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ЗмістWay to increase the salary 16
Appendix a 24
Existing payment system in ukraine
Time - Based System
1.2 Output – Based System
2 Analysis of the salary (1998 - 2000)
2.1 Dynamic of the Salary
The basis absolute increase
where Rbg – the basis rate of growth; yf – final level of a period; yi - initial level of a period.
Аb = 21,952/17,66 % = 1,243 (th.UAH)
2.2 Setbacks in the Current Wage Remuneration
3 Way to increase the salary
3.2 Legal Part
3.3 Financial Part
The main advantages for employees under the “Days Off Method” are the following
MINISTRY OF EDUCATION OF UKRAINE
Donetsk State Technical University
International Business Department
NO MONEY UNTIL THE WORK IS DONE
TABLE OF CONTENTS
APPENDIX B 26
APPENDIX C 27
For the time being one of the main problems for the most Ukrainian people is low level of income. As a result this involves serious problems in the well-being of the whole nation, such as decreasing of living standards and cultural wealth. All over the world great economists try to find a solution for this problem. And our country is not an exception. Many Ukrainian companies try to take a decision on this problem on the local level. DMZ is also engaged in this question nowadays. That is why this problem seems quite challenging for us as future economists.
In this report we raise the following problem: “What should be done by the management and the workers of DMZ Repair Shop (RS) in order to increase the wages of the workers in this shop?”
The basic activity of RS is planned maintenance of the plant main equipment, rebuilding of such main units, as blast- and open-hearth furnaces, rolling mills, equipment of crimping and electric furnace shops, machines of continuous stock material casting and other. Together with this there is a manufacturing of new parts, restoring, building-up welding and repair of utilised parts.
One of the main principles of success is correctly planned and correctly applied shop budget. The main body of this budget is the basic and extra wages of workers, white-collar workers and employees. The salary of the RS workers is the main article of a private income, means of reproduction and increase of a well-being standard.
While preparing the report we looked through the number of books basically concerning the wages remuneration and system of the salary. This is rather theoretical information and it takes little space in our paper. For the practical point we used documents from DMZ. These are different regulations, financial and organisational data.
Putting the definition of the problem in the forefront we worked out the following plan:
We hope our work will be rather interesting for you. The best reward for us will be your benefits from our advice.
Following the definition of the problem: “What should be done by the management and the workers of DMZ Repair Shop (RS) in order to increase the salary of the workers in this shop?” we decided first of all to present our reader the system of wages in Ukraine.
There are numerous pay systems for manual workers but they can be classified into those based on time and those based on output. We would like to draw your attention to the time based system as it directly concerns our problem and is used in the RS of DMZ. In order to show you the main systems of wages we looked through the number of sources [4, p.54-67]. We have extracted the main idea and presented it very briefly.
According to the present system of wages there are two main time-based systems in Ukraine:
1) Basic system
The main idea of this system is that worker is paid for the number of hours worked at a basic rate per hour up to, say, 40 hours per week. Time worked in addition to 40 hours would be classed as overtime and is usually paid at a higher rate depending on the number of extra hours worked and when the overtime was worked.
Although worker’s pay is not related to output, this does not mean that output and performance is unimportant. On the contrary, it is normal practice to monitor output and performance closely by shop floor supervision and managerial control systems so that workers are paid for actually working and not merely attending.
This system has its own advantages and disadvantages. And now we would like to structure them.
The advantages of time-based system are the following:
Its disadvantages are:
Each type of work has its preferable system of wages. This system is most appropriate for:
This is a time-based system, which is designed to provide a strong incentive by paying rates well above normal basic time rates in exchange for above average output and performance. For its successful application it is necessary to ensure that the output levels are the result of detailed work-studies and that typical application of this system is on assembly line production in the car industry and in domestic appliance manufacture.
For this system there are its own advantages and disadvantages.
The advantages are the following:
The main disadvantages for high day rate system are:
This system is most appropriate for:
Time based systems are better for applying when the worker can not directly affect the output (automatic transfer lines, flexible automatic manufactures, hardware processes), or when the high quality of a product is required.
Schemes in which wages are dependent on output are usually known as incentive schemes. There are numerous types of these schemes, some apply to individuals, others to groups, some have minimum earnings guarantees and so on. Properly organised incentive schemes can benefit both the employee and the firm. The employee from the extra wages arising from increased production and the employer from the reduced overheads per unit of the increased production.
Incentive schemes can increase production and wages and thereby improve morale, but some schemes are difficult to administer and there can be problems in deciding upon performance levels and rates.
At the simplest, the worker would be paid an agreed rate per unit or operation, for the number of units produced or operations carried out. Where the same rate per unit is paid for all production, the system is known as straight piecework. On occasions, the rate is increased progressively at various output levels and this is then known piece plus – bonus system.
However, as we said at the beginning we will deeply examine only piece plus – bonus system, as it is currently being used in the RS1.
This system is expressed by the formula:
P = V * R * (1 + B/100), (1.1)
where P – piece plus-bonus system;
V – volume of the work done;
R – piecework rate;
B – bonus.
The bonuses for the workers of DMZ RS are given for the following:
Piece plus-bonus system of the RS workers is shown in the collective agreement of the company (see Appendix C). It was accepted under the decision of JSC “DMZ” constituent assembly, on which the interests of RS workers represented the agents of the shop.
Now we can see that from a properly organised and well-planned system both
the company and employees can benefit. The employee from the extra income arising from increased production, and the company from the reduced overheads per unit of the increased production. Unfortunately not all schemes achieve this ideal, but careful attention to the following factors will help to achieve this object.
Further we decided to evaluate whether advantages overweight disadvantages of
current payment system in RS.
Advantages of this system are the following:
Thus we can see that the current system of payment in DMZ RS is rather suitable
for our case and it is not her to be blamed for the low salary. That is why in order to define the real causes of the problem we are going to present you the dynamics of the salary during the last period 1998-2000. Perhaps it will be much easier to combine figures with the facts, which happened during the mentioned period.
The following definition of the problem: “What should be done by the management and the workers of DMZ Repair Shop (RS) in order to increase the wages of the workers in this shop?” proves that the key word of our report is low salary. That is why we decided to include statistical data of salary in RS. In this chapter we will analyse the salary of the workers during 1998-2000 with the help of some statistical parameters. The 1 part of this chapter will be full of figures which we will try to connect with the situation in RS during mentioned period. Having found the links we will make certain conclusions concerning our problem. You will find them in the 2stnd part of this chapter.
Nowadays an average wage in DMZ compounds 510UAH while a planned cost of living in Ukraine is 311 UAH. This is certainly poor, considering that the high salaries of chiefs and low wages of workers are undertaken for accounting an average wage. Therefore, the main problem for the RS management is to increase the wages fund of the shop (the salary of the workers) and achieve the balance between the workers’ and management’ interests.
Our course paper offers a possible solution for this problem. At first, we should analyse the dynamic of the RS wages fund for a particular period. On the basis of data2 (Appendix А), we have plotted the chart (Appendix B). In this chart we figured the dynamic of wages fund for a period from 1.08.98 on 30.12.2000. On the ground of a figure (Appendix B) you can conclude, that since July 1998 till October 1998 the redundancy of the RS wages fund took place. Since October 1998 the wages fund of the shop has slightly increased by the end of an examined period. However the data, introduced in the figure, give rather general view about the development of this fund. For more in-depth study of the wages fund dynamic it is necessary to calculate and analyse the parameters describing the given facts. Such parameters are: a basis absolute increase, basis rate of growth, basis rate of increase and absolute basis contents of 1% increase. Let's calculate each of these parameters.
?b = yf - yi , (2.1) where ?b- basis absolute increase;
yf - final level of a period;
yi - initial level of a period.
?b = December 2000 - July 1988 = 146,275 - 124,323 = 21,952 (th.UAH).
Thus, the basis absolute increase has compounded 21,952 th.UAH The wages fund increased on 21,952th.UAH for a period from 1.08.98 on 30.12.2000. In frameworks of DMZ this number is not so huge, as the RS is not the shop of the basic production.
Rbg = yf/yi, (2.2)
Rbg = December 2000/July 1998 = 146,275/124,323 = 1,1766
The basis rate of growth of the RS wages fund has compounded 1,1766. It means, that for the last two years the wages fund of the shop has grown in 1,1766 times.
Rbi = Rbg – 1, (2.3)
where Rbi – the basis rate of increase;
Rbg – the basis rate of growth.
Rbi= 1,1766 - 1 = 0,1766
The basis rate of increase is equal 0,1766 (or 17,66 %). Then, the wages fund of the shop had increased on 17,666 % by December 2000 in comparison with the fund in July 1998, which was accepted for 100 %.
Аb = ?b/Rbi (%), (2.4)
where Ab – the absolute basis contents of 1% increase;
?b- basis absolute increase;
Rbi – the basis rate of increase.
The basis absolute value of 1 % of a gain is equal to 1,243 th.UAH shows, that the RS wages fund of shop increases on 1,243 th.UAH with the variation of a gain on 1%.
Thus, for the considered period the levels of a dynamical line were increasing monotonically, and the performance of the absolute and relative velocity of raise varied. It proves that the management of the plant performs its program of increasing the wages for the workers (exactly in RS).
In Appendix B the expansion of the RS wages fund is observed. However, the schedule of the RS wages fund dynamic looks like broken curve which has the minimum and maximum levels. These max levels occur when RS carried out overhauls of the capital equipment. Accordingly, the amount of works done increased. The employers received premiums for fulfilment the operations in excess to the plan, for exits in night time. The workers got the premiums when they worked in days off. Thus, in August 1998 the workers of the RS carried out the scheduled overhaul of a flatting shop mill 2300. As a consequence, as you can see on the figure (Appendix B), the RS wages fund was one of the maximum (134,530 th.UAH) at that very period. Then, in 1999 the salary is raising smoothly. However, the wages increased sharply in September - October, 1999, when the RS reconstructed the blast furnace №2. In 2000 two major repair works were carried out. The overhaul of a crimping shop mill 950\900 was in January 2000, and the modernising of an open-hearth furnace №6 was conducted since April till May of the same year. The size of the RS wages fund has compounded 171,430 th.UAH (January 2000), 169,810 th.UAH (April 2000) and 168,466 th.UAH (May, 2000) accordingly.
The minimum points of the schedule have on a period of low activity in the shop. Actually, in November 1998, in November 1999, in February, June and October 2000 the seizure of the workers decrease. It was connected with the preparation for repairs and with a decrease of the orders of scheduled preventive repairs. As the salary of the RS workers directly depends on amount of works done, then the RS wages fund sharply decreased in mentioned periods. These minimum points are reflected on the schedule (Appendix B). In November 1998 the size of the RS wages fund has reached the least level and was equal to 90,139 th.UAH In 1999 such period was in November, when the size of the RS wages fund was equal to 153,020 th.UAH In 2000 the minimum sizes of the RS wages fund amounted: 147,430 th.UAH (February), 140,688 th.UAH (June) and 133,083 th.UAH (October).
In the previous subsection you found the figures and facts showing when and why the salary was high or low. Now we will try to find the interdependence between them.
We can notice an obvious tendency between the amount of works done and the RS wages fund, i.e. the workers’ wages. Really, as the shop calculates the wages of the workers on piece plus-bonus system, then the earnings of the workers directly depend on the volume of works done. After the work is carried out, the shop receives the padding sum to the RS wages fund for awarding the employees (Appendix C).
We would like to attract your attention to considerable increases, even “leaps” of the RS wages fund. They have on time of overhaul, modernising and reconstruction of the obsolete equipment. In other words, it happens when the labour force of the shop is used to the limit. In order you to understand our offer correctly it is necessary to know some nuances, connected with usage of a labour at overhaul and reconstruction. Namely, the specificity of overhaul is the continuous operations, carried out during rather continuous time with maximum density of a labour. At this time people work around-the-clock under the continuous schedule, without days off. This entails payment of extra money in the form of bonuses: for the work during night time, in days off, for overwork (more then eight hours during one changeover), and other.
According to the information presented in this chapter we can notice that the wages of the workers increase when they carry out extra work during day off. Therefore, our shop can get extra volume of works for the time that is free from the basic work (on days off) and include into this process the repair crews. The recommendation, introduced in the third chapter will help to render assistance in achievement of this purpose.
In the second chapter we have constructed and analysed the schedule of the RS wages fund dynamic for the last two years. We have noticed that there are considerable and sharp changes in the workers’ salary during the mentioned period. In order to solve the problem of salary leaps and to make wages maximum we propose the recommendation, which will be presented in this chapter. We hope that this chapter will be the most interesting for you because it is right to the point: “What should be done by the management and the workers of DMZ RS in order to increase the salary of the workers in this shop?” Moreover you will find here advantages and disadvantages of our method and will definitely decide whether it is suitable or not.
3.1 Organisational Part
During constant increase of wages, there are particular spikes and droops of the RS wages fund. We have explained this phenomenon in the following way: during spikes the workers carry out the job above the line. Moreover they work in night time, on days off and even do not have scheduled vacations during the big repairs.
The budget of the shop increases at the expense of money given on the big repair. The RS wages fund augments accordingly. However, the operations on reconstruction and modernising are carried out not every month. The shop performs 5 - 6 operations on the average for one year. Basically, the workers carry out scheduled preventive and operating repairs. There is no necessity to use the maximum labours for such repairs. Moreover the employees come on work in one changeover, do not work during the night time, on days off and holidays. The wages are paid according to tariffs, and the premium is distributed on the ground of labour input ratio of each worker.
Our recommendation is based on the difference of the RS wages fund during usual working hours and the size of the fund when overhaul and operations on modernising of the obsolete equipment are carried out. The following recommendation looks to the increase of the RS wages fund, i.e. the salary of the workers.
Apparently, to increase the RS wages fund it is necessary to increase volume of works (we will remind you once again, that the size of wages directly depends on the volume of works done). One of the most important things is that external orders exist and the management can really contract with other firms on these repairs.
To increase the volume of works done, we offer the management of the RS to remove the workers on operation in time free from the basic work, i.e. on days off. We call our offer as a “Days Off Method”. We would like to notice that it is impossible to increase labour productivity during the workweek because all workers perform the direct responsibilities, foreseen by the schedule of the shop, in the basic working hours. Thus they work 40 hours per week (8 hours per day) with two days off.
In order to realize our offer of pay rise on the ground of the “Days Off Method” we recommend the management of the RS the following:
All these steps are interdependent and interconnected that is why further we will take them as the whole, not divided recommendation. Advantages and disadvantages of our recommendation will be applied to the whole method too.
The legal part borrows the considerable place in our offer. According to the “Labour” and “Remuneration of Labour” Laws of Ukraine each worker can conduct labour activity apart from the basic work during the free time. Thus he is considered as a by-worker, and the wages are paid him due to the order. The workers of RS will receive the wages as by-workers, as they will performs their works during the free from the basic work time.
In order to render the service to outside companies or organisations which are included in DMZ structure but have their own balance (for example, ISTIL) DMZ management should contract with the customer concerning the repair work. Then, DMZ contract with RS on outward labour activity. And finally RS carries out the order of outside companies. In this case DMZ acts as a prime contractor, and RS – as subcontractor. RS executes all design works, financial calculations, and works, which are foreseen in the contract.
When the organisational and legal points are settled we can approach to the most interesting part – financial. The general mechanism of this part is the following: the customer transfers to DMZ (as the artificial body) the sum for the works done according to the agreement. DMZ charges to the RS wages fund 85 % of this sum. RS distributes the money in the following way: 85 % - the salary of the workers participating on external repairs under the “Days Off Method”, 15 % - increase to wages of shop workers, which were not on repair works. Thus, the reason for the management for encouragement the usage of given “Days Off Method” is 15% extra profit to DMZ. Furthermore this sum is the peculiar payment for the usage of the legal status of the company, licenses for works, industrial and labour forces of DMZ on external works.
Primary goal of our proposal is the pay rise of all RS workers. Not all workers will be attracted on the works ordered. Some of the workers can refuse from participation in external repairs, it can be unnecessary to use other labour forces, third ones will be on the sick-list or on leave etc. We propose to increase the salary of such workers on 15% of the sum obtained from the external repairs. We explain this increase by the following argument: people, not participating on external repairs, provide the proper operation and continuous work of the whole RS. They keep order, care the continuous work of the equipment, repair it when it is necessary etc. We recommend to distribute money between these workers according to tariffs and categories.
3.4 Advantages and Disadvantages
Our “Days Off Method" has the positive and negative aspects, both for a management and for the worker. We want to attract your attention to these moments, so that you could evaluate this method:
3.4.1 For Employees
This sum will help them to solve some of their vital problems. Money can be used on restoring the manpower resources of the workers, increasing their cultural level (visiting theatres, museums, cinemas etc.).
Nowadays the majority of people try to use their days off for searching additional work. However there is no warranty that they got money after finishing the work. And such situations happen quite often in our country. In our case such risk is eliminated. The workers will get money for the work under the “Days Off Method” sure enough. They do have no necessity to spend their time searching a risky work
Nobody can make them to work in free time. However, we hope, that the majority of the workers will aspire to participate on external repairs, because the size of their wages depends on their participation.
Still there is one disadvantages which we can not omit:
It is vital to the worker to have a rest. That is why we gather all crews and lead them on work in turn. Our method will not take away the workers’ rest.
3.4.2 For Management
The benefits for the management of RS in applying the “Days Off Method” are the following:
At the same time the shop performs its basic work, which is not connected with overhaul, reconstruction and modernising of the obsolete equipment.
Under the contract between the RS and DMZ, the last gets 15% from the sum transferred for the fulfilment of the outside companies orders.
The disadvantage for the management is insignificant:
This defect is connected with a solution of organisational problems and problems on the accident prevention, with the realisation of financial-settlement operations. Though it can be settled and will worth trouble.
Thus, you can see that there are much more advantages then disadvantages both for the workers and the management. At present it is you to decide whether our recommendation valuable. Thank you for paying your attention till the end.
The definition of our problem sounds like the following: “What should be done by the management and the workers of DMZ Repair Shop (RS) in order to increase the salary of the workers?”
Nowadays there are two main systems of wages in Ukraine: time- and output-based. With the first one the salary is paid according to the time worked and with the second one workers get their wages for the output produced. RS uses piece plus bonus system (one of the output-based systems).
On the basis of salary analysis we have found that there are considerable increases during 1998-2000. The workers of RS get the maximum salary when they carry out an overhaul planned by DMZ. At such periods they come to the work on days off, in night changeover.
According to the facts mentioned above our group proposes “Days Off Method”. The purpose of this method is to solve the problem of increasing the RS wages fund (taking into account the interests of employees and management). This method works in the following way:
Thus you can see the main benefits which can get both the workers and DMZ management from “Days Off Method ”.
Low salary is one of the great problems nowadays. Such question is on the agenda in the DMZ Repair Shop(RS) now. Most of the workers get low salary while such the giant of metallurgical industry as DMZ have great potential to earn more and to pay more.
In order to solve this problem the following definition raised : “What should be done by the management and the workers of DMZ RS in order to increase the salary of the workers?”.
There are numerous systems of wages in Ukraine. All of them can be classified into those based on time and those based on output. When the time-based system is used the worker get payment for the number of hours worked at a basic rate per hour. Under the output-based system the worker would be paid an agreed rate per unit for the number of units produced. RS uses piece plus-bonus system (one of the output-based systems). According to this system the rate is increased progressively at various output levels.
The analysis of the salary during the period of 1998-2000 shows that there are considerable increases in the wages from time to time. They are connected with an overhaul planned by DMZ as the RS wages fund straightly depends on the volume of work done.
In order to increase the salary in DMZ RS we propose “Days Off Method”. There are many orders on overhaul, rebuilding and repairing from external companies. Thus DMZ should contract with RS on outward labor activity and attract it for outside companies’ repairs. Workers should carry out external orders during the time free from the basic work (on days off).
Advantages which get all the parts involved is the most important case in “Days Off Method”. RS wages fund gets 85% of the sum transferred for outside repairs. 15% of these money go to the DMZ wages fund (under the contract between DMZ and RS). Workers who carry out external work get 70% from the sum transferred into RS wages fund. And money left get the workers who do not perform this repairs but provide the proper operation of RS.
The RS wages fund for the period 1.08.98 – 31.12.2000
16. 25 March. 2001
1 In more details for the wages and bonuses in RS of DMZ see Appendix C.
2 The data concerning workers’ wages are taken from working papers of DMZ RS.
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