Write an essay on The fair work commission organisation.
This report deals with the relationship between the pay and performance regarding the business of an organisation. It reflects that how an organisation can be benefitted by the performance of its employees. It also reflects that, providing incentives to the employees can enhance their work performance.
It is seen that the employee’s performance in an organisation are highly dependent on the payment they receive for providing service to their company. An organisation always tries to squeeze an individual and to acquire as many benefits possible. It always tries to pay the minimum amount and tries to maximize its benefit. Paying incentives is a kind of trick for which an individual always try to exert more effort for his/her organisation (Rolstadas, 2012). It is not always fruitful but yes, paying incentives and higher salary help to achieve more production in an organisation.
As far as the issue related to the association between pay and performance is concerned, this report will clearly demonstrate all the aspects of pay and performance.
The fair work commission organisation in Australia deals with the workplace relation issues in the country. The commission was established by the Australian government in 2009 when the Fair Work Act was developed. It includes some employment-related settings and factors like minimum wage fixation, unfair dismissal, dispute resolution etc. Currently, this commission is playing the role of both the workplace authority in Australia and Fair Pay Commission as well (FWC, 2016). The main reason behind creating this body was to improve the industrial relationships. The Fair Work Act covers all issues related to the industrial relationships and employment. The members of the FWC are located in Sydney, Adelaide, Perth, and Brisbane (Australia Government, 2016).
This body locates whether an employee of an organisation in Australia is receiving his/her payment properly or not. It helps people by informing them about Australia’s latest workplace related regulations (Beer, Maude, & Pritchard, 2003). As a result, the employees can save themselves from any workplace harassments. This body imposes a penalty on the parties who miss-utilize the services of the employee. It documents the complaint of the employees who has been cheated and then it closely monitors those claims whether it is correct or not. Then it takes necessary steps to solve the issue.
The objective of this report is to evaluate the relationship between the pay and performance. So that, the authority can assess whether to emphasise. It clears out the area where improvement is needed in order to get better work performance from the employees. If better payment can enhance country’s production from different sectors, then obviously it should be monitored. The goal of this authority is to implement a sustainable workplace relationship in different sectors.
Cahuc & Zylberberg (2004), have stated regarding the theory of labour supply. It states that the labours sacrifice their enjoyment in leisure time and utilise the time by working more in order to earn more money (Cahuc & Zylberberg, 2004). Certainly, they will receive more payment by exerting excessive efforts but they have to sacrifice their relaxation during leisure time. It indirectly decreases their utility. The curve of labour supply is generally derived from the labour-leisure trade off.
As much as money the individuals receive, they try to exert more effort to earn more and more money. So that, they can earn incentives for providing service for an hour extra. Now when the discussion comes to the type of good this ‘leisure time’ is, the analysis always gets diverse factors. If it is a normal good, then income will increase if its demand increases. For instance, if an individual earns high then he does not need to sacrifice his/her leisure time. Instead of sacrificing, that individual will prefer enjoying it.
The labour supply curve will be sloped upward if income effect is weaker then substitution effect. In the opposite case, the reverse will happen i.e. the labour supply curve intends to bend backward.
Marxian economists claim that in the case of a capitalist economy, where people need money badly, this culture is on.
Efficiency wage theory describes the payment of wages higher than the marginal revenue product of the workers in order to increase their productivity.
The above diagram shows the supply of labour and supply of work units. In a short period of time supply of labour is fixed shown by vertical line SS. Below the minimum wage, there would be no work. Only after a minimum wage of OA, the number of units of work increases shown by AS’ which is rising upward (Akerlof & Yellen, 1986).
Mankiw (2011), stated that efficiency wage theory is profitable as higher wage might increase the efficiency of the workers. First wage theory shows the relationship between wages and worker’s health. Higher wages help workers to consume a nutritious diet and it keeps them healthy. Also, it increases their productivity. Secondly, wage theory relates wage to worker turnover. Increased wage reduces the turnover of workers to other firms. A worker can quit his/her job if he/she does not receive a higher payment. If they receive higher payment then chances of quitting the company will reduce. It is beneficial for the firms also because hiring and training new people is costlier. The third one emphasises the link between worker’s quality and wage. Paying higher wages helps in improving quality. The 4th theory is sociological which states that higher wages increase the worker’s loyalty towards the firm. Union threat is the 5th model in which higher wage prevents unionisation (Mankiw, 2011).
Katz (1986), said that there is the prevalence of inter-industry wage differences for similar work. This may arise due to the difference in the wage-productivity in different industries (Katz, 1986). He argues that the reasons may be the labour quality which cannot be measured. Compensating differentials, labour immobility are not transitory. The model, however, fails to explain the relation between industry wage and its profits. It is also not able to explain the inverse relationship between skill and unemployment. It fails to explain the reason behind the wage rate differences prevailing among the same post in different industries (Akerlof & Yellen, 1988). The net revenue increases with increase in wage but after a certain wage, the revenue doesn’t increase even with increased units of work. As such beyond a point, the net revenue decreases with increase in the wage rate.
Pay for performance can be explained as the wages should be paid according to a work, performed by a worker, firm or a team within a given period of time. This pay structure may be beneficial for workers. Singh (2015), debated that performance-based pay is result oriented rather than development oriented. It is not a qualitative measurement, instead, is quantitative. Pay based on performance is usually done for a fixed period of time (Singh, 2015).
Lazear (1996), proposes that as the wages of the worker increases, their performance increases through an increase in productivity (Lazear, 1996). An average grade worker produces more in the case of increased incentives. Also, there is a reduction in turnover. Workers may be paid based on the hourly wages or on the piece rate. In hourly wages, there is a minimum level of output per hour (e). The utility function of worker is given as:
Utility = Income – C (e)/A where,
C (e) is homogeneous cost function. ‘A’ measures the ability of worker. This shows at a given level of output, individuals with higher level of ability have low production cost (Lazear, 1996).
However, it is not easy to measure a job but the subjective metrics of performance pay is successful in measuring that. For instance, the measurement can be done on the basis of teamwork, professionalism or service to the customer.
An objective measure is not more suitable than subjective because it is able to measure when employees are directly assessed. Even in a complicated situation, the subjective metrics allow a manager to assess its employees. There is one drawback that the subjective measurement brings issues in the situation. If the relationship between the manager and its employee is not smooth then the employee may receive negative feedback from the manager.
Guaranteed pay is something which fixed and received by an employee from its employer while the variable pay is not fixed. People who work on the full-time basis, always expect for a fixed pay because it is suitable for their standard of living criterion. People who like to work from home or freelancing, receive payment on a contractual basis which is not fixed. They receive payment only for the output they produce on a fixed rate basis.
Bonus pay is attractive and successful in motivating the employees. Spot bonus is one of them and it is given when an employee perform extraordinarily (Cardy & Leonard, 2014). Spot bonus is very respectable reward and it is always given to the managers, works in multinationals like Google, Apple etc. (Guest, Paauwe, & Wright, 2012). Referral bonus is getting very famous day by day. It is given when an employee recommends candidates and earns a bonus when the candidate is selected. They receive the payment when the recommended candidate joins the organisation. It is very famous in call centres and IT sectors. Signing bonus usually is given to the people who have some unique skill or to the individual whom the organisation wants to be joined. IT workers used to receive these type of bonus (Guest, Paauwe, & Wright, 2012).
Similarly, the penalty is also effective in driving employees’ behaviour and the manner in a right way. Withholding of increments is imposed on workers when they do not behave properly (Lazear, 1996). It’s a kind of seldom penalty. Fines are imposed when mistakes happen from employees end after giving warnings. Also, it may increase motivation among workers to produce more as they have the opportunity to earn more. Withholding of salary is imposed when an employee resigns without any notice and without serving the notice period. This kind of penalties is imposed frequently by the organizations these days (International Labour Organization, 2003).
There is a rise in average output per worker and average ability of worker when a switch is done from hourly wages to piece rate. The calculation of hourly wage is easier compared to piece rate. The quality may suffer in case of paying piece. In many firms, the piece rate may rather be more cost effective as the payment is done only for work done (Poon, 2016).
The demand curve for labour is derived from the demand of products. If the demand for commodities increases, then the demand for labour will also increase. The supply curve of labour refers to the number of workers available for employment. Supply of labour is in respect of industry as well as an economy. The wage rate is determined by the demand and Supply of labour. It can be shown with the help of the following diagram:
It shows that wage rate ‘We’ that is determined by the interaction of the labour demand curve DD and the supply curve of labour SS. Quantity of labour is determined at ‘Qe’. In the long run under the competitive condition, the wage rate will be equal to both the average and the marginal revenue product. Firms will earn a supernormal profit if average revenue product is more than the wage rate and as such there will be the entry of new firms.
If,
Average revenue product < wage rate, the firm incur losses.
Smith (2003), explains that reduced wages might lead to a decrease in the productivity of the output as the number of working hours would be reduced by the labourers. Thus, there would be a contraction in labour supply due to fall in the real wage (Smith, 2003). As the working hours of the labour increase then the wage and the supply of labour will also increase. Thus, equilibrium wage rate would be determined where labour demand equals labour supply.
Achieving higher production by paying higher incentives is becoming a new trend or strategy of the organizations. It seems that motivational theory is made to get the effort to be exerted more and more.
The Dolphin Logistic Company is trying to expand its business in the global market of Singapore (Huat, Lim, & Chen, 2004). Research claims that the company had to improve its performance management system and need to introduce the reward system to motivate its employees. In due courses, it can be said that by implementing performance-based pay system the company can become successful in improving their performance status (Dolphin-GP, 2016).
The company also can employ the efficiency wage theory. As far as the efficiency wage theory reveals that the theory is highly effective in enhancing workforce. The general theory of demand–supply concentrates a small hint that organizations nurture their wage offerings if they require more contenders, or if they need fewer of them when excessive applicants are existing than wanted (Dolphin-GP, 2016). The theory highlights the costs and benefits trade-offs convoluted in shifting the level of wage.
The employee will be benefitted by several bonuses elaborated above and will be penalized for not to be disciplined in the workplace. By the subjective measurement approach employees are properly assessed by the managers even if the situation is complicated. With the help of the objective measurement, employees are directly assessed by their immediate manager.
Likewise, the employees of the organizations is already highly motivated by the association so they always exerts extra hours of work to the company’s production. They assess their ownselves by judging customer’s feedback time to time. They assess their own efforts. In a way, they can make themselves better for the organizations. All were started in early 2015 when the authority had decided to improve the sector and starts paying rewards in order to motivate the employees.
Along with the reward system or performance based pay structure, several motivational activities may support more to enhance the performance in workplaces. It is seen from the discussion that each of the following theories provide some way to extract extraordinary performance from the employees. The main theme of those theories is to provide different types of incentive to achieve a better outcome. Bonus pays like performance incentives, yearly bonus can be given to motivate employees more. It is seen that by offering a bonus, the companies become successful in acquiring more output from the employees. Whereas penalties keep the workplace disciplined and the employee feels costlier to break a rule. It makes a workplace tidy and disciplined. So, apart from the normal pay and training, different types of bonus should be provided to motivate employees.
Conclusion:
It can be concluded from above research that, the wage theories are very useful to improve a business from all end. The practical implementation of these theories plays major role in influencing the production of an originisation. However, no theories are perfect and it needed to be perfect in case of reality. This gap demands another theory to be entered. Workplace issues are major and cannot be managed by applying few theories. It needs experience and as well vast analysis of the labour supply and demand related matters.
References
Akerlof, G., & Yellen, J. (1986). Efficiency Wage Models of the Labor Market. Cambridge: Cambridge University Press.
Akerlof, G., & Yellen, J. (1988). Fairness and Unemployment. The American Economic Review, 78(2), 44-49.
Australia Government. (2016). Fair Work Commission. Retrieved 07 19, 2016, from https://www.australia.gov.au/directories/australia/fwc
Beer, A., Maude, A., & Pritchard, W. (2003). Developing Australia’s Regions: Theory & Practice. Australia: UNSW Press.
Cahuc, P., & Zylberberg, A. (2004). Labor Economics. Cambridge: MIT Press.
Cardy, R., & Leonard, B. (2014). Performance Management: Concepts, Skills, and Exercises. London: Routledge.
Dolphin-GP. (2016). Global Logistics Services. Retrieved 06 09, 2016, from https://www.dolphin-gp.com/global-logistics-operations.php
FWC. (2016). About us. Retrieved 07 19, 2016, from https://www.fwc.gov.au/about-us
Guest, D., Paauwe, J., & Wright, P. (2012). HRM and Performance: Achievements and Challenges. Hoboken: John Wiley & Sons.
Huat, T., Lim, J., & Chen, W. (2004). Competing International Financial Centers: A Comparative Study between Hong Kong and Singapore. Singapore: Centre for Financial Studies and ISEAS.
International Labour Organization. (2003). Best Practices in Work-flexibility Schemes and Their Impact on the Quality of Working Life in the Chemical Industries . Geneva: International Labour Office.
Katz, L. (1986). Efficiency wage theories: A partial evaluation. NBER Macroeconomics Annual , 1, 235-290.
Lazear, P. (1996). Performance Pay and Productivity. National Bureau of Economic Research, 1-36.
Mankiw, N. (2011). Principles of Economics (6th ed.). Mason: South-Western Cengage Learning.
Poon, D. (2016). Economic and Trade Information on Hong Kong. Retrieved 06 09, 2016, from https://hong-kong-economy-research.hktdc.com/business-news/article/Market-Environment/Economic-and-Trade-Information-on-Hong-Kong/etihk/en/1/1X000000/1X09OVUL.htm
Rolstadas, A. (2012). Performance Management: A business process benchmarking approach. London: Springer Science & Business Media.
Singh, B. (2015). Compensation and Reward Management (2nd ed.). New Delhi: Excel books.
Smith, S. (2003). Labour Economics (2nd ed.). Abingdon: Routledge.
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