Business Studies · Ch 2 — Principles of Management
Differential Piece Wage System
Differential Piece Wage System
Taylor’s differential piece wage system was not just a payment method — it was a deliberate tool to separate efficient workers from inefficient ones and to reward the efficient. The core idea is simple: pay different rates per unit of output depending on whether a worker meets, exceeds, or falls short of a scientifically determined standard.
The standard output per worker per day is first fixed using time study, motion study, and other work-study techniques. Once this standard is set, workers are classified into two groups: those who achieve the standard or more, and those who perform below it. Taylor proposed that the first group should be paid a higher rate per unit, and the second group a lower rate. This difference in rates is the “differential” part of the system.
The textbook gives a concrete example. Suppose the standard output per worker per day is 10 units. Workers who produce 10 units or more are paid Rs 50 per unit. Those who produce less than 10 units are paid Rs 40 per unit. An efficient worker making 11 units earns 11 × 50 = Rs 550 per day. An inefficient worker making 9 units earns 9 × 40 = Rs 360 per day. The difference of Rs 190 per day, Taylor argued, is a strong enough incentive for the slower worker to improve.
Taylor backed this with a real example from his own experience at Bethlehem Steel Works. A worker named Schmidt was loading pig iron. By following scientific management techniques, he increased his output from 12.5 tons per man per day to 47 tons per man per day. As a result, his daily wages rose from $1.15 to $1.85 — a 60 percent increase.
The differential piece wage system is not an isolated technique. It is part of a unified whole. Taylor insisted that the search for efficiency must begin with finding the “one best method” of doing a job. That method then determines a fair day’s work. The compensation system must then differentiate those who can meet or exceed that fair day’s work from those who cannot.
Taylor also stressed a deeper premise: efficiency is the result of joint efforts by managers and workers. Instead of quarrelling over how to share the surplus that efficiency creates, both sides should work in harmony to maximise output. This is the heart of what Taylor called mental revolution — a complete change in attitude from competition to cooperation. Workers and managers must realise they need each other. Both should aim to increase the size of the surplus. Management should share a part of that surplus with workers. Workers should contribute their best so the company makes profits. In the long run, only the well-being of workers ensures the prosperity of the business. …
Applications of Scientific Management by Taylor and his contemporaries:
- Taylor found out the optimum shovelling load of 21 pounds per shovel per worker through a series of experiments in work-study at Bethlehem Steel Company. The implementation saved the company $75,000 to $80,000 per year.
- Pig iron handling per person per day was increased from 12.5 tons to 47 tons. This also resulted in a wage increase to labourers of 60%, but also savings to the company on account of a reduction in the number of labourers from 500 to 140.
- He published a paper "The Art of cutting metals," which turned it into a science.
- He designed a Piece Rate Wage System including incentives for Bethlehem Steel Company. …
Glossary of some terms of modern production/scientific management:
- Just In Time Manufacturing: An inventory management strategy to improve return on investment by reducing in-process inventory and its associated costs. The system is implemented by the use of visual signals or KANBAN, which tells whether replenishment is required at any level of the production process, or not.
- Lean Manufacturing: A management philosophy focusing on reduction of seven wastes — overproduction, waiting time, transportation, processing, motion, inventory and scrap — in any type of manufacturing process or any type of business. By eliminating waste, quality is improved, production time is reduced and cost is reduced.
- Kaizen: A Japanese word meaning 'change for better' or 'improvement.' It is an approach to improvement of productivity through application of the work of American experts such as F.W. Taylor by the Japanese after World War II. The goals of kaizen include elimination of waste (activities that add cost but not value), just-in-time delivery, production load levelling, standardised work, paced moving lines, right-sized equipment and others. It is a daily activity that humanises the workplace, eliminates hard physical and mental work, and teaches people to run rapid experiments using the scientific method to see and eliminate waste in business processes. …