Assingment: 1

Name: Narinder kumar

Reg no: 31864

Class: Tuesday 3:00 to 6:00

Cource: Organizational Behaviour

Instructor: Sir Muntazir Mehendi

Date : sep 16 2017

Essay

In the "Harvard Business Review on Managing People", an article by Jeffrey Pfeffer states that

businessmen are embracing wrongheaded ideas about how to pay individuals and why.

Specifically businessmen are under six hazardous myths about pay. Here, I introduce you my

understandings of this article.

Six myths about pay

Myth #1: Labor rates are the same as labor costs.

Myth #2: Cutting labor rates will lower labor costs.

Myth #3: Labor costs represent a large portion of a companys total costs.

Myth #4: Keeping labor costs low creates a substantial competitive edge.

Myth #5: Individual incentive pay improves performance.

Myth #6: People work primarily for the money.

A labor rate is total salary paid to the labor force divided by total time worked by them. But,

labor costs take productivity into account, besides the total amount paid to the labor force. Thus,

labor rates and labor costs are different.

And also labor rate is based on time period for which the labor has worked. And in labor cost

which includes indirect and direct labor by subtracting all the taxes. That is also the difference

between them.
And also labor cost is that which includes direct and indirect labor and by subtracting it from all

the taxes. So that is the basic difference between labor rate and labor cost

Case 1: Company X pays $10 per-hour to 100 employees for producing Z units of a product in

50 hours.

So, Labor Rate = (total salary paid to the labor force)/ (total time worked) = $(10*100*50)/ (50

hours) = $1000/hour

Labor Cost = $50000

And just by lowering the labor rate is not possible to reduce the labor cost. And if company

wants to be in a competitive market it has to work on quality as well. And company cannot

compromise on quality and therefore it cannot reduce labor rate if its wants to be in a

competitive market.

labor costs are a significant portion of total costs. Sometimes, thats true. But, the ratio of labor

costs to total costs varies widely in different companies. Like in France where a average worker

works for 40 hours per week and it varies in America where labor works for more hours and it

has an impact on total cost of production. Labor rates are visible, and its easy to compare the

rates you pay with those paid by competitors or with those paid in other parts of the world.

Explanation of Myth #4:Those who accept this myth may neglect other more effective

ways of competing strategies, such as through quality, service, delivery, and innovation. In

reality, low labor costs are a slippery way to compete and perhaps the least sustainable
competitive advantage there is. And it also creates negative perception and that means more

bigger advantage for competitors. Thats why keeping labor cost at substational level might be a

good policy.

I agree that motivated, productive employees are crucial for organizational success, regardless

of company size, industry, or corporate strategy. And by offering employees performance-based

incentive pay is one common approach, bonuses are offered to individuals based on assessments

of their performance, like paying for performance creates a positive competition in the firm and

employees work more effectively and they know if they will work more they would get more

benefits the more I get in my raise, the less is left for my colleagues. So, the worse my

workmates perform, the happier I am because I know I will look better by comparison.

People do work for money but they work even more for meaning in their lives. In fact, they

work to have fun. And employees work for satisfying their needs and for having a better and

happy life ahead but I think money is just a factor but if an employees is not happy in the

organization then the money is not important that why for a better organization employees and

managers will have to work together. And by motivating each other.