## Efficiency Rating
### Why It Matters
When a firm uses payment-by-results (piece rate/incentive wages), payment is directly linked to output. The firm must measure each worker's efficiency to calculate their correct pay. Efficiency ratings also feed into manpower planning and employee requirement budgets.
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### Three-Step Process
Step 1: Determine Standard Time (Performance Standard)
- Technique: Time & Motion Study or Work Study
- Worker sample: Use a heterogeneous group (mix of fast, average, slow workers) to set a fair standard
- Add contingency allowances for unforeseen interruptions
Step 2: Measure Actual Performance
- Record actual output and time taken per worker
- Develop a reliable tracking system for individual performance
Step 3: Compute Efficiency Rating
$$\text{Efficiency (\%)} = \frac{\text{Standard Time}}{\text{Actual Time}} \times 100$$
| Efficiency | Interpretation |
|---|---|
| ≥ 100% | Worker is efficient (meets or beats the standard) |
| < 100% | Worker is inefficient (takes longer than standard) |
> Standard Time = time the job should take. Actual Time = time it did take.
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## Employee Productivity
Definition: Output produced per unit of input (human resources, materials, capital, energy, etc.)
### Factors Affecting Productivity
| Factor | Impact |
|---|---|
| Skillful workforce | Tasks completed competently and efficiently |
| Proper job placement | Right person in the right role |
| Training & development | Continuous skill improvement |
| Optimal workforce size | Avoids over-staffing (waste) and under-staffing (overload) |
| Work study & standardization | Establishes fair wages and simplifies processes |
### Methods to Improve Productivity
- Regular performance evaluations with constructive feedback
- Incentive and recognition programs
- Positive work culture fostering teamwork and communication
- Adoption of modern technology and tools
- Conducive work environment with adequate resources