Wage policy is an important activity. Both sides of an entrepreneur always remains in fighting position to determine wages, it can be said that wage is a focal point and gives birth to all labour- problems. Determination of wages is an important act; therefore its determination becomes very difficult. On the one hand the object of worker is to get highest wages while employers, on the other hand try to him lowest wages.

An efficient employer to fulfill following objectives can formulate an appropriate wage policy:

1. The First and Foremost Requirement:

The First and Foremost Requirement for the successful introduction of a wage incentive plan is a proper climate wherein the issues can be dispassionately viewed by all the parties


concerned. This means that relations between the management, the supervisory staff and workers should be happy and free from suspicion.

Any trace of animosity or bitterness mars the chances of success. Employees having a history of poor relations with management may suspect wage incentive system as yet another strategy on the part of management to coerce them for production. Management must, therefore, ensure association of workers during the development and installation of the scheme.

It may also sign an agreement with the union. Even a sociological study of the industrial unit may be done to sort out the favourable and unfavourable aspects of the scheme and to eliminate waste of resources resulting from non-cooperation from workers later on.

2. The Incentive Plan should be Simple to Understand:


The benefits of the scheme should be quite obvious to the workers concerned. Further they should be easily calculated by the workers. Complicated plans and formulae sow seeds of doubt and distrust in the worker’s mind.

3. Employees must have Full Knowledge of the Goal of the Scheme:

For instance, the management may have the goal to maintain quality or to bring down rejects, wastage, etc. When this is not communicated to employees they may try to achieve quantity only at the expense of quality.

4. Plan should be Flexible:


This means that it should have elasticity to take care of technological and other changes taking place from time to time or for rectifying obvious errors that may have crept in at the time of its initial introduction.

At time during the periods of recession or due to reduction of quota of raw material by the government or due to accumulation of stock or want of orders for sale, etc., the management may require less production. In such a situation, it should be the right of the management to fix the limit for extra production and the incentive scheme should contain a clause for such right and an assurance to the workers they will not be laid off during such period.

5. Incentive Payments should Follow the Work:

Incentive Payments should Follow the Work as close in point of time as possible. Employees do not like to be rewarded next month for extra effort expended today.

6. Incentive Payments under the Plan:

Incentive Payments under the Plan should be large enough in relation to the existing income of employees. A raise of Rs. 20 to a person getting Rs. 200 per month would perhaps be a more meaningful gain than to the one drawing a monthly salary of Rs. 2,000.

7. Plan should be Equitable:

This means that it should cover and should provide equal opportunity to all employees whose jobs can be adapted to the incentive method of payment. Otherwise, dissatisfaction will result among those employees who have no opportunity to participate in the higher earnings possible under the scheme. Any disparity between direct production workers and indirect workers should be reduced by giving some benefit of increased productivity to the latter also.

8. The Plan should not be Detrimental to the Health and Welfare of the Employees:


This may even involve a ceiling on the maximum earnings by way of incentives.

9. The Plan should not be Very Costly in Operation:

Actually, besides incentives wages, there are many other items of expenditure such as job evaluation, methods improvement, work measurement, additional supervision, better inventory control, etc., which will have to be incurred while installing an incentive plan. It should be ascertained in advance that these costs are amply covered by the resultant benefits.


10. A Guaranteed Base Rate should be Included in any Plan:

This constitutes the element of security that employees want. Because they lacked this feature many early plans were rejected by employees. Workers want to be assured that they will receive a minimum given wage regardless of their effort or output. This wage is the minimum base on which they plan their standard of living and home life.

11. The Plan should be Instrumental:

The Plan should be Instrumental in satisfying as many needs as possible—other than economic needs—at all levels of hierarchy.


12. The Standards Set for the Payment of Wage:

The Standards Set for the Payment of Wage incentive should be of average difficulty. If the employees can beat the standards easily, they would hardly experience any competition. Similarly, if the standard is too tight it makes employees complement with their pre-incentive earning. A fair and just standard is the key to any incentive plan, and employees must have confidence in both the technical capacity and the integrity of those who establish these standards.

13. Standard Working Conditions should Exist:

Standard work-places, standard materials, standard control procedures etc., are necessary for any system of incentives. Standardization is the basis of incentive work.

All inputs should be readily available to employees. Management should avoid delay in the supply of raw materials and in attending to maintenance work. When the employees cannot reach production standard due to supply bottlenecks, poor equipment or improper training they lose interest in the incentive plan.

14. Work Standards Once Established:


Work Standards Once Established should be guaranteed against change. Proportional effort on various jobs should be rewarded proportionately and no standards should even be changed unless.

(i) An error has been made in calculation (and even here if the error is relatively small no change should be made) or, unless

(ii) A change in work method or work conditions has been effected. This rule must be strictly adhered to by management. In fact, the irresponsible changing of work standards is the historical cause for much labour’s distrust of both management and incentive pay systems. If an employee is justly earning an “excessive” bonus, his rate should not be cut. Instead management should be glad to have such an efficient employee on its on payroll.

15. Management Must Set Up:

Management must set up suitable machinery to handle all grievances arising from the implementation of the incentive plan.

16. Incentive Audit System:


Incentive audit system should be devised to assess periodically the effectiveness of the scheme against accredited objectives and to provide feedback information for management to take corrective steps. Vigilance is the price of success, and an incentive plan is not something that can be set up and then forgotten. Any system of incentive pay that is worth installing is worth maintaining.