Digression 5 : Directly Productive and Auxiliary Labor, Managerial Labor, Remuneration of Labor
Ford and Stalin. How to Live in Humaneness · перевод (English) · раздел 17 из 42
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Digression 5 : Directly Productive and Auxiliary Labor, Managerial Labor, Remuneration of Labor
Earlier we have quoted the following words of H. Ford in a footnote:
«It is the product that pays the wages and it is the management that arranges the production so that the product may pay the wages».
In the modern world product is in most cases the result of the work of an integral microeconomic system - means of production, the infrastructure of the enterprise and its workers. If one considers only the factors of profit [93] and number of employees the ratio of «profit per employee» is what determines the employees’ wages on the whole. Yet because the collective is heterogeneous in terms of professions, responsibilities and authority the enterprise’s head must face the following triad of questions:
Whom to pay?
What to pay for?
How much should one pay?
In order to answer those three questions and ensure management efficiency one must have a clear understanding of what every worker’s professional skills and responsibilities are (within the framework of organizational structure), as well as how his or her professional skills contribute to the collective’s productive activity on the whole (the latter may or may not be covered in job descriptions).
If one grades professions without going into much detail one would get the following three categories:
· Workers directly engaged in the manufacturing process are factory personnel;
· Workers engaged in support and maintenance are support personnel (janitors, general-duties men, repair and servicing personnel) that also includes what is generally referred to in Russia as «technical personnel» of various divisions of the enterprise (purchase, accounting, security and others);
· Workers engaged in managing work of other members of the collective and the work of structural divisions each performing a dedicated function are management personnel.
Representatives of these three categories do not have equal opportunities of participating in the manufacturing process and of developing it thereby ensuring the «profit per employee» ratio growth that to a certain extent characterizes the enterprise’s efficiency and its facility to pay wages and salaries to employees and dividends to shareholders.
Besides, in the framework of most modern manufacturing processes there are workers in all the three categories who are busy with performing their professional duties throughout the whole working day. But there are workers whose professional skill the enterprise cannot do without but the manufacturing process is of such kind that work can be assigned them only for a part of workday or only on certain days.
Because the nature of production and technology dictates the way production and collective work are organized, piecework principle in remuneration of production and auxiliary personnel labor is an irrelevant remnant of independent amateurism, of individual cottage craft. When the collective provides the systemic integrity of an enterprise, piecework means the following:
· squabbles within the collective (open and covert) around who gets access to paying and non-paying work;
· constant threat of piecework men violating manufacturing procedures in order to get a higher output which leads to increasing expenditure on technical control service;
· encouraging repairmen and maintenance personnel to commit acts of sabotage to the end of artificially raising their importance and, correspondingly, their payments;
· concealing new and better methods of work and hampering their application within the collective by piecework men of highest qualification to the end of maintaining their monopoly, which is one of the largest obstacles on the way of technological progress and of production quality growth;
· facing the insoluble problem of justifying output norms while workers conceal their true abilities to the end of getting high wages from exceeding established norms.
Just these few mentioned ways of piecework’s destructive influence on the enterprise’s functioning are more than enough for a smart manager (or businessman) to start purposefully eliminating it at the enterprise he controls and in its functionally specialized structural units. But piecework is an enduring phenomenon, and in most cases if it is present at an enterprise it is evidence of a badly managed collective.
When the collective provides for the systemic integrity of an enterprise, taking into account the division of staff into productive, auxiliary (including technical and servicing personnel), managerial personnel according to the nature of their work, the salary-bonus system of remuneration of labor turns out to satisfy the requirement of efficient control better.
This system includes:
· Basic salary - it is absolutely guaranteed. This money is paid for:
O having one or several professions that are needed by the enterprise;
O the level of qualification in each of the professions;
O being ready to conscientiously carry out the orders of superior executives and support their activities on the basis of professional skills and knowledge.
However everything a salary is paid for is not actual work, not the products of labor but only a potential. That this potential is used is the responsibility not of the people who have this potential but on executives, on the entire hierarch of the enterprise’s management and the management of surrounding macroeconomic systems. This is the objective effect of the collective nature of labor in the systemic integrity of most enterprises.
· Bonus is guaranteed by way of statistics, i.e. its amount can range from zero to the equivalent of several salaries and depends on many factors and indices of the enterprise’s work, the work of its units and each staff member. These factors are:
O total volume of free profit and the way its comes in throughout the financial year;
O assessment by superior executives the staff member’s personal contribution to the collective’s work during the time period which is remunerated (a month, a quarter, a year);
O how important this staff member is for the enterprise, judging from his past work and future perspective (this part of the bonus is usually formalized as personal increment in salary granted for long-service, qualification, possessing several professions, speaking foreign languages, ability to solve problems in extraordinary circumstances, etc.);
O lump sum payments for special purposes in connection with personal and family life of staff members (depending on what payments of this kind are allowed by the country’s legislature);
O loans granted by the enterprise to its employees or remittance of previously granted loans in full or partially. [94]
The salary-bonus system of remuneration of labor operating at an enterprise for several years is characterized by the ratio «income received by way of salary» / «income received by way of various bonuses and personal increments», as well as by the ratio connected with the previous one «income received by way of salary» / «total income including various bonuses».
If the salary takes up a low share in the total income volume (especially if the guaranteed salary exceeds the «living wage» acknowledged by the society only by a small amount or is smaller than the «living wage»), this is a sign of covert slavery flourishing at the enterprise and therefore flourishing in the society which endures such enterprises and such businessmen.
If the share of bonus payments in staff members’ income is large and their salaries are small an employee’s welfare is secured by his ultimate loyalty to executives. It is only their opinion which determines whether he will get non-guaranteed bonus payments or not and what their size will be. When large share of bonus payments in total income becomes a system-forming factor it leads to creating and maintaining a system where staff members are personally dependent on executives and administration on the whole. Personnel are deprived of rights [95] resembling serfs who live in the modern society of science and industry.
Another extreme occurs when bonus payments account only for a small part of staff members’ income. This prevents them from being financially encouraged to put effort in getting higher qualifications, mastering several professions, improving manufacturing processes and work organization on their own accord. They are not interested in doing that because promotion to superior posts accompanied by rise in salary is determined for most staff members by natural biological and demographic factors. It cannot keep up with the pace at which new circumstances appear in a man’s life (birth of children, a need to get better housing in a shorter time, etc.). And the employee might have a chance to resolve these new issues if he got bonus payment for certain achievements in work exceeding the «standard requirements» which the administration demands of a man taking up this post and which are remunerated by the salary set for this post.
Let us also make special note here that we are speaking about the salary-bonus system of labor remuneration, not about pay by the hour or pay by the hour and bonus system. The two systems are essentially different though in some circumstances (for example, working on the conveyor belt) this difference is unclear. Yet there the difference between the systems exists. Pay by the hour remuneration system is based on paying for the time an employee spends at his place of work assuming that the employee is fully busy with work during this time. If the employee wishes to reduce the time he spends at his place of work as compared to the established norm to an extent permitted by the administration his pay will be reduced proportionally.
The salary-bonus system permits (but does not compel the administration to do it) that some categories of staff members can stay at their workplaces for a shorter time that is compulsory for the rest of staff if they keep up with the schedule of work assigned by executives and submit work in due time and quality. In such a case a shorter working time per working day after accomplishing the assigned task does not result in reduction in pay. On the contrary it is itself a kind of a bonus that many will prefer to a money increment.
Actually the salary-bonus system can be a better motivation towards the collective’s conscientious labor than the pay by the hour and bonus system or pay by the hour system, and it is far better than piecework payment. Because there are categories of employees whose volume of professional work is limited by the nature of manufacturing process and its rhythm (hourly, weekly, etc.) it will bring nothing but harm to the enterprises systemic integrity if they are forced to stay at their workplaces during the entire working day. The point is that they will have to imitate labor activity while staying at their workplaces. And imitating labor activity corrupts the imitators themselves, corrupts their associates who do work, gives rise to rows when some people accuse others of pretending to work while they actually work. It undermines the administration’s authority because when an employee has to pretend to work having no real work to do the utmost folly of its executives of all ranks and its inability to organize a coordinated and efficient activity of the collective becomes evident.
And team contract can be effective only within the salary-bonus system of labor remuneration. Such a contract assigns work to a team which is a small integral collective where work is distributed and co-ordinated between the members in an informal way, on the basis of personal comradeship, mutual aid and respect.
Normally the salary-bonus system of labor remuneration should include the entire staff of an enterprise. But the way it is applied to staff members engaged in management activity should be different from the way it is applied to production personnel and support personnel:
· within this system production and support personnel is paid for conscientiously following the orders of executives and coming forward with initiatives beneficial for the common cause (of a team, shop, department, the entire collective) primarily within the boundaries of their main and complementary professions and the posts they occupy;
· management personnel is paid primarily for ensuring a certain production output [96] calculated per one subordinate and for increasing this index [97], as well as for achieving economy in comparison with basic levels of consumption in subordinate collectives. Such economy can include saving on raw materials, component parts, energy, agents, tooling, working capacity resource of equipment etc. (according to the concrete functional specialization of the collectives he or she heads). Naturally it must be done while quality and safety standards are adhered to and improved.
A collective works in modern production. To control any collective activity means to distribute an individual personal responsibility for quality and timeliness of performing different fragments of the common work among staff members and making these fragments liable to an objective check according to «done - not done» index (in compliance with the standard).
In accordance with these specific features of modern production and its control which are of an objective nature what should be remunerated is a man’s ability to be responsible, to conscientiously perform actual assigned work and to come forward with initiatives while being responsible for the fragments of work assigned and for coordinating work on the whole. Additionally all the staff members of an enterprise should clearly see that the salary is paid for performing the functions of one’s post at a minimum standard and that bonuses are paid for conscientiously deviating from the minimum standard by exceeding it in the course of daily work in a collective with an atmosphere of comradeship and friendliness.
Modern production is of such a nature that controlling it requires to use the salary-bonus system of labor remuneration. But it can stimulate labor efficiently only if it is accompanied by a high standard of mutual trust and comradeship among subordinates and executives which exists in the collective and is proven by experience and if subordinates and executives are equally interested that they succeed in their common cause.
When this fact is understood the answer to the question on what the ratio of minimum and maximum income among an enterprise’s staff should be becomes clear. In every historic era, in every society there is an optimum «maximum income» / «minimum income» ratio within a collective which changes in the course of time. The «optimum» ratio of «maximum income» / «minimum income» involves a wage rates scale which encourages employees to improve their qualification and to acquire several professions. This should make the enterprise more efficient in production and ensure an increase in the «profit per employee» index.
If the ratio «available maximum» / «income actually received by staff» is small this means many employees regard making additional efforts for improving qualification and acquiring several professions as redundant troubles which do not improve their well-being and result in nothing but uselessly spent time and strength.
Besides, historic circumstances can lead to a lack of highly qualified professionals in certain trades (a lack compared to the demand). This allows people who have mastered these professions (which differ for every historic era) to demand exclusively high salaries for taking part in the society’s working unity. In the historic reality when labor resources are distributed among industries by means of free market regulation such opportunity is realized in exclusively high salaries of certain professional corporations. Their salaries sometimes exceed the amount, which provides for consumption in a morally healthy life-style (and paying for services which neutralize the damage to health caused by hazardous industry). In some cases the state’s social order supports the system of exclusively high salaries first of all in the management sphere and other «clean» activities. It is done through granting privileges in access to basic and professional education to certain social minorities and preventing the majority from getting such education.
This system is characterized by the majority’s ignorance which prevents production from improving its efficiency by denying any chance of developing new technologies and improving business organization. But besides that this macroeconomic factor curtails the options for encouraging conscientious labor in a collective (i.e. on the microeconomic level). Let us explain how this happens. The ratio of «income of highest-paid group of employees» / «minimum or average income» is large due to some groups of professionals being paid exclusively high salaries which results both from macroeconomic and non-economic factors. Also the income of the highest-paid part of the collective exceeds the level sufficient for an employee and his family to live a morally healthy life in the opinion of those whose income is about average (especially if average or below the average income is barely enough for satisfying the needs of a man and his family). Then the members of collective who have the highest income are regarded by the rest of staff as parasites who live on unearned income, i.e. from somebody else’s labor, reaping the fruits of work done by the rest of the collective.
This is just the same attitude that employees normally have towards capitalists (the owners of the enterprise) if they take no real part in the collective’s work. If they are merely parasites receiving their share of the enterprise’s income, and often a considerable one. And legislature of most countries permits it by tolerating private property of collectively used means of production and not obliging the proprietor to work by himself.
Therefore assigning levels of income among staff, i.e. arranging the wage rates scale, is a task having no single solution effective for any circumstances. Under normal macroeconomic conditions any salary should guarantee that a person’s needs can be provided for, including the ability to start a family life and use one’s income to take part in the family’s further development. This circumstance determines the minimum, which it is practically necessary to pay.
The issue of maximum remuneration is a more complicated one as on the one hand the chance to reach a higher level on the wage rates scale must be an incentive to work in the collective efficiently, and on the other hand the income of highest-paid staff members (as well as the owners of the enterprise) should not be regarded as unearned income by the collective.
In other words the optimum ratio of high-paid and lower-paid workers’ income at any enterprise is determined by the level of technology and organization that it has reached, its future progress, equivalent indices of competitors, as well as by moral and ethic qualities of the collective and the society on the whole.
The role of an efficient incentive, which the salary-bonus system of labor remuneration plays, can be undermined or even totally invalidated by the three following circumstances. First, exclusively high salaries and bonuses. They are regarded by the collective as parasitism on the labor of others, which a certain “elite” of the enterprise indulges in. Second, when payment of bonuses does not result from conscientious labor actually making them a guaranteed part of income. Third, paying bonuses for labor achievement of some people to other people, chiefly to their superiors and their hangers-on.
The problem of distributing staff within the wage rates scale should be regularly given a new solution depending on the enterprise’s technical and technological development, the relationship between employees of different categories and the attitude that the «gold fund» workers of the enterprise (managers, specialists and workers important in the future perspective) have towards the business. These issues belong to coordinating the enterprise’s financial and personnel policy and lie beyond the scope of this work.