quality and related problems in their area
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During the meetings, members are trained in problemsolving
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