productivity & work force unit 2
TRANSCRIPT
DEPARTMENT: MECHANICAL ENGINEERING
SEMESTER: 6TH SEM
Industrial Engineering
UNIT -2
Productivity & Workforce Management
INTRODUCTION
Buzz word in industrial engineering. Earlier days used to rate the workers
according to their skill. Emphasis laid on to improve hourly output by
analyzing & improving upon the technique applied by different workers.
Machines were introduced to improve the productivity.
New features incorporated in the machines (Computers) to make them powerful tools towards improving productivity.
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PRODUCTIVITY
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AS VIEWED BY DIFFERENT PEOPLE
Economist determines it from gross national product (GNP) & views it as ratio of output to input.
Managers view it as cost cutting & speed up. Engineers think it as more output per hour,
capital utilization, production per man hour, manpower efficiency.
Behavioral scientist views it as labor utilization (Man days)But generally accepted meaning is that it is the relationship between goods & services produced and the resources employed in the production. 5
It is a measure of how well resources are utilized to produce output. The term, productivity, symbolize the following:
It relates output to input in any system, where some value addition is performed on the input resource.
It is a quantitative measure of performance. It integrates performance aspects of quality,
efficiency and effectiveness.
PRODUCTIVITY
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DEFINITIONProductivity is formally defined by Organization of European Economic Cooperation (OEEC) as,
Productivity is the quotient (ratio) obtained by dividing output by one of the factors of production. Thus, it is possible to speak productivity of capital, investment or raw materials according to whether output is being considered in relation to capital, investment or raw materials, etc.
ORProductivity measures the efficiency with which resources such as labour or capital are employed in the production process.
Any particular value of productivity carries relevant meaning only when it is known how the productivity has been calculated. For example, the productivity of labor and productivity of capital should not be directly compared.
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Productivity---is the relationship between the output generated and input provided to create this amount of output during the measurement period. (Sink, 1985)
Productivity---is the linkage between resources and results: how efficiently organizational resources are managed in achieving performance objectives. (Groff,1986)
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DIFFERENCE BETWEEN PRODUCTIVITY AND PRODUCTIONProductivity and production, though related in many ways, are different.
Production is related to the activity of producing goods or services. It is a process (or system) of converting input into some useful, value-added output.
• Production is a measure of output produced. • The emphasis is not on how well the input-resources are
utilized.• It is a value addition process. Productivity is related to the efficient utilization of input
resource into produced in the form of value added goods or services. , puts emphasis on the ratio of output produced to the input used.
• Its focus is on how well the input resource is used for conversion into output.
• Productivity is a relative term where in the output is expressed in terms of inputs.
• Increase in production may or may not mean increase in productivity.
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EXAMPLE A company is manufacturing 24,000 components
per month by employing 100 workers in 8 hour shift. The company gets additional order from government to supply additional 6000 components. The management decides to employ additional workers. What will be production and productivity level when the number of a additional workers employed are: (i) 30 (ii) 25 (iii) 20.
Solution Present productivity (of Labor) = Present Production (i.e., output)
Total man-hours (i.e., output)
= 24,000 components
(100 workers) (8hour) (30 days of the month)
= 24,000/24,000 =1 Component/man-hour
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WITH INCREASED ORDER(i) When additional 30 workers are hiredProduction = 24,000 + 6000 = 30,000
componentsProductivity (of labor) = Increased total
production/ Total man-hour
= 30,000 / (100 + 30) (8) (30) = 0.96 Component/man-hour
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Increase in Production = 30,000 – 24,000/24,000 * 100 = 25%
The labor productivity falls below the initial level of 1 component per man-hour if more than 25 workers are hired. This level of additional man-power may be termed as break-even level from the labor productivity point of view. Three things have been understood from the above example:
1. Production and productivity are two different things.2. Increase in production does not necessarily mean
increase in productivity.3. Productivity is always associated with the context in
which it is calculated. For example, in the above case, it is calculated and interpreted as labor productivity. If labor productivity has decreased due to some reason, it may not always mean that other forms of productivity, say material productivity, will also fall
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BENEFITS FROM PRODUCTIVITY
Misunderstanding that higher productivity means higher work load, higher efforts, more profit to owners and threat to job security.
Productivity integrates the objectives of workers & owners.
Contributes towards increase in production through efficient utilization of resources rather than making workers to work hard.
It strives to minimize human efforts & human hazards with a view to utilize them to those area where they can contribute maximum to the output. 13
PRODUCTIVITY-EFFICIENCY AND EFFECTIVENESS
Efficiency and effectiveness are both commonly used management terms. Yet, while they sound similar and start with the same letters, they both mean different things.Efficiency refers to doing things in a right manner. Scientifically, it focuses on getting the maximum output with minimum resources. Effectiveness, on the other hand, refers to doing the right things. It constantly measures if the actual output meets the desired output.
Since efficiency is all about focusing on the process, importance is given to the “means” of doing things whereas effectiveness focuses on achieving the “end” goal.
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PRODUCTIVITY-EFFICIENCY AND EFFECTIVENESS
Efficiency is concerned with the present state or the “status quo”. Thinking about the future and adding or eliminating any resources might disturb the current state of efficiency. Effectiveness, on the other hand, believes in meeting the end goal and therefore takes into consideration any variables that may change in the future.
In the earlier days of mass production, efficiency was the most important performance indicator for any organization. However, with consumers facing an increasing number of choices, effectiveness of an organization is always questioned. In order to be a successful organization, there needs to be a balance between effectiveness and efficiency.
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SUMMARY: DIFFERENCE BETWEEN THE TWO
Efficiency means doing the things right whereas Effectiveness is about doing the right things.
Efficiency focuses on the process or “means” whereas Effectiveness focuses on the end.
Efficiency is restricted to the present state whereas effectiveness involves thinking long term.
Organizations have to be both effective and efficient in order to be successful.
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Productivity is very often confused with the terms, efficiency and effectiveness. Though related, all the three terms carry different meanings.Efficiency (η): It is the ratio of actual output attained to the standard expected output.Effectiveness indicates a measure of how well a set of targets or results are accomplishedTalking about productivity, actually productivity is nothing but effectiveness + efficiency.
OR Productivity is an integration of both efficiency and effectiveness. It indicates a combined effect of resource utilization (i.e., efficiency) and performance (i.e., effectiveness). The combine effect of efficiency and effectiveness is used in defining a term called productivity index.
PRODUCTIVITY-EFFICIENCY AND EFFECTIVENESS
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Productivity Index = Performance achieved/Input resources consumed
Productivity Index = Effectiveness/Efficiency
Since, effectiveness is difficult to measure quantitatively and productivity index decreases when efficiency increases at a given effectiveness (which is not acceptable), this definition is modified as follows:
Productivity Index = f1 (Effectiveness)/
f2 (Efficiency)
Where, f1, and f2 are two different functions,
PRODUCTIVITY-EFFICIENCY AND EFFECTIVENESS
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PRODUCTIVITY-EFFICIENCY AND EFFECTIVENESS
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EFFECT OF BASE PERIOD ON PRODUCTIVITY
Base Period: A specific time period used as a benchmark in measuring financial or economic data is called as base period.
Productivity is the ratio of the output produced for different kind of products divided by the resources, all divided by the same ratio for a base period.
• Productivity= Aggregated output in the measured period/ resource input in the measured period/ Aggregated output in the Base period/ resource input in the Base period
OR• Productivity= Aggregated output in the measured
period/ Aggregated output in the Base period / Resource input in the measured period / Resource input in the Base period.The two relations give the same value but have different interpretation. (I) relation the numerator i.e. current performance index & the denominator i.e. base period performance index may be calculated on different time lengths. (II) relation the numerator & denominator should be calculated for the same time period, to carry some useful meaning.
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MEASUREMENT OF PRODUCTIVITY Productivity is an effective way to gauge how a
system is performing over a period of time. It is important to measure it quantitatively.Before Asking the How, Let’s Understand Our Own Goals
Reduce cost e.g., Develop more valuable products for lower costs
Support estimation e.g., Provide consolidated and parameterized history data
Benchmark / assess design center or supplier capability e.g., Rationalize higher capital-to-staff investments
Optimize processes e.g., Early defect correction
Streamline software operations e.g., Identify production bottlenecks or underutilized resources
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MEASUREMENT OF PRODUCTIVITY Productivity measurement: important but
difficult.
Measurement of output: 1. aggregate unit 2. sales 3. production volume
Measurement of input: 1. labor 2. capital 3. raw material 4. energy 5. information
Combine goal-orientation with decision-support and other operational management techniques.
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THE ESSENTIAL DIFFICULTY OF PRODUCTIVITYMEASUREMENT
Productivity is a derived metric:function (output, input, environment)
Input is easy to measure (e.g., activity-basedcontrolling)
Output and environment are difficult to describe and measure.
There are three commonly used approaches to measure productivity:
• Partial Productivity• Total Factor Productivity• Total Productivity 23
PARTIAL PRODUCTIVITY Partial productivity is defined on the basis of
the class of the input being considered. For example, if the labor is increased by 18% during last financial year, its effect on the increased output is represented by productivity.
Partial productivity index: (output/single input)
labor productivity: output/labor hour capital productivity: output/capital 24
TABLE : DIFFERENT FORMS OF PARTIAL PRODUCTIVITY
Partial Productivity Formula Some Uses
Labor Productivity or Human Productivity
Output/Human Input To understand the effect of increase/decrease in hiring of labor and to see how they perform
Material Productivity Output/Material Input In material management
Capital Productivity Output/Capital Input In financial assessment
Energy Productivity Output/Energy input In the consideration of energy required by the system
Advertising and Media Planning Productivity
Output/Advertising and Media planning input
In marketing management
Other Expense Productivity
Output/Other Expense Input
In the analysis of system
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REASON FOR LABOR INPUT
Three reasons are sometimes put forward to justify the use of labor input for purposes of partial productivity measurement, these are:
(i) labor is regarded as the most important factor of production;
(ii) labor is the most easily quantified factor of production;
(iii) labor is the only factor of production that has conscious control over its contribution to output.
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ADVANTAGES OF PARTIAL PRODUCTIVITY MEASURE It is a good diagnostic measure to identify
areas where improvements may be done. Easy to calculate as independent of other
inputs. Easy to understand. Management finds it easy to understand and
pin-point the logic for its improvement. It is easy to benchmark (compare) with other
industries. For example, the labor productivity of a public limited company producing steel (Say SAIL) may be compared with labor productivity of a private sector steel producing company (Say, TISCO).
Data may be easily generated for this.27
LIMITATIONS OF PARTIAL PRODUCTIVITY MEASURE
It can be misleading if used out-of-context. It does not contain the overall effect of the
system of performance. Focused areas of improvements are difficult
to identify. Therefore, wrong areas of management control may be identified.
It gives a myopic view of performance. This means, only limited factors are considered to effect the output or performance.
It misses holistic (or totality) approach.
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TOTAL FACTOR PRODUCTIVITY
Total factor productivity is a productivity measure combines that labor and capital, two of the most common input factors used in the partial productivity measure.
This measure is often used at the national level, because many governments collect statistics on both labor and capital.
Total Factor productivity index: (Net output/Labor input + Capital input)
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TOTAL FACTOR PRODUCTIVITY
Advantages Data from company records is relatively easy
to obtain. Has value added approach
Limitations No consideration for material and energy
input. Difficult to relate value added approach to
production efficiency.30
TOTAL PRODUCTIVITY MEASURE (TPM) Total productivity is a productivity measure
that incorporates all the inputs required to make a product or provide a service. The inputs could be grouped in various categories as long as they determine the total inputs required to produce an output.
Total productivity measure:
TPM=output/all inputs (labor + capita l+ materials +……)Total productivity= total tangible output/ total
tangible inputTangible = measurable 31
TOTAL PRODUCTIVITY MEASURE
Advantages Easy & more accurate representation of total
picture of the company Easily related to total costs. Considers all quantifiable outputs & inputs.
Limitations Difficulty in obtaining data. Requirement of special data collection
system.32
FACTORS AFFECTING PRODUCTIVITY
Controllable or internal factors Product: The extent to which the product meets the output
requirement. The cost benefit factor of a product can be enhanced by increasing the benefit at the same cost or by reducing the cost for same benefit.
Plant & Equipment: Play prominent role in enhancing productivity. The increased availability of plant through proper maintenance & decreased idle time increases productivity. Further increases by proper utilization, modernization , investment etc.
Technology: Innovative & latest technology like automation & information technology improves productivity. Various aspects of technological factors are:
• Size & capacity of plant• Timely supply & quality of inputs• Production planning & control• Repair & maintenance• Waste reduction• Efficient material handeling.
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CONTROLLABLE OR INTERNAL FACTORS Materials: Efforts to reduce material & energy
consumption. Factors to be considered are:• Selection & quality of right material• Control of scrap & wastage• Effective stock control• Optimum energy utilization & energy savings Human Factors: Depends upon human competence
& skills. Ability to work effectively depends upon training, education, experience, aptitude etc.
Work Methods: Improving the way in which work is done. Work study & industrial engineering techniques & training improves the work methods which n terms enhances productivity.
Management Style: Influences the organizational design, communication in organization, policy & procedure. A flexible & dynamic management style is a better approach to achieve higher productivity. 34
Structural Adjustments ( economic & Social): Economic changes are (i) shift in employment from agriculture to manufacturing (ii) Import of technology (iii) Industrial competitiveness.Social changes are women participation in labor force, education, attitudes & cultural values.
Natural Resources: Manpower, land and raw materials are vital for productivity improvement.
Government Policy & Infrastructure: Government policies & programs are significant to productivity practices of govt. agencies, transport & communication power, taxes & interest rates have a maximum influence on the productivity.
UN -CONTROLLABLE OR EXTERNAL FACTORS
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WAYS TO IMPROVE PRODUCTIVITYSome basic productivity improvement techniques are:
1. Technology based: CAD, CAM, CIMS: CAD refers to design of products,
process or systems with the help of computers. CAD has significant impact on the human productivity as
it• Minimizes the risk of functioning• Reduces error• Speed the evolution of alternate design
CAM is useful to design & control the manufacturing system. It helps to achieve the effectiveness in production system by line balancing.• Production planning & control• Capacity requirement planning (CRP), Manufacturing Resource
Planning (MRP II), Materials Requirement Planning (MRP)• Automated inspection
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Computer integrated manufacturing (CIM) is characterized by automatic line balancing, machine loading/ scheduling & sequencing, automatic inventory control and inspection.
o Roboticso Laser Technologyo Modern maintenance techniqueso Energy Technologyo Flexible manufacturing system (FMS)
2. Employee Based: o Financial & non financial incentives at group & individual levelo Employee promotionso Job design, job enlargement, job rotation, job enrichmento Workers participation in decision makingo Quality circle (QC), Small group activity (SGA)o Personal development
WAYS TO IMPROVE PRODUCTIVITY
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3. Material Based: o Material planning & controlo Purchasing, logisticso Material storage & retrievalo Source selection & procurement of quality materialo Waste eliminationo Material recycling & reuse
4. Process Based:o Methods engineering & work simplificationo Job design, Job evaluation & Job safetyo Human factor engineering
5. Product Based:o Value analysis & value engineeringo Product diversificationo Standardization & simplificationo Reliability engineeringo Product mix & promotion
WAYS TO IMPROVE PRODUCTIVITY
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6. Management Based:o Management styleo Communication in the organizationo Work cultureo Motivationo Promoting group activity7. Work Environment:o Better lighting and illuminationo Better ventilationo Safe work-placeo Total Quality Management (TQM)
WAYS TO IMPROVE PRODUCTIVITY
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CIRCUMSTANCES THAT CALL FOR JOB EVALUATION
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There is a dissatisfaction on salary structure, with claims that:
• similar work does not result in equal pay,• equal pay is given to dissimilar work, or• favoritism and other personal considerations are major
factors in salary determination.
JOB EVALUATIONo Not a scienceo Not a solution to salary problemso Not a substitute for managerial decision making about
individual salarieso Not a cost cutting techniqueo Not always consistent with the labor market
Employers are facing the challenge of retaining & maintaining the workforce under changing techno-economic scenario and wage parity amongst the organizations
Job evaluation is the technique to systematically determine the worth of each job and help in establishing basic wage rates of jobs.
Job evaluation is a process to determine in a systematic manner and analytically the worth of each job in the organization based upon the set of carefully selected factors such as skill, effort, responsibility demanded by the job and translating these worth of jobs into monetary terms ( i.e. pay & wages)
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JOB EVALUATION
As per international labor organization it is an attempt to determine & compare the demands which the normal performance of particular job makes on average workers, without taking into account the individual abilities or performance of the worker concerned.
Job evaluation aims to provide a mean of establishing a wage structure acceptable to both workers & management.
Job evaluation is a technique to rate the job not the worker.
DEFINITION
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OBJECTIVES OF JOB EVALUATION To establish a sound wage and salary system by determining
the worth of each job in the factory in relation to various factors like skill required, effort & responsibility involved.
To eliminate the wage inequalities. To establish a general wage level for given factory. To define the line of authority, responsibility & accountability. To formulate an appropriate & uniform wage structure. To provide a sound base for recruitment, selection,
promotion & transfer of employee. To identify the training needs of the employee so as to
prepare them for the future positions. To promote cordial relations between management & union. To provide sound basis for wage negotiation & reduce the
grievances of worker due to improper wages.
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PRE-REQUISITES OF JOB EVALUATION Facts related to job content: job
specifications & job description. Top management support & commitment. Cooperation of union & individual worker. Comparison of jobs. Involvement of experts in job evaluation.
Steps in Job Evaluation
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Internal alignment Job analysis Job description Job evaluation Job structure
PROCEDURE FOR JOB EVALUATION
1. Job Analysis
Determine the detailed facts about the jobs.
2. Job Description
Describe clearly the requirement of jobs.
3. Job Specifications
Specify the attributes possessed by employee to complete the job satisfactorily.
4. Job Classification
Determine the relative worth of the job
5. Wage Determination
Compare jobs with predetermined job & arrive at suitable wage structure.
6. Evaluate Performance
based on job description& specification.45
BENEFITS Helps the management in establishing an objective
rationale for acceptable wage structure. Takes into account many factors other than the skill
difference. Helps in skill match with job. Thus helpful in the
selection, training & promotion of workers. Helps in determining the rate of new job. Establishes cordial labor relationship. Helps motivation and morale Both employee and employer needs are addressed Job descriptions generated are useful for other
activities46
LIMITATIONS Precision is missing as there is no standard table for all the
activities. It does not account for many inter-related economic factors. No special attention is paid for exceptional merit, needed in the
performance of the job. The change in production technology ( change from conventional
lathe to CNC lathe), information system etc. severely affect the job content. Therefore job evaluation done few days back is not valid today. It is a dynamic process.
The basic assumption of job evaluation is that the work of equal worth should be equally paid as both are equally attractive . But this is not so in real life. There are many examples in real life when the jobs of same worth ( say, a lecturer & an IAS) are not equally attractive to the job seekers.
Assessment can be costly & time-consuming especially at the start
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JOB ANALYSIS
It involves a systematic examination of the job to find out:
Nature of task performed by the workers Purpose of the task Working conditions under which task is to be
performed Responsibility, skills required Relationship between various jobs done in the
department The information gathered here is useful not only
for job evaluation but also helps in performance review & appraisal, manpower planning 48
STAGES IN JOB ANALYSIS
• Job Identification• Job information Collection• Qualification Requirement
Methods of Job Analysis• For existing jobs, interviews with employees• Interviews with supervisors• Observation• Combination, interviews & observation• Structured questionnaires• Employee journals/logbooks
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JOB DESCRIPTION
It gives all essential facts about the job like duties, responsibilities, working conditions & other required facts. It is composed of three parts:
Job identification containing the details like job title, department, section, job code, name of the supervisor.
Job summary gives the overall picture of all the duties performed
Work performed gives the details of both regular as well as occasional tasks performed, machined & tools used, working conditions & hazards.
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JOB SPECIFICATION It is the statement of qualities & capabilities that an
employee must possess to perform the job satisfactorily.
It describes the extent to which each of the job factor such as education, experience, physical efforts, responsibility for other work, materials, machines & equipment etc. Present in the job & the degree of difficulty present.
Outcomes: Job descriptions and job specifications impacts upon: Recruitment & selection Performance appraisal Remuneration Training & development Job design & redesign
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METHODS OF JOB EVALUATION
Job-evaluation methods are of two categories:
(1)Non-analytical or non quantitative approach• Ranking Method• Job-Grading Method
(2) Analytical or quantitative approach• Point- Ranking Method• Factor Comparison Method
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RANKING METHOD Jobs are arranged or ranked in their importance i.e. from lowest to
highest or vice versa. Committee assesses the worth of each job on the basis of its title or
on its content, if the latter are available. Job Description can be used for ranking different jobs. Ranked jobs are classified into groups, and jobs under particular
groups may receive the same salary or salary range.
ADVANTAGES Simplest, easy to adapt & easy to understand Inexpensive & takes less time than any other methods
DISADVANTAGES Subjected to chances of higher error No commonly accepted base is available for dealing with ranks Not suitable for large companies.
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JOB GRADING OR JOB CLASSIFICATION METHOD As in the ranking method, the Job-grading method does not call
for a detailed or quantitative analysis of job factors. Facts about the job are collected and matched with the grades
which have been established by the raters (Committee) Grades are arranged in the order of their importance Lowest grade may cover jobs requiring greater physical work
under close supervision, but carrying little responsibility.
ADVANTAGES A large number of jobs can be handled easily after the grade
description are documented Inexpensive & relatively simple Easy for people to understand in terms of grades
DISADVANTAGES Takes more time than ranking method & thus costs more Does not uses the detailed job analysis Less accurate than point rating method
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ANALYTICAL METHOD OR QUANTITATIVE APPROACH
o Attempt to establish relative wortho Give the illusion of being more precise than
non-quantitative approacheso Easier to defend to employees and managerso Tool should be tailored to job classification
philosophy• Point- Ranking Method• Factor Comparison Method
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POINT- RANKING METHOD
Merill lott developed this method in 1925. The point system of job evaluation uses a point scheme based on the compensable job factors of skill, effort, responsibility and working conditions. The more compensable factors a job possesses, the more points are assigned to it. Jobs with higher accumulated points are considered more valuable to the organization.
Following steps are adopted:o Select key jobs o Identify the factors to all identified jobs such as skill,
effort, responsibility etc.o Divide each major factor into a number of sub
factors. Each sub factor is defined and expressed in order of importance.
o Find the maximum number of points assigned to each job
o Once the worth of a job in terms of total points is known, the points are converted into money values, keeping the wage rates in mind.
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PROS AND CONSAdvantages
o Once factors and degrees are defined, plan is stable over timeo Perceived as valid by userso High agreement with ratings if jobs are carefully definedo Documented process
Disadvantageso Time consuming and costly to establisho Typically requires that pay grades be established although
each point can be given an economic value resulting in continual pressure to upgrade individual positions or jobs in order to increase pay
o Analysis involves experienced personso Subjective assessment needed to establish point range for
salary gradeso Typically relies on key jobs within the organization
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FACTOR COMPARISON METHOD Under this method, one begins with selection of factors . Each factor is ranked individually with other jobs.
E.g.:- Each job is ranked several times like,
1. Skill requirements,
2. Physical exertion,
3. Responsibility, and
4. Job conditions
A composite score is obtained for all factors A refinement of whole job ranking No detailed criteria Uses universal factors for defining jobs (e.g. skill, effort,
responsibility, working conditions) Each factor can be weighted Jobs are ranked within each factor Labor intensive - involves numerous judgments in order to build
ranking (# jobs X # jobs X # factors = # of individual decisions needed)
Example: 100 job titles X 100 job titles X 4 factors = 40,000 individual decisions that must be made to develop hierarchy
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ADVANTAGES
o It uses wages of existing key jobs, which provide standard against which all other jobs are compared
o Direct comparison is used for determining wageso Quantitative yet easy to apply once the factors & levels have
been decidedo Relative value is easily understood
DISADVANTAGESo It is costly & time consuming to setup initiallyo Needs to be re-established each time a new job is added to
the structure or an existing job changes since these actions will affect the overall rankings
o If unfairly paid jobs are selected as key jobs, then the entire scaling of factors gives wrong results.
o Subjectivity in the grading is often challengeable. Different evaluator may give different wages for one factor.
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MERIT RATING
Merit rating is associated with performance appraisal of an employee. This is also called as performance appraisal, personnel rating, employee evaluation.
Merit-rating is a formal, objective procedure for evaluating personality, contributions and potentials of employees in a working organization
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JOB EVALUATION VS MERIT RATING Job-evaluation and merit-rating are compared
in the following ways:
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Job Evaluation Merit Rating
It evaluated a job or work It evaluated a worker
It is for the purpose of fixing a base-wage for a job.
It is for the purpose of deciding reward for exceptional merit of worker.
It is independent of operator or worker. It is impersonal in nature.
It is independent of job. It is impersonal in nature.
Useful for decision regarding wage and salary administration, skill match, etc.
Useful for decision regarding training, placement, promotion, counseling, etc.
It considers requirement of job. It considers ability and performance of individual.
OBJECTIVES OF MERIT RATING Helps in executive decisions related to human
resource department (HRD). Appraisal of workers. Continuous record for the worth of a worker. Tool for decisions related to training, placement,
promotions, confirmation, increment, transfer and counseling of workers.
Useful for understanding areas of improvement in a worker
Helps in discovering special talent in a worker. Useful in personal research, validation of training
objectives and training methodology.62
ADVANTAGES OF MERIT RATING Merit-rating plays very important role in the human resource
administration of a firm. Its advantages are:
(1) Systematic evaluation of employees
(2) Facilitates matching of job with individual.
(3) Facilitates promotion related decisions
(4) Facilitates training related decisions.
(5) Helpful in identifying weakness of the employees which may systematically be removed.
(6) Provides base for guidance and counseling for the employees.
(7) Develops healthy competition among workers to improve performance.
(8) Serves as motivational tool for employees
(9) Provides objective basis for bonus, incentive wage, and salary related decisions.
(10) Improves employee-employer relationship due to increased trust and confidence.
(11) Sound base for negotiation with trade union.
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LIMITATIONS OF MERIT RATING• Bias of rater may under-rate or over-rates an employee.• Due to Halo Effect (which is the tendency of a rater to
consistently rate under or above the average), the ratings may not be accurate.
• Assessment of irrelevant factors may result in deceptive rating.• Due to improper weight age of factors, the ratings may be
improper.• Due to fear, negligence, insufficient time, insufficient
information or temperament, the rater may play safe and give average rating to an otherwise good or unsatisfactory employee.
Reward for employee may not follow immediately after a good rating due to organization constraints. This may lead to dissatisfaction.
Many rating factors are very subjective. Due to this, exact rating may not be forthcoming. For example, innovativeness, drive, organizational loyalty, etc., are difficult to be quantified in exact terms.
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APPROACHES OF MERIT RATINGS
Some specific approaches of merit rating are as follows:
(1) Ranking MethodThis is the simplest method in which all the employees are compared with one another. They are ranked in descending order from best to worst.This method has a serious limitation that it is not diagnostic to point the specific areas of weakness and strength of a worker. The method is highly subjective. The difference in rank does not provide the exact nature of merit-differential. There are chances of personal bias of the rater.
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PAIRED COMPARISON METHOD
Each member of the group is compared with remaining other members of the group. Each judgment is recorded in terms of score. These scores are added up to find the final ranking of each person
It is a more rational and comprehensive method. The bias of the rater is minimized, yet it may not be over.
The method involves large number of comparisons. For example, for a group of n persons, total number of comparisons is factorial (n — 1)! 66
CHECKLIST METHOD
In this method, the rater is given a set of statements related to the employee’s performance, attitude, behavior and shortcomings. The rater is asked to tick-mark either yes or no. Each yes/no carries certain points, which when added up, give final rating of the employee.
Statement Understands work Assumes responsibility Makes no mistakes Innovative in approach Keeps work area clean Does not need close supervision Very regular on work
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GRAPHIC RATING SCALE
In this method, the rater marks the rating on a graphic rating scale, the scale containing different degrees of performance in terms of phrases, such as: outstanding, excellent, good, average and poor. For each degree few numbers are allotted. Different performance measures are rated on this scale:
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Performance measure
Degree of Scale
Outstanding Excellent Good Average Poor
10 9 8 7 6 5 4 3 2 1 00
Knowledge of work
Leadership
Housekeeping
Regularity
?
?
?
?
RATING BY RESULT Rating is done on the basis of achievement of set
objectives. Performance standards are set in advance. It is known
to both rater and employee. Under achievement or over achievement is noticed by the rater.
This method eliminates the personal bias of the rater. There is transparency in rating. Continuous review of rating is possible by both
employee and his supervisor. Possibility for improvement may be explored at regular intervals.
Since approach is participative, it instills confidence in employees. The method is more suited for executives and managers as it requires proper education and training on the path of employees.
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REQUIREMENTS FOR SUCCESS OF MERIT RATING SYSTEM
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A successful merit rating system should be objective. Standard for outputs should be set against which performance should be measured
For a merit rating system, these requirements are of prime importance:
Commitment and support of top management Approval of employees and union Knowledgeable rater Education and training of employee to
understand the rating system Continuous rating system and periodic review Grievance redressal system Administrative support for generating and
retrieving necessary information Sufficient time, fund and formats for the rating.
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INCENTIVE PLANS
Incentive: it is a reward or encouragement to an employee for the hard work & efficiency at job, assigned by the organization. It is for motivating employees to do better and harder.
Incentives may be direct or indirect. Direct incentives are given to individual & indirect are given to group. Direct or indirect monetary payment is termed as financial incentives, such as: bonus, profit sharing, etc.
Non-monetary payment of this type is termed as non financial incentives, such as: social benefits, recognition, appreciation, good work conditions, job satisfaction, chances for promotion, training, job security.
Some incentives are semi- financial, such as: subsidized ration, subsidized medical facility, subsidized education for children, pension, etc.
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OBJECTIVES OF A GOOD WAGE-INCENTIVE PLAN Good employee-employer relationship. Helps in increasing productivity. Boosts morale of employee. Motivates employee to perform better. Controls absenteeism and labor turn-over. Basis for cost control. Improves quality of life. Helps organizations to better utilize the labor, machine,
equipment and other resources. Improves the image of the organization. Flexible to meet the changing conditions of the
enterprise.73
BASIS OF A GOOD WAGE-INCENTIVE PLAN
Simple to understand, simple to use and administer
Incentive as per accomplishment and should be paid without much delay.
Standards: fair and comparable with other industries of similar type
Agreement of both employee and employer Encourages workers to perform more and better Based on time-study information. No undue loss to workers due to uncontrollable
reasons such as power-failure, machine break-down, etc.
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TYPES OF WAGES INCENTIVE PLANS
The compensation to an employee may be in three forms:
(i) Based on time spent on work, i.e., time rate system
(ii) Based on production in quantity terms, i.e., piece-rate system
(iii) Combination of (i) and (ii) both, i.e., wage-incentive system
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TIME RATE METHODThe payment under this plan is made in accordance with the time spent on the job. The time may be on hourly, daily, weekly, fortnightly or monthly basis.
Advantages of Time Rate Method Simple to calculate Focus on punctuality, regularity and work Less wastages, as worker is not unnecessarily worried about very high
production rate. Better quality of work due to above reason Advance knowledge about wage Easy to operate in different situation Consistency in calculation and approach Preferred by trade unions Workers feel assured of wages irrespective of machine failure, breakdown, etc.
Disadvantages of Time Rate Method Lack of motivation to do exceptional Requires close supervision as worker may waste production time Encourages inefficiency in workers
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STRAIGHT PIECE RATE SYSTEM Wages are paid in this system in accordance with
the output of production. This is independent of time spent on the job.
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Advantages Disadvantages
Simple
Easy to understand focus on productivityEfficient and fast worker feels better
Easy to satisfy worker
Discourages quality focus
No job security
No compensation for breakdown
No compensation for sickness
No guarantee of minimum wage
Discourages group effort.
Suitability
1. Repetitive jobs having no innovation2. Jobs where individual contribution may be measured3. Skilled workers in small firms4. When the production or output is the focus
STRAIGHT PIECE RATE WITH A MINIMUM GUARANTEED BASE WAGE
In this method, in addition to the payment in accordance with an individual’s output, a fixed guaranteed base-wage is also provided. However, for a production up to a certain level there is no incentive.
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DIFFERENTIAL PIECE RATE SYSTEM (OR TAYLOR’S PLAN)
In this scheme, upto a certain production level, which may be standard output, a piece rate (say R 1) is given. For anybody, who achieves more than this output, will get the payment for over achievement at a higher rate.
However, it does not guarantee minimum base wage. Standard output may be decided by careful time and function study procedure.
Advantages of Differential Piece Rate System Provides incentives to efficient worker Penalizes inefficient worker Focuses on high production rate Simple and easy to implement
Disadvantages of Differential Piece Rate System Minimum wage is not assured. No consideration for the machine failure, power failure, etc. Over emphasis on high production rate There are chances that quality of work may suffer.
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HALSEY PREMIUM PLAN In this plan incentive is given to a worker, who is fast and completes work before the standard time to complete a job, However, a minimum base-wage is guaranteed to a worker, who completes the job up to the standard time, fixed for this job. It takes into account the total time saved by the employee, and is a useful method for computing the incentive, when accurate performance standards have not been established. The value of time saved by the employee is computed and the earning is shared by the employee and the organization.
The standard notations used throughout this are: r = rate per unit
T = actual time workedS = Standard time= T x Number of units produced /Production standardN = total number of units producedP = premium percentageE= total employee earnings
The total earnings of the worker is computed by the formula given below:
E = rT + P ( S – T ) r
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Example Suppose Standard time to complete a job = 10 hrs. Standard work in standard time= 30 units Wages per day = Rs. 5.00 or 50 paise per hour. Actual time taken = 8 hours. Time saved= 2hours Rate of Premium =33 1/3 %
The total wage of the worker shall be computed as wage for 8 hour @50 paise per hour
Premium for two hours saved=Rs. 4 Total wage for 8 hours= 33 1/3 % of Re. 1 = 33 Paise If worker continuous for 2 hours with the same speed, he will
get the wage for another two hours on the above basis Rs. 1 and paise 8. the total wage for the day thus come to Rs. 5.41.
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Advantages of Halsey Premium Plan Simple Beneficial to efficient worker Causes no harm to new worker, trainee, or slow worker Management shares benefits of over-achievement by
workers Minimum base-wage is guaranteed. Disadvantages of Halsey Premium Plan Workers get only a percentage of return on their over-
achievement (for example: 1% in above example). Due to undue importance on over-achievement quality
suffers. Management gets wrong picture of worker’s ability
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ROWAN PLAN It is quite similar to Halsey plan except that incentive for completing the
job in time lesser than standard time is paid to the worker.
It was devised in Glasgow, Scotland. In this plan the bonus is calculated on the basis of the time worked. Thus the premium paid to the worker is a percentage of the time worked. This prevents unnecessary over speeding by a worker, which may be counter-productive to quality or group behavior.
Suppose, a worker should produce 50 units in 8 hours and he is paid at the rate of Rs 3 per hour. If he produces 100 units in 8 hours his total earnings for the day would be
E = rT + (S – T / S) x rT = 3 x 8 + (16 – 8 / 16) x 3x 8 = 24 + (8 / 16) x 24 = 24 + 12 = Rs 36. Thus the total earnings of the employee would be Rs 36/- It is worth noting that this plan is not easy to understand by the
operative personnel and it also involves more clerical work.
e –
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Advantages of Rowan Plan Checks over-speeding, overstrain by worker. Assured minimum base-wage Efficiency is rewarded
Disadvantages of Rowan Plan Discourages workers to over-achieve. Difficulty in ascertaining wages as it requires
large data processing Sharing of profit for over-achievement may not
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MERRICK MULTIPLE PIECE RATE PLAN
This is a modification over Taylor’s plan. In this, a minimum base wage is not guaranteed. A worker’s wage is calculated as follows:
When output (O) is less than 83% of standard output (SO), scheme for wage (W) is equal to piece rate scheme.
When 83% of (S) < O < 100% of (SO); W = 110% of piece-rate.
When O > 100% of (SO); W = 120% of piece rate.
Advantages Efficient workers are rewarded handsomely.
Disadvantages Wide gap in slabs of differential wage rate Over emphasis in high production rate 85
GANTT TASK AND BONUS WAGE PLAN In this, a minimum wage is guaranteed. Minimum wage is given to
anybody, who completes the job in standard time. If the job is completed in less time, then there is a hike in wage-rate. This hike varies between 25% to 50% of the standard rate.
Example
Standard time = S hour
Actual time = T hour (T < S)
Time rate for wages = Rs. R per hour
Bonus rate = P% of hourly rate
= Rs. (PR) per hour
Thus wage = (RS + PRS) in T hours
= (RS + PRS)/T per hour RS+PRST
Advantages Minimum wage in guaranteed Suited to efficient workers.
Disadvantage Emphasis on over speed or high production rate
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BEDEUX POINT PLANIn this plan also, a minimum base-wage is guaranteed. In this plan, the calculation of wage is based on a term Bedeaux point (B). SH is divided into standard minutes & each standard minute is called Bedaux point or B.
A worker, who earns 1 B in one minute or 60 Bs in 1 hour, is 100% efficient. In this, incentive is paid for 75% of number of Bs exceeding 60 B per hour. The wage payment scheme is as follows:
(i) When actual Bs earned by worker (Bw) > Bs for standard time
Wage = RS + [B(W) - B(s)] * 0.75R/60Bw-Bs60
(ii) When Bs caused by worker (Bw) < Bs for standard time
Wage = RS
Advantages Minimum base wage is guaranteed For time saved as compared to standard time, 75% of the
compensation is given to worker. Rest 25% may be given to his supervisor.
Bedeaux point may be added up for a worker even if his job requires different assignments in a day.
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