A PROJECT ON LABOUR COST

Submitted By: Shruti Karekar: Poorva Adarkar: 121 Ivy Dsouza: 131 Meera Nair: Dimple Java: Sachin Vernekar: Kalpesh Surve: Saahil Ledwani:

ACKNOWLEDGEMENT:
We have taken efforts in this project. However, it would not have been possible without the kind support and help of many individuals. We would like to extend our sincere thanks to all of them. Through this acknowledgment, we express our sincere gratitude to all those people who have been associated with this assignment and have helped us with it and made it a worthwhile experience. Firstly we extend our thanks to the various people who have shared their opinions and experiences through which we received the required information crucial for our report. We would like to express our special appreciation and thanks to industry persons for giving us such attention and time and also to our colleagues in developing the project and people who have willingly helped us out with their abilities. Our special thanks to our Professor Mr.Sandeep Chopde who gave us this opportunity to learn the subject in a practical approach and for his valuable suggestions regarding the project report. Finally we wish to avail ourselves of this opportunity to express a sense of gratitude and love to our parents and our friends for their manual support, strength, and help and for everything

INTRODUCTION:
The remuneration for labour is wages. The workers put effort & get wages in exchange of that. On the basis of pay scale & other allowances which are prescribed in the terms of employment, calculation of wages paid to direct or indirect workers is done. There are many well-known systems of remunerating labour, each of which specifies a distinct method of calculating the wages payable to workers. In practice, these basic systems have been modified and adopted in numerous ways to suit the needs of individual concerns. This accounts for the very large number of methods of wage payment in use. By terms of agreement between the employees & the employer, this may be modified from time to time. On the basis of job evaluation, merit rating, incentive plans, profit sharing & labour contract, the wages for the workers are determined. Factors considered before selecting a method of remuneration:1. Easy Understandability: An average worker must easily understand the remuneration method; otherwise there arise labour unrest due to misunderstanding & suspicion. In simple remuneration method, less clerical cost is involved for the preparation of wage bills & cost records. 2. Choice between quality & quantity: A method of remuneration by result must be selected by organizations where quantity is considered more important than quality, because under this method, there is a direct relationship between worker's earnings & output. On the other hand, a method of remuneration by time should be selected by organizations which consider quality much more important than quantity.

3. Effect on overhead: Over the units produced, the fixed overhead is spread. Thus, if the output is higher, the incidence of fixed overhead per unit will be lower. Fixed overhead per unit will obviously be reduced by the method of remuneration on the basis of result while the incidence of fixed overhead per unit will be higher in case of method of remuneration on the basis of time. 4. Workers satisfaction: The workers must be satisfied by the method of remuneration otherwise labour turnover will be high & resulting in preventive & replacement cost of labour turnover. Efficient workers from outside the organization will get attracted by the method which creates satisfaction.

5. Conformity: The remuneration method selected by the organization must confirm with the methods used by similar organizations in similar sphere. Methods of labour remuneration may be broadly classified into two basic types, viz A] Time Rate System and B] Payment by Results. These may be further subdivided into the following main types: To the above list, two other types, viz. indirect incentives like profit sharing and co-partnership schemes, and non-monetary incentives may be added. Though strictly not systems of remuneration, these are methods of giving incentives to workers.

A] Time Rate System. Known by various other names such as time, work, day work, day wages, and day rate, the Time Rate system is perhaps the oldest system of remunerating labour. In this system, the worker is paid on his attendance at a specified rate of pay regardless of his outturn. The wage rate for a day worker which may be fixed on hourly, daily, weekly, fortnightly, or monthly basis depends upon the nature of his trade and skill. The rate is fixed taking into account threats prevalent in the particular industrial locality for similar trade and skill. The rate may either be a fixed one, or there may be a progressive scale of pay starting from a minimum and rising up to a maximum, in stages, through periodical increments. Time work is most suitable for the two extreme grades of workers, viz. the highly skilled and the unskilled (including learners and apprentices) and for certain types of work, such as Where output of the worker is beyond his control, e.g. where his speed of work is restricted by the speed of the machines or conveyor belts, or where his work is inter-linked with and is dependent upon the work done by other workers. Where output cannot be measured nor can any standard time be fixed for it, e.g. maintenance and repair work. Where close supervision of work is possible. Where quality, accuracy and high precision in work is of primary importance. As the timeworker has neither necessity for nor a tendency to speed up work, this results in less spoilage.

Where increase in production or productivity is not commensurate with the incentive paid. The advantages of the time rate system are as follows

(a) Calculation of wages is simple involving less clerical expenditure. (b) The worker easily understands the calculation. (c) He is assured of a steady income for each wage period. Although time rate of payment is widely applied, the disadvantages and shortcomings attached to the system far outweigh its merits. These are summarized below From the workers point of view, the system does not encourage initiative. As the same rate and amount of wages are paid to the fast and the slow workers, there is no incentive for increased efficiency and outturn. Decrease in productivity leads to rising labour cost and reduction in profit. Decrease high production results in upsetting of production schedules, creation of bottlenecks in production, and increase in the cost per unit. Estimates of labour cost and quotations given to customers, if based on time work, may ultimately prove to be wrong as the actual performance will depend upon the inefficiency or efficiency of the time worker. The employer is entirely dependent on the workers in regard to the quantum and rate of production. Standards for labour are difficult to set. B] Payment by Results. System of remunerating labour in which the payments made have direct relation with the outturn of the workers are known as systems of Payment by results. For many such systems, the attendance of the worker or the time he takes for doing a job has no bearing on the rate or amount of payment. A special feature of these systems is that the worker gets a direct financial incentive and he is at liberty to increase his outturn and thus receive payment according to his ability, energy, and speed of work. Systems of payment by results may be broadly grouped into four categories, namely VARIOUS SYSTEMS OF REMUNERATION ON RESULT BASIS: (a) Straight Piece-Rate system:

Under this system, after careful time & motion study, & after considering the comparable time rate for the same class of workers, the straight rate per piece of output is fixed. Instead of one unit; for a definite number of units, the rate may be fixed. Irrespective of the time taken by the worker, wages equal to his output multiplied by the piece rate is received by the worker. The piece rate is fixed as below: Let $.1.20 be the comparable hourly rate of pay; according to the time & motion study, the standard rate for the production of a piece of work is 35 minutes. The piece rate will be = ($.1.20 /60 minutes)*35 minutes = $.0.70 Straight piece rate may be applicable to the work of an individual or to the work of a group of individuals. The system is called individual piece work, when prescribed for a work done by an individual & by multiplying the number of units produced by a worker or number of similar operations done by him by his piece rate, his earnings is obtained. Alternatively, the system is called group piece work, when prescribed for a work done by group of individuals & by multiplying the number of units produced by the group or the number of similar operations done by the group by the group piece rate, the earnings of the group as a whole is obtained. The members of the group, in the ratio of their time wage for the time devoted by each member to the group piece work, share the group earnings among them. For calculating gross wage of the workers, when payment to them are made on the basis of result under piece rate, the number of units produced by each worker, can be obtained from records. Obviously, the number, on the basis of which wage calculation is done, is the same as the number which has been passed by inspection. Workers usually rectify the defective units without extra remuneration, which gets accepted after rectification. In respect of every worker working on the basis of individual piece rate or in respect of every group working on the basis of group piece rate, piece work card is used, for the purpose of obtaining necessary information. Matters to be considered for fixing piece rates: (a) The responsibility of fixing piece rates should be given to the person having technical knowledge & experience. (b) Consultation should be made of the past records of similar work. (c) The time required by an average skilled worker for the production of a unit should be taken

into consideration. (d) Before the fixation & introduction of piece rate, the method of production & efficiency gain should be known to the worker. (e) The rate should not be too high or too low, as both is dangerous. (f) For eliminating avoidable motions & for the purpose of ascertaining the time required for producing a unit or making operation by an average workman, time & motion study should be undertaken. The following precautions should be taken: (a) For eliminating defectives & protecting the standard of work, work should be inspected. (b) For the minimization of the wastage, defectives, spoilage, breakdown etc., the work should be supervised. (c) For avoiding bottle-neck in work-flow, there should be discipline in work & attendance. (d) For providing incentive to the workers for the purpose of increasing the output, piece rate should be made attractive , yet not too high. (e) As a rule, the workers should rectify the defectives without extra remuneration. (f) In case of group piece rate, some members could be exploited by the other members of the group, which should be avoided (e.g. One or more member, in spite of remaining tactfully idle, may share the earnings of the group). (b) Taylors Differential Piece Rate system: F.W Taylor, who is regarded as the father of scientific management, introduced this system in the United States. In this system, for each job, two different piece rates are fixed. For the worker who is working at less than 100% efficiency, the lower rate is applicable, which is equivalent to 83% of the time rate. On the other hand, for the workers working at & above 100% efficiency, the higher rate, which is fixed at 125% of time rate plus 50% of time rate in the form of incentive, is applicable.

For the performance of standard task, a standard time may be fixed. In this case, the efficiency will be worked out as below: % Efficiency = (Standard time/Actual time taken)*100 Alternatively, during a standard time, standard output could be fixed, in which case, the measurement of efficiency will be as below: % Efficiency = (Actual output/standard output)*100 No day wage has been guaranteed by Taylor. The workers by whom 100% efficiency cannot be attained are penalized because the lower rate is abnormally low. On the other hand, very high rewards are achieved by the efficient workers, as the higher rate is very high. (c) Merrick Differential piece rate system (or multiple piece rate): This system made by Mr. Merrick, is a modification of Taylors differential piece rate system. Under Taylors differential piece rate system, workers by whom 100% efficiency cannot be attained are penalized, whereas under Merrick system, there is no imposition of such punitive lower rate upon them; whereas, those by whom certain percentage or more, of efficiency can be achieved, are rewarded by higher differential rates. The rates are as below: Up to 831/3 % efficiency Between 831/3 % & 100% of efficiency Above 100% efficiency Normal rate is applicable Normal rate + 10% of normal rate is allowed Normal rate + 30% of normal rate is allowed

No day wage has been guaranteed under Merrick system also. Encouragements are given to the efficient workers, at the same time; penalization is not imposed upon less efficient workers. This system is also called multiple piece rate system. (d) Gantt Task Bonus System: Unlike Taylor & Merrick system, day wages are guaranteed under this system. A high standard or task is set. A time rate is paid to the worker who is not able to attain the standard, on the other hand, a high piece rate including a bonus of 20% of the time rate or 20% of

ordinary piece rate is paid to the worker attaining or exceeding the standard. Therefore, fixation of time rate, piece rate & standard performance is required under Gantt task bonus system. Thus this combines time wage & piece wage system. Under this system, as the worker proceeds towards the standard, the labour cost per unit tends to diminish. REQUISITES FOR A SUCCESSFUL INCENTIVE SYSTEM OF PAYMENT: For the successful working of an incentive of payment by results, the following factors should be kept in view:1. The system should be simple and easily understandable by the workers. Proper understanding and cooperation keep up workers morale. 2. The cost of operating the system should be reasonably low. 3. The scheme should be such as to be susceptible to easy supervision. 4. The incentive should be large enough to induce workers to achieve it. 5. The time lag between the performance of the work for which the payment of the incentive is due and the actual payment should be reduced to the minimum. 6. The system should be fair enough to meet the viewpoint of the employer as well as the employees and it should be applied in a manner that would be fair to both. 7. The rates and standards fixed should be reasonable so that each worker gets a fair chance to earn the incentives. Unreasonably high standard of performance which the worker is not capable of achieving should not be set. 8. For work above the standard, the reward should be sufficiently high. 9. The system should be flexible so that minor changes, as necessary in the method of calculation, can be easily made in order to suit changes in production methods. Such variations should not seriously affect the basic system of payment, 10. The workers must be properly educated and motivated by the desire to earn money. 11.There should be an equitable distribution of work and no worker should suffer a deduction of earnings for factors beyond his control, such as for stoppage of work due to lack of tools, instructions, or materials, or due to power failure or due to breakdown, or slowdown of the plants. Such contingencies should be covered by(a) Including extra time in the standard, wherever practicable, or

(b) Payment of idle time wages, or (c) Payment of minimum guaranteed wages. 12. There should be a satisfactory system of inspection so that workers are paid only for good performance. 13. The incentive system should be conducive to the setting up of standard costs and budgetary control. 14. Working conditions should be as uniform as practicable so that the worker can fully control the rate of his output. Factors which normally affect output adversely are: deterioration in the quality of the input material and tools, machines of low efficiency, noise, dust, fumes, bad lighting, etc. 15. There should be no rate cutting and no ceiling should be placed on an individuals earning. Standards once set should not be altered unless there is a change in the method of production. Payment should be made in accordance with what has been agreed upon by the employer and the worker. 16.The system should be introduced on a permanent basis and should not be discontinued in times of financial stringency. No incentive system should be introduced only as a stopgap arrangement in order to temporarily tide over labour troubles. 17. Workers putting in the same amount of effort should get uniform incentives irrespective of the jobs involved. 18. Indirect workers should also be included so as to get the benefit of incentive plans.

CASE STUDY:
Direct labor represents the single biggest cost within a typical contractor services business. For example, labor comprises over 90% of all costs in the average disaster restoration operation. Ironically, small contractor services business owners rank labor as the most difficult cost to control. Estimates never seem to reconcile with the budget and the budget invariably never matches actual. Chronicle makes the labor monster conquerable states Bob Roberts of Rancho Cucamonga, CA. Bob has driven labor costs down from a high of 28% of revenue to a low today of 15%. Bobs experience with using Chronicle to control labor costs is not unusual. Bill Barbee of

Catersville, GA attributes a decline from 30% to 22% to the implementation of Chronicle, as well, and he is just getting started. The common thread here is Chronicle. Both businesses were operating at very low levels of labor productivity. The owners believed the incentive system they had in place was unworkable, as there was no easy way to monitor actual performance, and to match actual labor dollars with the budget on one job or from job to job. As Bob Roberts explains, Chronicle made it possible to manage a bonus program that was based on achieving the budget every time. We use Chronicle to set the budget and only pay monthly bonuses based on that number. Chronicle tracks actual labor hours by staff member for each job and each activity. The system also maintains a cumulative tally of each field associates net performance across all jobs worked. The system tracks both productive and unproductive jobs, never letting bonuses outstrip allocated labor percentages. Phil Fitzpatrick of Escondido, CA comments, sure we could track budgets and estimates in Excel or one of the many estimating tools available. We could also use a time tracking software exclusively designed to track actual labor hours. What we have in Chronicle is a system that has the unique capability to track both actual and budgeted labor costs and provide a cumulative picture of each associates performance against the budget. The cumulative tracking of each staff members performance makes it possible to monitor inconsistencies in performance from one job to the next.

CONCLUSION:
Labour markets and government policies are both affected by the process of liberalization and globalization (Downes, Gomez & Gunderson, 2004). The financial crisis experienced in Korea and the consequent financial market liberalization and corporate restructuring during the late 1990s and early 2000s offer a valuable opportunity to examine organizational change. In response to the call for corporate restructuring, the Korean government relaxed its traditional labour laws and allowed firms to abandon permanent employment practices and pursue labour flexibility. Labour flexibility was achieved by cutting employment and substituting permanent union workers with non-regular, non-union workers in order to reduce labour costs. The objective of this study was to examine the relationship between economic and capital market pressures to disinvest in human capital. This paper extended earlier empirical studies on the relationship between ownership structure and human capital. It examined the relationship using a unique Korean panel dataset. Since many Korean firms were going through aggressive corporate restructuring during our sample period, this study allowed us to capture the role

of foreign ownership in post-crisis times. Thus, this paper empirically examined the influence of previous periods foreign ownership and financial performance on labour costs in publicly listed Korean firms. We found that foreign ownership is positively related to the level of labour costs, and that this positive effect is significantly weaker for firms with weak financial performance (measured as negative ROE or ROA) than those with strong financial performance. The relationship between foreign ownership and labour cost is robust to alternative econometric methodologies. These results support the hypothesis that foreign investors influence total labour cost. The results are also consistent with previous studies that suggest owner plays a monitoring role. For example, Mehran (1995) and Hartzell and Starks (2003) provide evidence of investor monitoring in executive compensation. Bushee (1998) and Kim et al. (2008) provide evidence of institutional investors monitoring R&D expenses. The financial crisis in the late 1990s forced Korean firms to turn away from their earlier practice of over investment in human resources, characterized by high employment security and training commitment, and to seek a new human resource management strategy. Our results provide support for the view that foreign ownership has a disciplining role for firms with weak financial performance. Contrary to previous studies that raise concern about the myopic view of foreign investors on maximizing shareholder value by cutting cost at all 23 levels, our results imply that foreign owners take a monitoring role and support the investments in human capital if firms can deliver strong financial performance. Our findings suggest a monitoring or disciplining role of capital markets. An important area for future research is which forms of labour flexibility have greater impact on labour efficiency which then may lead to firm performance. As discussed before, there are numerous ways firms can enhance labour flexibility (e.g. changes to working hours without layoffs, reduction in working hours, hiring freezes, voluntary retirement, outsourcing, base pay reduction, wage freezes, bonus and benefits reduction, dispatch to an affiliated company, redeployment to other departments after training, etc). A detailed analysis of the effects of these labour flexibility tools on firm performance would help us understand better how external monitoring can lead to maximizing effective use of internal resources for all stakeholders.

BIBLIOGRAPHY:
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