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A RATIONAL WAGES SYSTEM
Some Notes on the Method of Paying the Worker a Reward
for Efficiency in Addition to Wages
by
HENRY ATKINSON
Member of the Institution of Mechanical Engineers:
Engineer Expert to the Mixed Tribunal, Cairo
London
G. Bell and Sons, Ltd.
1917
PREFACE
The question of scientific management, or the replacement of guesswork
by a common-sense study of the principles in economical and efficient
production, has not received the consideration it deserves in this
country; but one effect of the war has been to show the possibilities
of increasing production by a scientific study of factory methods.
I believe that a much greater amount of interest will be taken in
the subject in future, and the fact that co-operation between the
management and the workers is the first essential to success cannot be
too strongly emphasised.
From my own personal experience of its installation in England, I
can only say that, when approached broad-mindedly by both sides, the
workers have nothing to fear and, indeed, everything to gain by it.
This description by Mr. Atkinson should prove very useful in bringing
the principles of one branch of scientific management, that branch
which most nearly affects the workers, to the notice of all concerned
in efficiency methods, and it is to be hoped that it will prepare the
way for a better understanding between employer and worker.
H. W. ALLINGHAM, M.I.MECH.E.
INTRODUCTORY
It is universally admitted that the war will bring about great changes
in industry. The readjustment of financial affairs, the greatly
increased taxation, the displacement of labour due to the employment
of men now at the front, the dilution of labour by the employment
of women, the development of new industries and the modification of
present ones in order to meet new markets, changes in the old methods
of manufacturing and trading, will all add to the difficulties of the
situation.
Some of the greatest of these difficulties will be in connection with
Labour, and the trade-unions will be faced with problems the solution
of which will tax their ingenuity and statecraft to the utmost.
Already one predominant assertion is being made, and will be made
with greater insistence when the war is over--namely, that it will be
necessary to make wealth as quickly as possible in order to make good
the disastrous losses incurred by the war, and that this can only be
done by increased production with low labour costs.
This haste to make wealth will induce many employers to endeavour to
retain war conditions when there is no longer any need for them. They
will try to "dilute" Labour permanently by employing women; they will
endeavour to lower permanently the age at which children may leave
school; they will lower wages where possible; and they will refuse to
carry out their promises to reinstate the men who volunteered at the
beginning of the war.
Everything, indeed, points to a renewal of the old wage war with all
its absurdities, tyrannies, and slanders, its starvation and misery,
its strikes and lockouts, its waste and blundering. Anything that _can_
be done to avoid or to ameliorate this state of things _should_ be
done; and if it can be shown that a method exists for keeping up wages
while at the same time lowering the labour costs, serious attention
should be given to it, and its advantages and defects should be
carefully studied.
Low wages are not the same thing as low labour costs, for a greater
production with low labour costs may be obtained by paying high rather
than low wages if proper management and organisation be exercised.
The Reward System described herein is part of a method (that part
which affects the worker) whereby this result has been obtained. It is
based on paying the worker for efficient workmanship, and during the
past twenty years it has been adopted in a large number of American
factories and in a few (a very few) British ones. It has such a sound
basis that it should meet with the favour of both worker and employer,
and the writer is of opinion that some of the more serious difficulties
between Capital and Labour may be solved by its adoption.
Many papers have been read on the subject in America, and some books
have been written about it; but, so far as the writer knows, no simple
description has been attempted, and certainly none that appeals to the
person chiefly concerned, the worker himself.
The subject may be considered from the point of view of the nation,
the employer, the trade-union, or the worker. The following is an
attempt to show the worker how it affects him and how he benefits by it.
CONTENTS
PAGE
PREFACE v
INTRODUCTORY vii
PART I
GENERAL PRINCIPLES
CHAPTER
I. DIFFERENT METHODS OF PAYMENT OF WAGES 1
(_a_) Day Work 2
(_b_) Piece Work 6
(_c_) Profit Sharing 8
(_d_) Co-partnership 11
(_e_) Co-operation 13
(_f_) Bonus Systems 15
(_g_) The Reward System 16
II. WAGES AND EFFICIENCY REWARD 18
(_a_) The Reward System 18
(_b_) The Basis of Reward Payment 24
(_c_) Special Reward for High Efficiency 30
(_d_) The Classification of Work 31
(_e_) Reward derived from Increased Production 32
(_f_) Safeguards 33
(_g_) Attention to Service Details 35
(_h_) Loss of Skill due to the Reward System 40
III. WAGES AND PROGRESS 43
(_a_) Antagonism between Employer and Worker 43
(_b_) Trade-Unions and the Reward System 45
(_c_) Scientific Management and the Reward System 47
(_d_) The Future of Labour 50
(_e_) The Actual and the Ideal 56
PART II
AN APPLICATION OF THE PRINCIPLES TO A
PARTICULAR CASE
IV. WORK AND REWARD 67
(_a_) Routing the Work 68
(_b_) The Time Study 70
(_c_) Fixing Standard Time 73
(_d_) The Instruction Card 79
(_e_) Spoiled Work 79
(_f_) Allowances 81
(_g_) Efficiency Calculation 83
PART III
EXPLANATION OF DIAGRAMS SHOWING
DIFFERENT METHODS OF REWARD PAYMENT
V. REWARD AND EFFICIENCY 86
(_a_) Reward System No. 1 90
(_b_) Reward System No. 2 92
(_c_) Reward System No. 3 94
(_d_) Reward System No. 4 96
(_e_) The Taylor System 98
(_f_) The Gantt System 100
(_g_) The Emerson System 102
(_h_) The Rowan System 104
(_i_) Day Rate 107
(_j_) Piece Work 107
(_k_) The Ford System 109
Appendix: A FLOATING WAGE RATE 111
A RATIONAL WAGES
SYSTEM
PART I
GENERAL PRINCIPLES
CHAPTER I
DIFFERENT METHODS OF PAYMENT
OF WAGES
The war has brought the question of efficiency and efficiency methods
to the front very prominently, and there is a consensus of opinion that
it will be necessary to adopt them very widely if we are to retain our
present commercial and national position in the world.
The object of such methods is to obtain increased production. It is
well known that the worker can produce far more than he does, but from
his point of view there is no particular reason why he should attempt
to do so under ordinary working conditions.
The circumstances are altered entirely if increased production results
in higher wages with better conditions of work, and if the worker does
not get too tired or suffer any injury to his health in the process.
The Reward System described herein satisfies these conditions, but
before giving the description it will be well to examine briefly the
existing methods of wage payment and point out their advantages and
disadvantages.
(_a_) DAY WORK.
This is the commonest method of wage payment in the United Kingdom at
the present time.
For every hour worked, the worker gets so many pence--10d., 11d., 1s.
an hour, or whatever it may be. As wages are paid weekly, it is usual
to reckon them at so many shillings per week.
In any factory, nearly all the men who work at the same kind and class
of labour get approximately the same wage. In union shops they do all
get exactly the same wage.
Before the days of the trade-unions each man was paid according to his
skill, as nearly as possible; a good workman received more wages than a
poor one. But the trade-unions have stopped that as far as they can. In
any one trade all workers, good, bad, and indifferent, are now paid the
same wages.
The day work system, although in a great many cases it cannot be
avoided, is extremely unsatisfactory.
On the one hand, the employer endeavours to get all he can out of the
worker while paying him the least possible wages. Speaking generally,
the employer looks upon the worker as a necessary evil, and treats him
accordingly. The worker must produce as much as possible and receive
as low wages as possible. No consideration is given to the question of
what wages will buy.
On the other hand, the worker retaliates by doing just as much work as
will enable him to keep his job, and no more. Many workers spend as
much energy and time in avoiding work as they do in executing it, and
it is absolutely necessary for the employer to have a foreman hustling
round all the time to see that a reasonable amount of work is done.
In order to equalise the conditions for all workers, the unions
have fixed a standard rate of wages for all men working at any one
particular trade. This means that both good and bad workers receive the
same rate of pay.
Such an arrangement is quite unfair both to the good worker and to the
employer, and it gives the employer a very sound reason for opposing
the unions on all possible occasions.
But it is worse for the good worker than for the employer, because it
affects him in several ways. When two workers are at work side by side,
one a good worker and the other a slacker, it is galling for the good
man to know that the slacker gets the same wages as himself. It tends
to make the good man indifferent to his work, and it needs a good deal
of moral courage and great force of character for a man to keep on
doing his best under such circumstances, especially when one remembers
the great excess of slackers over good men, and how easy it is to find
a good excuse for slacking.
The extraordinary thing is that a man's union compels him to slack
even if he has no desire to do so. His fellow-unionists keep a watchful
eye on a good man, and if he is producing more than a certain quantity
he is told to ease up. There is no possible excuse for this attitude,
and it has done more to discredit the unions than any other thing. It
saps the good worker's morality, and reduces the whole ethics of Labour
and wage payment to the lowest possible standard.
Apart from the question of antagonism between the employer and the
worker, there is one factor missing, a factor that is all-important
even in the best type of day work and under the best conditions. It is
that the best method of doing the work is never known.
One man has one idea, another man has another; one man has his own
method, another man has a different method; one man has a certain knack
of using the special tools required for a particular job, another man
has only a general knowledge of their use; one man has done the job
many times and knows the short-cuts, another man is new to the job
and goes slowly; one man tackles the job haphazard, another spends
time in considering the best way of doing it; one man believes that
one form of tool is the best for certain metals, another man believes
in a different form; one man thinks a job should be done in this way,
another man thinks it should be done that way; one shop practice is to
do a job in such a manner and on such machines, another shop will do it
in a different way on a different type of machine.
And so it goes on....
All the time the foreman is hovering around, urging the men, praising
one man for his speed in order to get him to work quickly all the time,
but more generally bullying the slow man into working a bit faster. And
he settles all matters in an arbitrary manner, which means the job must
be done his way, right or wrong!
It cannot be helped. When a worker starts a job, he does not know just
what speed his machine must run at for that job. True, experience is a
good guide, but it means trying a speed before he can be certain. And
trying a speed means a certain amount of care and watchfulness; then
it probably means making adjustments of speed and tool. This means
stoppages, readjustments, retrials, and an all-round loss of time and
efficiency.
Now, is the man a better workman for all this? If it proved eventually
that all men became of the same opinion as regards speeds, forms of
tools, and methods of working, and if all men became highly efficient,
one could at least say that the result justified the method, in spite
of the enormous waste of time and talk and temper. But, as a matter of
fact, one rarely gets two workmen of the same opinion or of the same
proficiency, and a man never turns out as much work as he is capable of.
Added to all this is the deadening monotony of the daily round of toil
with no variation, no release from the fixed hours, no inducement to
do one's best, no chance of getting any extra pay unless by occasional
overtime.
Theoretically, day work is the fairest method, because if a man does
his best he ought to get the same wages as any other man, no matter
what his production may be; but in practice this is impossible, hence
one is driven to the conclusion that day work, as it is practised at
present, stands condemned, and ought to be limited to such jobs and
working conditions where it is impossible to apply other methods.
(_b_) PIECE WORK.
Piece work has one great advantage over day work--namely, the worker is
paid in exact proportion to his production.
But that is the only advantage. If work could be correctly priced
according to the amount which a conscientious average man could do,
and that price always held good, piece work would have the additional
advantages that both worker and employer would know the conditions were
fair, and the worker would work diligently and be paid proportionally
to his skill and production.
Under ordinary piece work conditions, however, such an arrangement is
impossible, and the objections to piece work are, if anything, greater
than the objections to day work, because of the necessary dishonesty on
the part of both worker and employer.
The average employer will not believe what an enormous difference
there is in the quantity of work which different men are capable of
producing. He is under the impression that, within small limits, any
man can produce the same amount of work as any other man in a given
time. This is entirely wrong. Investigations have proved that some good
men can produce three times as much as an average man, the quality of
work being quite as good.
Applying this fact to piece work, one sees at once how serious
differences may arise. A job is priced at, say, 1s. An average man
whose rate is 40s. a week will earn about 50s. a week on that job by
diligent work. Then a really first-class man comes along and earns 80s.
What follows? "If Smith can earn 80s., it is evident that the price
is too high and the other workers are slacking!" That is the natural
argument of the employer, and down comes the rate.
Cutting rates is one of the most frequent sources of trouble on piece
work, but it cannot be avoided. The worker knows that the rates will
be cut, and therefore two methods of defence are open to him: First,
he always works slowly on a job until it has been priced. In this way
a good price is obtained, a price which enables the slowest worker to
earn his wages--and a bit above--easily. Second, the worker takes care
not to earn too much. It is arranged between the men how much each
ought to take on a certain job, and the arrangement made is carried
out. This is, of course, dishonest, but it is necessary.
For suppose a good worker comes on the job and does his best, the
price comes down to everybody, and the average man cannot earn his
wages. The good man is therefore compelled to be dishonest to his
employer or unfair to his fellow-worker. And, again, in piece work
all prices are arbitrary. Even if one shop gives a reasonable price,
other shops in the same line of business find it out, and put on a
lower price in order to reduce works costs and thereby lower prices to
customers, which means snatching the trade from the good shop.
Thus, the circumstances of the old-fashioned piece work method and
the dishonesty of both parties to it lead to misunderstandings and
dissatisfaction.
(_c_) PROFIT SHARING.
There are various methods of increasing earnings by profit sharing. The
employer, from motives which may be good or bad from the standpoint of
the worker, desires to present the worker with a certain proportion of
the net profit.
In some cases the motive is entirely for the worker's good; in others
it is for the purpose of getting the worker to stay with the firm, and
to make his interest so large that he dare not be independent in case
he should lose his profit. This means that the employer is no longer
troubled with strikes and labour disturbances.
However, it is the effects that concern us here, and not the motives.
Under profit sharing the profit is paid out or credited to the worker
every six or twelve months, and one must be employed for a certain
length of time before one comes under the scheme. So that it holds
out little incentive to efficiency until the worker has been with the
firm for some years; until then his interest is so small that only the
naturally thrifty workers are interested in it.
All profit-sharing firms base their hopes of increased efficiency on
the incentive given to the worker by an anticipation of profit; the
payment of wages is by day work or piece work, and these have the
defects already mentioned. There is no direct and immediate incentive.
The slacker gets the same reward as the good man, and there is nothing
to prevent piece rates being cut just as in an ordinary shop.
Profit sharing is undoubtedly a splendid thing in principle, but
it tends to make a man drop his trade-union and takes away his
independence. It also means a rigid selection of workers, only the
ones who look ahead being automatically chosen. Already they must be
men of thrifty disposition, men who look forward to being employed
in one factory all their lives, otherwise they would not be chosen.
They are not necessarily the best men; indeed, they cannot be the best
men because only a wide experience of different factories and methods
produces the best men. But they are essentially steady men, and this
is the kind of man most employers prefer, because they are the least
likely to cause trouble when rates are cut or wages reduced. It is
usually pointed out that, if a rate has to be cut, the worker gets it
back again in the form of profit.
This system certainly tends to get rid of the slacker--the worst form
of slacker, that is--and there are circumstances under which it would
prove of great value.
The fact of there being so few profit-sharing firms tends to show that
profit sharing is not a method which appeals generally to both employer
and worker.
The following is a profit-sharing scheme adopted by a large firm of
engineers in March, 1916, and therefore embodies the most modern
conditions:
"1. Before any profits are divided with the employees, the
shareholders shall receive 8 per cent. per annum.
"2. When the above 8 per cent. has been paid to the shareholders in
any calendar year, all cash dividends subsequently declared in that
year will be divided between the shareholders on the amount of their
stock interest and the employees on the amount of the salary or wages
received by them during the twelve months ending June 30 of that year,
as follows: (A) Employees who have been continuously in the service
of the company for at least two years prior to July 1 will receive
dividends at the same rate as the shareholders. (B) Employees who have
been continuously in the service of the company for more than one year
and less than two years prior to July 1 will get three-quarters of
that rate. (C) Employees who have served continuously for less than
one year will get one-half the rate of the shareholders. (D) Dividends
that have accrued will be distributed to employees once a year in
December.
"3. No person will be entitled to a share of these dividends unless a
_bona-fide_ employee of the company at the time of their distribution,
except that employees laid off owing to lack of work or sickness will
be entitled to the dividends accruing in any year on the wages earned
by them during the twelve months prior to June 30 of that year.
"4. Employees voluntarily leaving the service of the company or dismissed
or discharged will forfeit their right to any accrued dividends.
"5. Any employee who may receive a commission from the company or
any share in profits other than the profits shared in this plan,
except through dividends of stock, if a shareholder, shall thereby be
rendered ineligible to receive dividends under this plan.
"6. All employees except those entered in the three preceding sections
shall be eligible to share in the profits under this plan.
"7. The above plan for division of profit is absolutely voluntary on
the part of the company, and is in no sense a contract. The right is
therefore reserved by the directors to make at any time such changes
in the plan as they may consider desirable for the best interests
of the organisation. The fact that any employee is receiving the
dividends in this profit-sharing plan shall not deprive the company of
the right at any time to discharge the employee, and thereby terminate
his participation under the plan, nor shall any employee acquire any
right thereunder to any accounting by the company concerning its
business or profits."
(_d_) CO-PARTNERSHIP.
This is another method of inducing the worker to become more efficient.
It is frequently allied to profit sharing.
The firm allows its workers to subscribe for shares, and the workers
thereby have a direct interest in the success of the firm. The idea
is that the harder they work the more profit there will be, and the
more dividend on the shares which they hold.
Of course, no worker, especially if he has a family, can subscribe for
shares out of his wages. What usually happens is that the firm sets
aside a certain portion of its profit, after paying a dividend on its
shares, and allows the worker to share this profit. But he gets no
money, the profit being paid in shares. For instance, if a worker's
share of the profit at the end of twelve months be L10, he gets L10
worth of shares. Then, when the next dividend is declared, he gets
the dividend on his L10 worth of shares. If there is a 5 per cent.
dividend, he gets 10s. as his interest for the year or whatever the
period of time may be.
He is not allowed to subscribe for shares until he has been with the
firm a certain length of time, and, in some cases, if he leaves he
loses his shares. If he dies, his widow gets the dividend on the shares
until she dies, when the shares go back to the firm.
In other cases the shares bear a fixed rate of interest, say 4 per
cent., and also an additional dividend if there is any profit after
dividends on other classes of shares reach a certain percentage.
In yet other cases a worker becomes absolute owner of his shares, and
can dispose of them by will or if he leaves the firm, but such cases
are rare.
Of course, where shares are purchased by deducting the price of the
shares from wages they are the absolute property of the worker.
The objections to profit sharing may be applied to co-partnership,
together with the additional one that the worker does not get profit,
but only interest on shares; and as he can never become a large
shareholder, the extra benefit is not very great. He is rendered quite
dependent on the firm--even more so than the profit sharer--and can
exert no pressure if conditions are unsatisfactory. The fact that
conditions are usually satisfactory in places where co-partnership is
practised does not make the principle a good one.
Certainly, sometimes the shareholding workers have the option of
electing a director, and this places some responsibility on the worker,
which is a good thing and gives him a real interest in the affairs
of the firm; but such cases are uncommon, and even then there are so
many other directors that the workers' representative has no voice
in determining the policy of the firm; he only voices the workers'
interests.
(_e_) CO-OPERATION.
Co-operation hardly comes into methods of wage payment, but we will
just glance at it.
It means that a number of workers unite to buy in large quantities the
commodities they require, and to distribute them at the least expense.
By these means they buy cheaply, and there is no non-productive middle
man to make a profit.
The great success of co-operative methods has resulted in the
co-operative societies manufacturing certain commodities for
themselves, as well as buying and selling. Having amassed a large
capital, and being certain of their market, they have every opportunity
of putting their workers under excellent working conditions.
As employers, however, the co-operative societies are exactly on the
level of other employees--no better and no worse. They do not even
adopt bonus or profit-sharing schemes except in one instance, and the
same labour disadvantages occur here as in the case of any ordinary
private firm.
Co-operation is strictly limited in its field of action. The buying
power of the society's members enables the society to know just what
goods and what quantity of goods are necessary, and they can go ahead
with certainty.
But a co-operative engineering works where all the capital is
subscribed by the workers is a practical impossibility. In the
first place, the number of workers in proportion to the amount of
capital required in an engineering works is very small, and no group
of ordinary workers could subscribe to start a factory and keep it
going. In the second place, even if a factory could be started, the
competition of the open market would throttle it in its birth. The
keen buying and selling and manufacturing need highly educated and
highly skilled men. Capable men are to be found in the ranks of the
workers, but men with the necessary technical and commercial knowledge
to run a large competitive engineering concern are extremely rare among
them. Outside men would have to be engaged for such work and for the
theoretical side of the business. This means high salaries, which the
worker capitalist would object to; and it also takes the management out
of the hands of the worker, and thereby destroys the whole basis of
co-operation.
It would be quite easy for an engineering business to grow out of a
co-operative society's need of machinery of various kinds, but it is
quite a different thing when one enters the open market.
In the two or three cases where co-operation, apart from the large
co-operative societies, is in practice, it will be found that the
business has in the first place been built up privately, and the
capital has afterwards been gradually transferred to the workers. There
is no instance of workers getting together and clubbing their savings,
and so starting a competitive business and earning their living thereby.
(_f_) BONUS SYSTEMS.
There are many bonus systems, and here again the advantages depend
largely on the moral principles of the employer who adopts them. It
does not follow that because an employer gives a bonus on work done
that the conditions of work in his factory are good. Even with the best
bonus system prices may be cut and conditions may become unbearable.
Indeed, the adoption of a bonus system is often an excuse for driving
and tyranny.
They have one advantage over profit sharing and co-partnership: they
do not interfere with the independence of the worker. I refer, of
course, to those systems which have no connection with profit sharing
or co-partnership, but where the bonus consists of a weekly payment for
excess production above a specified minimum.
A bonus system is based on a piece price or on individual or collective
output in a certain time. It is therefore an offshoot of piece work,
but it has a guaranteed minimum wage attached to it. Whatever happens,
the worker gets his guaranteed minimum, and if he produces more work
than is allowed for in that minimum he gets a fixed bonus at the end of
the week or month. It differs from profit sharing in that it depends on
quantity of work done and not on profit made.
Bonus is often given to men working under a subcontractor. The
subcontractor guarantees to turn out a certain job in a certain time,
and in order to induce the men to accomplish this result he offers a
bonus if the job is done to time.
There is no protection whatever against cutting times or rates, and
conditions generally are the same as those already mentioned.
(_g_) THE REWARD SYSTEM.
The Reward System (this is the name given to the system for the purpose
of this description) is different to all the foregoing methods.
The worker is paid the ordinary standard rate of wages for his
attendance at the factory, and this attendance implies the production
of a certain minimum quantity of work. If he produces more than that
quantity, he is paid additional wages in proportion to the work done.
If a certain standard quantity of work be produced, the standard being
considerably in excess of the minimum, the proportionate additional
wages, or reward, amounts to at least 25 per cent. of the day
rate--that is, of the trade-union rate. Also, an equal opportunity of
reaching the standard quantity is given to all workers, inasmuch as the
work is carefully studied, standardised, and recorded, and instructions
are given to the worker showing him just how to produce the standard
quantity. The standard quantity is within the reach of all diligent
workers.
This system is described in the following pages.