Payment by Results System

Measures to Overcome Problems Related to the PBR System:
In order to overcome some of these difficulties, following are some of the measures that could be taken within the Payment by Results system:

Protection of Quality: Generally one should pay only for the output that meets set quality standards.

In some instances, quality is of extreme importance such as in the products catering to the nuclear power stations, highly safety-oriented mechanisms, products dealing with human health, products of art, etc. The output oriented incentive scheme is not very suitable for such cases. But, where the incentive schemes can still be installed, they have to be accompanied by the condition that every defective unit of output is severely penalized in terms of a drastic reduction in the incentive bonus.

Protection against Wastage: In cases where materials usage is of much importance (due to the high costs of materials themselves, and their reworking), the incentive payment can be tailored to two parameters:

(1) Output and (2) Materials usage.

Any output above the basic output level is given incentive pay which reduces as the materials wastage gets higher. Thus, as the output increases the incentive pay increases, but also concurrently, as the materials wastage increases the incentive pay decreases.

Indirect workers and Incentives: The term ‘indirect’ need not mean that the contribution of these workers to the enhanced productivity is any less than the so called ‘direct’ workers. In some industries, the indirect workers such as the maintenance technicians, the machine setters etc., play a very major role in having a high degree of machinery availability. Their role is all the more evident where the production is significantly machinery controlled.

But since the measurement of the work of the indirect workers is somewhat difficult, many managements pay an incentive bonus that is tied with the incentive earnings of the direct workers. For instance, they may pay them the average of their department or group.

Such a simplistic solution may not always be justified. The stop-watch Time Study, the Predetermined Motion Time Systems, the Standard Data Blocks, the Multiple Regression Analyses combined with Work Sampling could be of use in the measurement of indirect work.

The Multiple regression analysis correlates several criteria for the measure of the work (called predictors) with the time required to perform a job. Thus,

Standard Time to perform a job,

T = a0 + a1x1 + a2x2 + … + ai xi

Where x1, x2, ….. xi are the different predictors and
a0, a1,a2, …. ai are constants.

If by means of a Work Sampling study enough data is collected on the various Ts and corresponding xs, this data can be used to run a regression and find out the various correlation coefficients in order to choose from the different predictors earlier hypothesized. An applicable formula can be arrived at. This can then be used to measure the productivity.

Measured Day Work (MDW) System:

This system takes care of two of the drawbacks of the Payment by results Systems, viz.

1. Considerable fluctuations in earnings for the employee, particularly if the PBR scheme is poorly designed and administration; and
2. Loss of control, by the management, over the level of output; and therefore the consequent difficulties in aligning different operations which are linked with one another.

Under this system, an employee opts to maintain an agreed higher target level of output in order to secure a stable higher wage rate.

The employee’s performance is monitored and if falls below the target level for a period, he is given a warning. In spite of this, if the level of output during the next period also is below the target level, then the employee is downgraded to the basic wage rate.

In essence, MDW means two levels of wages –an agreed higher level of wages for a specified higher level of consistent performance and the basic wage for lower levels of performance. Basically, MDW is a Payment by Time system.

Under this scheme the worker has no incentive to improve on the target level of performance; he just needs to maintain his current level of productivity. But then, though underlying this system seems to be that every worker has a characteristic norm for pace of work and application which can be changed very little on the whole by the payment by results scheme.

If the objective of the MDW is to stabilize the output and bring in a measure of control by the management, the Premium Pay plans, with their numerous output levels, would tend to defeat the purpose. In fact, they come closer to the PBR system.