Six Dangerous Myth About pay Introduction: The assisnment is on the “Six Dangerous Myth About Pay” article by Jefferey Pfeffer. He has described six myths about pay that managers believe to be true. The myths and reality given are results of author’s research. But do we agree to the myths or reality written or we have any other opinions. My opinions about the myths are described below. Myth No. 01: Labour Rates and Labour Costs are the same thing: Labor rates and labor cost are considered to be the same but there is a differentiation. Labor rate is actually the wages worker get for working.
We can say total salary divided by time worked is labor rate. Job categories lead to different labor rates because of classification of jobs like executive to hourly paid employees. On the other hand labor cost is calculated through productivity. Suppose in Shajalal manufacturing plant pays Tk10/hour to 100 employees for producing (#) of units of readymade garments 50 hours. So there labor rate is [(100*100*50)/50 hours] Tk 1000 per hour and labor cost is Tk 50,000. On the other hand Madina manufacturing plant pays Tk15/hour to 100 employees for producing (#) of units of same readymade garments 30 hours.
So there labor rate is [(15*100*30)/50 hours] Tk 1500 per hour and their labor cost is Tk. 45,000. Although labor rate of Madina is Tk. 1,500/hour is higher than Shajalal but still Labor cost at Madina is lower than Shajalal. Myth #2: You can lower your labor cost by cutting labor rate In today’s globalization market where competition is everywhere I could not agree with this myth. Organization’s always make sure while hiring employee that they hire the best possible. The reason is that a skilled, experienced labor/s rate may be high but their productivity is higher than unskilled or inexperience labor.
By doing so, they make sure their productivity is higher than average and as a result stay competitive in the market. For example if a software company wants to cut labor rates for lowering its labor cost it will incur financial loss because low labor rate means low skilled or inexperienced (fresh graduate) employee which will result in low productivity thus incurring loss by cutting labor rate. Myth #3: Labor cost constitute a significant proportion of total cost No one can deny the truth that every organization require labor to run its process so do the myth.
Every organization requires labor force and as there are labors there is labor cost. Proportion may vary depending on the labor requirement of an organization. For example most manufacturing plant requires significant numbers of labor for its production. So labor cost of such manufacturing company will constitute a proportion of its total cost. But it can not be considered as the biggest expense because it is like the other expenses require for production. Myth#4: Low labor cost are potent and sustainable competitive weapon I do not agree to this myth.
Low labor cost means lower skill or lower motivated workers. There may be some exceptions but exceptions cant be examples. Lower labor cost employees don’t do innovative work naturally which can result lower productivity. Furthermore due to lower labor cost employees usually don’t give there full attention to work which can result in lower product quality. If an organization can not improve productivity and control its quality it can not compete in the market as well cannot sustain in the market. So at no means lowering labor cost are potent and sustainable competitive weapon.
Myth# 5: Individual incentive pay improves performance I agree with the myth. The reason behind this is when there is no incentive system for work employees tend to do only whatever has been told to do which is a common human nature. Companies benefit from innovative works. Individual incentives pay allows an employee to think broadly for his company benefit by doing innovative works. For example in Partex Denim Ltd there is an incentive pay policy for the marketing executives that if they exceed their sells they will be rewarded with incentive. Marketing employees ound this policy very interesting cause there is a chance to prove their determination of work and as well to prove their ability of work. The company earns profit for this policy because the sell more than they have targeted. Myth# 6: People work for money I agree to this myth. Early exchange was made in terms of things like suppose like one need rice and he offer wheat for the exchange. Nowadays exchange is made through money. There is always necessity of things in life which people fulfilled by earning money. So basically people work for money.
Although there are some arguments that people work to learn, to have fun but the proportion is very little and even if it is true at the end people take money in exchange for their works. So there is no way to deny the myth. In my conclusion I would like to say that some the myths by Jeferey Pfeffer have privileges but compensation varies widely across nations, geographical areas, political views of labor compensation and so forth. If any managers directly follow the myths it won’t be fruitful for the organization rather manager should look at the reality and chose what is best for his organization.