WAGE SYSTEMS

2. Wage systems, as applied to manufacturing industries, may be divided into the general classifications of day wage, piece rate, and premium systems. Besides these three, there are a number of systems, bearing the names of their originators, which are the result of a combination of certain features found in two or more of the three general methods. A study of modern wage systems necessarily involves a study of the distinguishing features of the three primary methods.

3. Day Wage. Of the three general plans on which labor is paid, the oldest and best known is the day-wage plan. It is the most widely used because best understood. The day-wage plan contemplates the payment of a stated wage for a stated unit of time. If all men performing the same task were equally skillful, or if the wage rate could be adjusted in conformity with the varying degrees of productiveness found in every body of workmen, the day-wage plan would be ideal. But neither of these conditions exists.

Workers are liable to insist on the application of the rule of organized labor, that all men performing similar tasks shall be paid the same wage. Since all men are not equally skillful, this results in certain inequalities. On the one hand, the wage rate is based on the lowest rate of production, which is unjust to the more skillful man, who either reduces his productiveness to the level of the least skillful, or transfers his energies to another field of endeavor. As an opposite extreme, the rate is based on the highest rate of production, which is manifestly unfair to the employer.

In actual practice, then, it is necessary, from the standpoint of the employer, to employ overseers to drive all workmen to a maximum rate of production, which, theoretically, means the elimination of all workers who are unable to attain the maximum. Again an injustice results, this time to the weaker man.

4. Piece Rate. The first plan evolved, in the search for a plan that would remedy the inequalities of the day-wage plan, was the piece-rate plan. The piece-rate plan contemplates the payment of a stated wage per unit of production, without consideration of the rate of production.

The argument was advanced that a uniform rate per unit of production would result in an equitable wage, because based on the productive skill of the individual. But the plan has failed in many cases to produce the desired results, for the reason that it does not take into consideration the factor of time.

In the establishment of a wage rate, the factor of time must be considered, or the rate will not be equitable as between employer and employe. The employer must furnish the shop, the tools, the power, the heat and light. The cost of these items does not necessarily vary in direct ratio with the increase or decrease in production. These expenses must be absorbed by the finished product, therefore, even under a piece-rate plan, the rate of production (the factor of time) has an actual bearing on the rate per unit.

From the standpoint of the employer, the rate per unit should be based on the productiveness of the individual, and should insure to the most skillful, a wage as high as, or slightly higher than, he would receive under the day-wage plan. This would, in theory, give to the less skillful man a wage exactly commensurate with his skill. But as workers become more and more skillful, and increase at the same time their productiveness and their earning capacity above normal, there is a tendency on the part of the employer to reduce the rate per unit to bring the aggregate wage back to normal. The result is that the worker, fearing a reduction in the rate, limits his production to the number of units that will insure an average wage.

Thus the system fails in its object. It does not reduce the cost of production to the lowest point. However, when piece rates are intelligently applied they are found very satisfactory in certain lines. But in all cases, the piece rate tends toward a uniform rate of production, and, while reducing the cost of superintendence, involves the expense of inspection. The latter, however, is not necessarily an added expense, for, as a rule, inspection is required regardless of the wage system in use.

5. Premium Systems. To obviate the difficulties found in both the day-wage and piece-rate plans, the premium or bonus system was evolved. This improved system of wages is intended to fulfill the following conditions:

1. A guaranteed rate per hour for each grade of work for a contract period.

2. An average earning power continuously higher than usual.

3. A lower cost per unit to the employer as wages automatically increase.

4. A supplemental earning power, or bonus, to the worker above the day wage, the bonus being based on efficiency.

The premium system is a combination of day wage and piece rate, involving the establishment of standard times for stated tasks. It is based on the theory that if, when a standard time has been fairly established, the worker performs a task in less than standard time, he is entitled to a bonus, or extra pay, for the time saved. The bonus is based on the wage rate paid for standard time.

For what part of the time saved the workman should be paid, depends on circumstances. It might be argued that the workman is entitled to full pay for all of the time saved, but other factors than the dexterity of the workman enter into the time saving. The employer supplies additional power, there is an extra cost for wear and tear on machinery, and an extra quality of material; all have a bearing on time saving. The employer is, therefore, entitled to a part of the saving.

The original premium system is known as the Halsey plan. There are, however, several well-known modifications of the plan, all based on efficiency, but each having certain distinguishing characteristics. No more clear presentation of the essential features of the best known premium systems has been made, than is found in a review by Mr. Carl Bender, published in the Engineering Magazine, from which the following is quoted:

HALSEY PREMIUM PLAN

To mitigate to some extent the evil workings of piece rates, Mr. F. Halsey invented the premium plan shown in Fig. 1.

The slant of the wage line may be at any angle from horizontal, straight piece rate, to coalescence with day rate line. This system possesses at least four valuable points:

1. It pays day rates if a longer time is taken than standard.

2. It is a very flexible system and can be adapted to different conditions.

3. It lessens but does not obviate the necessity of changing rates.

4. It lessens but does not wholly remove the inclination to limit output.

It is in one respect a step backward, since it substitutes uncertainty for definiteness as to wage costs. Nevertheless, the Halsey system was an admirable step in advance. Usually the worker is given either one-half or one-third the time he saves. Psychologically it is much better than piece rate, since most workers are more inclined to lessen their time than to increase the number of pieces turned out. A man will deliberately decide that he ought not to turn out more than five pieces a day, but he will not feel the same desire to avoid breaking his own record of two hours per piece.

Under the Halsey system, no limit is placed on a man's earning power per hour, and also a minimum piece rate of one-half or one-third the initial rate per piece is allowed, so that if a man worked on his own time, he would at least receive per piece one-half or one-third standard pay.

Fig. 1. Diagram of the Halsey Premium Wage System

TAYLOR SYSTEM

A fundamental departure was made by Mr. Fred W. Taylor, in his differential piece-rate system, a diagram of which is shown in Fig. 2. Mr. Taylor does not establish an initial time by guess or by assuming a more rapid gait than on day work, nor does he appropriate other unscientifically determined times. His method is to standardize all conditions in the shop, to make them as perfect and smoothly acting as circumstances will permit, and then to determine a reasonable minimum time in which the job can be done. As a result, Taylor's standard times are very much lower and also very much more carefully and accurately determined than any system hitherto considered. Mr. Taylor scorns the suggestion that by any chance the worker could earn excessive wages. Any wages that an unusually efficient worker can earn are legitimately his own. Assuming that under the Taylor system a worker should do four pieces in four hours, his wages for the time would be $1.00, but Mr. Taylor allows an increase of 20 per cent, 25 per cent, 30 per cent, or even more, according to the class of work, for ascertaining standard time. Let us assume 20 per cent increase. The worker then receives for four pieces in four hours, $1.20, a rate of $0.30 each. For less than four pieces the maximum hourly rate is $0.25, therefore $0.25 each. If the worker only delivers three pieces in four hours, his earnings are only $0.75, or $0.1875 per hour. Mr. Taylor's system awards, therefore, a heavy and increasing premium for high efficiency, a heavy penalty for low efficiency.

The method of standard time determination is so rigorous that the worker cannot figure on curtailing his output. He has to hustle to make wages even at the low piece rate, and if he succeeds in this, a very little extra effort will give him a higher piece rate.

The excellence of the system lies in the accuracy with which proper rates are predetermined. It is, however, somewhat inflexible and not so well adapted to work in which unforeseeable variations in time occur.

Fig. 2. Diagram of the Taylor Differential Wage System

THE GANTT BONUS SYSTEM

Mr. Gantt, a disciple of Mr. Taylor, introduced at the Bethlehem Steel Company a bonus plan, see Fig. 3.

As in Mr. Taylor's system, the proper time is most carefully and accurately predetermined. If the worker reaches the proper time, he is given a bonus of 25 per cent above normal wages for the time. If he does still better, he is given half of what he makes, as in the Halsey plan. If he does not reach standard time, he is paid only 75 per cent of normal wages for the excessive time, provided bonus earned permits the imposition of this fine. If he had bonus to his credit he would not be fined, however much he fell below standard.

This system has shown certain psychological disadvantages in practice:

1. The men have made it a point of semi-honor, among themselves, not to do better than standard times.

2. Although the actual fines for failing to reach standard times were insignificant, the men claimed that they were being robbed of thousands of dollars in this manner. Neither fall-downs nor ability to lessen standard time are always up to the man. It is therefore unfortunate when a favorable chance occurs to lessen time, that the worker deliberately holds back. It is also often unjust that he should be fined for what may not be his fault.

Actual experience with these different wage systems brings out the fact that psychology accounts for quite as much as any fair condition, and that a good wage system must not only be fair but must also hit the men right.

EMERSON EFFICIENCY SYSTEM

The most recent wage system is the Efficiency System, evolved and perfected in theory by Mr. H. Emerson and his assistants and practically applied by the officials in the shops of the Santa Fé Railway.

Fig. 3. Diagram of the Gantt Premium Wage System

This wage system superficially resembles the Halsey line, Fig. 4, but in theory and in fact differs radically from all previous wage systems, although it embodies much that was best in all of them. It retains the principle of day pay irrespective of performance. It retains in modified form the principle of a flat piece rate. Like the Halsey system, it pays more per piece for less competent work. Above all, it retains Mr. Taylor's and Mr. Gantt's principle of accurate and scientific shop organization, including standard times for every job and operation.

It pays a high premium above wage or piece rate for coöperation or assistant foremanship on the part of the worker, and finally, as part of regular and daily shop practice, it revises erroneous schedules whether they be too low or too high, and it makes this revision without lessening the earning power of the worker. In addition it substitutes for the costly, annoying, inaccurate time recording of each job, a general monthly efficiency record which covers the shop as a whole, each department, gang, foreman, worker and job, and, based on accurate study and efficiency, it predetermines, before work is begun, the absolute cost of every operation.

These results are facilitated by recognizing that the attainment of standard conditions as to all operations depends on four totally different elements:

(1) The shop itself must be highly organized and efficiently operated. This is a duty that devolves solely on the management, and for poor organization and operation the worker is not responsible.

(2) The character of the work itself, the quality of materials, etc., may vary greatly on the same job at different times. Neither manager nor worker is wholly responsible for this variation.

Fig. 4. Diagram of the Emerson Efficiency Wage System

(3) Assuming standard shop and work conditions, the worker himself can do much to coöperate with the management in making the other conditions as well as himself effective.

(4) Costs should be standardized for the shop on a basis of normal conditions and be adjusted in the counting room on the basis of the monthly efficiency factor.

(a) As an incident to high shop organization and efficient operation, the standard time required for every job should be scientifically ascertained.

(b) To eliminate accidental and unavoidable variations in material, etc., the worker is allowed to sum the standard time of all his jobs, gaining on some, losing on others, averaging closely even.

(c) For coöperating with the management in eliminating wastes, the worker is paid a 20 per cent bonus for the efficiency of 100 per cent, which means, that the time taken for all his jobs must be equal to the standard times allowed for all his jobs. If he takes 10 hours on a 1-hour job and 1 hour on a 10-hour job, his average remains 100 per cent.

(d) The same work is assumed to be done always in the same standard manner. Variations from standard are a general charge or credit to shop efficiency, not a specific variation in cost. A train passenger is not charged more because his train has been delayed by a snowstorm, or less because a fair wind and a clear track made the particular train run less costly than usual.

Under the efficiency system the worker is entitled to standard day rates, even if he is doing nothing. If, however, by reason of special individual effort or skill, he does his work faster, he is entitled, not to a part (one-third or one-half, as in the Halsey system), but he is entitled to be paid in full for all the time he saves. As he has not less coöperated with the management, he is, in addition, entitled to 20 per cent bonus for all the time he works.

Therefore, if a worker whose pay is $0.25 per hour delivers 300 hours of jobs in a month of 250 working hours, he receives:

1. 250 hours at $0.25$62.50
2.50 hours saved, at $0.2512.50
3.20 per cent on 250 hours' pay12.50
——
Total$87.50

If, however, the worker does not so coöperate with the management as to make the shop operate at high efficiency, himself included, he does not receive as much extra pay, but a lessening amount until at 67 per cent and below he is paid day rate and no more.

The diagram shows plainly the efficiency wage line beginning at 6 hours, showing 20 per cent increase at 4 hours, standard time, and paying 4 hours time even if the work took no time at all—a condition that arises practically quite often, as when a worker runs two jobs at the same time, or when he does work on his own time.

While the diagram can be applied to a 4-hour job, the worker is not paid by the separate job, but is paid straight day wages and a bonus for his full-pay period efficiency. For each per cent of efficiency there is a corresponding increase in pay.

For 100 per cent efficiency the increase is 20 per cent, and for each 1 per cent increase in efficiency above an efficiency of 100 per cent, the pay also increases 1 per cent; therefore, for 120 per cent efficiency the pay is increased 40 per cent. Below 100 per cent the pay table runs as follows:

Efficiency
Per Cent		 Additional Pay
Per Cent
67 0.00
741.
803.27
856.17
909.91
9514.53
10020.

The system has other merits:

(1) It standardizes not only the work of each worker, but also of every foreman, every department, and of the shop as a whole.

(2) It therefore standardizes the shop cost of every job, whether it is done by a cheap apprentice in two hours, or a high priced mechanic in 10 hours. The average shop or department efficiency factor equalizes accidental variations.

(3) It separates absolutely all questions of wage rate from questions of output, shop conditions, or individual excellence.

(4) It fines the management heavily if shop conditions are not maintained so as to realize standard times.

(5) It puts no limit on the ambition or earning power of any man.

(6) Standard times are being constantly corrected. If the standard man cannot average 100 per cent on his schedules, it is evident that some of them are too short and ought to be lengthened. If on the other hand, a new machine tool is introduced, new schedules are drawn up for it, but the worker will not, on that account, make less than he did on the old schedule.

It is too much to expect that any system of paying wages will prevent an outbreak of selfish interests whether of employer or wage earner. There will, however, be a distinct gain if the nature of the disagreement can be made entirely distinct and plain. Clear thinking must precede clear acting, and this description of different wage systems may contribute towards clearer conceptions and more just practice.

To establish a modern wage system, standard times must be determined on a scientific basis, and the rate must not only be equitable as between employer and employe, but, as Mr. Bender has said, "it must hit the men right." Shop conditions must be right and every facility given the workmen to attain standard time or better, including teaching him how to do the work in standard time. The speeder or task setter employed under the day-wage plan must be superseded by the instructor, who, instead of selecting the most speedy worker and basing standard times on his operations, first determines as closely as possible what the time should be, and then teaches his men how to attain that time. Where stop-watch methods foster discontent and breed antagonism, instruction is followed by coöperation. The average man does not object to doing a task in a stated time when he is given the facilities for doing the work that will make that a reasonable time. Add to this the incentive of extra pay for equaling or bettering that time, and his coöperation is insured.