CIMA BA2 Syllabus C. PLANNING AND CONTROL - Remuneration Methods - Notes ^{2 / 9}

Labour remuneration methods have an effect on:

1. The cost of finished products and services.

2. The morale and efficiency of employees.

There are two basic methods:

1. Time-based systems

2. Piecework systems

Time-based systems

Employees are paid a basic rate per hour, day, week or month.

Total Wages = (hours worked x basic rate of pay per hour) + (overtime hours worked x overtime premium per hour)

Basic time-based systems do not provide an incentive for employees to improve productivity / efficiency. Therefore, close supervision is necessary.

Piecework systems

A piecework system pays a fixed amount per unit produced.  

Total wages = units produced x rate of pay per unit

There are two main piecework systems

1. Straight piecework systems 

   Today, it is normal for pieceworkers to be offered a guaranteed minimum wage, so that they do not suffer loss of earnings when production is low through no fault of their own.

2. Differential piecework systems 

   – these systems involve different piece rates for different levels of production.  

   They offer an incentive to employees to increase their output by paying higher rates for increased levels of production. 

   For example:
   up to 80 units per week, rate of pay per unit = $1.00
   80 to 90 units per week, rate of pay per unit = $1.20
   above 90 units per week, rate of pay per unit = $1.30

Incentive (bonus) schemes

The characteristics of such schemes are as follows:

1. Employees are paid more for their efficiency.

2. The profits arising from productivity improvements are shared between employer and employee.

3. Morale of employees is likely to improve since they are seen to receive extra reward for extra effort.