Kuandyk Ainabek
The Philosophy of Life and Business
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CHAPTER 6. MOTIVATION OF CREATIVE AND LABOUR ACTIVITY IN FORMATION OF COMPETITIVE MODEL OF ECONOMIC ENTITIES
The neo-classical thinkers understood salary as the cost of the hired worker’s labour. And K. Marks determined the essence of salary by the amount of the work force cost. Salary has the following forms: time wage, price wage, accord wage, bonus wage, cash wage, in-kind wage, nominal wage, actual wage, etc. Time wage is compensation for labour worked for a certain period of time. Price wage, accord wage and bonus wage are varieties of time wage. The difference of the latter is in the fact that they have specifics expressed in labour compensation conditions. Thus, price and accord wages are compensation for the amount of goods or services produced during a period of time fixed in the agreement. Bonus wage is additional compensation for doing over the quota. Apart from cash wage, in-kind wages are used. Nominal wage is the amount of money received for the period worked, whereas its purchasing power is real wage.
Mainly, forming the amount of salary under the classical-trend theory (K. Marks’s approach), they are based on the price (cost) of work force, but in practice the accent is made on demand and subjective evaluation of labour (the neoclassical approach). In the meantime, the initial lower value of the hired labour cost is determined by the amount of the minimum wage. The upper limit of salary is limited by the smallest part of the company revenue. The entire problem here lies in determining the exact value of salary which would serve as a motivational basis in labour activity. Practice of business activity has shown that in highly developed countries the salary amount for hired workers and state officials is formed under the influence of trade unions struggling for the rights of workers. Under their influence, the salary of hired workers grows up to 70% of the company revenue. Entrepreneurs oppose to the growth of salary, as it reduces the company profitability. Where is the golden middle then? It is revealed, according to the experience of highly developed countries, in the struggle between trade unions and entrepreneurs and in their cooperation in finding a compromise. In our country, this process is still poorly developed, and therefore its influence on formation of worthy salary of workers seems insignificant.
In Kazakhstan, there is a burning problem of determining the upper limit of salary for high-ranking state officials, top managers and leading specialists of large national companies, highly qualified staff in the areas of science, education, healthcare and others, as the transition to the new quality of the competitive economy depends on their labour.
In the real life, there have been such oddities as when the ex president of the national company “Kazakhtelecom” fixed his monthly salary in the amount of USD 365 thousand. It is obvious here that the top manager’s ambitions and self-esteem are high. This permissiveness bordering with absurdity will soon lead to bankruptcy for not only the national company but the entire country, if such executives are given free rein. Another extremity is starvation wages of scientists, teachers, doctors and common state officials.
Salary of high-ranking state officials, executives of large national companies should be linked to their contribution to increasing the gross domestic product (GDP) and growth of GDP per capita, i.e. it should result from the country’s achievements, not from the leftover principle.
According to my calculations, the upper limit of salary, including bonuses, for high-ranking state officials should not exceed the GDP per capita, which was equal to about USD 8000 in 2008. Any amount of their salary exceeding the GDP per capita should be confiscated as a tax. The value of the gross domestic product per capita should be the criterion of upper limits of salary of state officials, workers of the government sector.
The model of determining the salary for the above-mentioned category of workers can be drawn up on the basis of comparing the GDP per capita and the wages of state officials, scientists, teachers, doctors and others, on the example of highly developed countries: Finland, the USA, Japan, etc. Then the ratio should be transferred to the GDP per capita in Kazakhstan, and we will get the amounts appropriate for our reality.
In this situation, taking into account the above-mentioned approach, the initial average amount of the salary of a highly qualified worker should be about USD 4000, which considers all market prices for food and non-food products, services of education, healthcare, accommodation, etc. For instance, highly ranking officials can earn the salary in the range from this initial value to the amount of the GDP per capita for their highly efficient labour for the benefit of the country. It can be formulated into an economic-mathematical model as follows: V=Y/2 • k, (3)
where V is the monthly salary, Y – the gross domestic product per capita, k – the coefficient making it possible to determine the final amount of the salary, based on the position, level and extent of qualification of the specialist, manager, within the upper limit of 2 and the lower limit above 0 value. Then, the twelve-stage grading of the basic salary amounts for the above-mentioned categories of workers should be introduced: from 1½ to 1/12 of the GDP per capita.
Introduction of this remuneration system will considerably change the motivation of labour in the areas of science and education, healthcare and state service. Thus, if a doctor of science will gain, on average, USD 4000, which is half the GDP per capita in 2008, the following lower-ranking academic degree holders should have the salary which is twice less. So, a candidate of science should earn, on average, USD 2000, and teachers and masters – from USD 500 to 1000. This approach to motivation to creative work will stimulate aspiration for professional growth and achievement of high results. For comparison, in can be reminded that US masters earn USD 3000 to 5000 a month for their work, professors, doctors of science – USD 12000-15000, and department chairmen, doctors of science – USD 15000-25000 a month, and their public image is really high, which can not be said about our colleagues in the republic. It should also be mentioned that a US chancellor’s salary is higher than, for instance, the salary of this state’s minister of defence. However, to have such salaries our scientists need the compatibility of the national economy development level to the existing parameters of its funcioning in the USA.
With regards to it, the former chancellor of Kazakh National University named after Al-Farabi T. Kozhamkulov has expressed the following opinion: “We have introduced a multistage form of education – a Bachelor’s program, a Master’s program, a PhD program, as well as a credit technology of education which allows students to choose subjects and lecturers on their own. I.e. in this case we are already working according to the Western standards. But the system is not tuned up yet. The remuneration of professors and lecturers, its nature are still on the level of the previous century, whereas the credit technology assumes that the professor sought after by the students should earn much more...” [1].
At present it is possible for the state to pay for work of scientists with the amounts quoted above, as in our country there are no more than 2985 doctors of science and no more than 13513 candidates of science. We would like to note that in the state service sector there are about 733 officials with academic degrees [2, p. 74], in state research organizations – 950 doctors of science and 2800 candidates of science [3]. Can it be that the state is unable to create conditions for full-value work of such a small number of scientists on whom the destiny of the innovative breakthrough of the national economy will depend? By the way, the practice proves that in some areas private organizations already offer salaries to specialists in intellectual labour at the rate of 250000 to 300000 tenge (about USD 2000-2350), and to common specialists – 100000-200000 tenge (USD 781-1562.5) [4, p.8]. It should also be mentioned that the state has cash available; there is a proof of unrealized and leftover amounts being 70-80 billion tenge at the end of the year. Certainly, these blunders of state officials and their inaction are like an economic crime. It is a separate topic for discussion.
Organization of labour in higher education institutions where a great number of scientists is concentrated has it own specifics which should be taken into account in the process of reinforcing motivation and increasing efficiency of scientific and teaching work. Paying the salary according to the scheme above, the scientifically grounded teaching work load should be considered. At present this load is more than three-five times higher than it should be, and an essential part is dropping out of the remuneration system, which will undoubtedly reduce the effect. The transfer to the credit technology and implementation of quality management system in higher education facilities in the Kazakh version, where the formal matter is observed, without economic and organizational, work motivation, leads to the situation where the level of the graduates does not increase – vice versa, the crisis state is becoming still more aggravated. Regrettably, the quality level of the graduates is dramatically reducing, despite the positive statistics. This tendency is typical of all the structures in the education and science areas. About 60% of the graduates of higher education institutions and representatives of science are not up to the level of their diplomas. It should be noted that if the Bachelor’s, Master’s and PhD’s programs are introduced without taking into account all the motivational, organizational and labour components, upon graduation we will get a great number of false masters and doctors of science. This tendency is already obvious. With regards to it, the former chairman of the Committee for Supervision and Assessment in Education and Science under the Ministry of Education and Science of the Republic of Kazkhstan B. Abdrasilov, answering the question: “How many thesis works fail to pass the probation these days?”, said: “Last year the rate of such assessment cases for awarding academic degrees and titles in the total quantity was 33%”. After that he emphasized: “We should be critical to ourselves. In some areas our science is in the stage of stagnation now. A recent audit of the research system of our country made by a group of leading western scientists noticed the outdated material and technical equipment of research establishments and higher education institutions, poor financing of the science by the state and private business, ineffective system of research management” [5]. “In 2008 the volume of scientific research financing by the state funds, as compared to the year 2003, increased almost 3.5 times… However, upon the whole expenses on scientific research from the GDP still remain on the level of 0.13%... In the opinion of independent experts, if the expenses on scientific research from the GDP steadily fail to exceed 1% for five-seven years, the destruction of the scientific and technical potential of the country may be irreversible” [6, p.10]. Consequently the state plans to increase financing of science and education 25 times more than the currently exposed figures. “The program is scheduled for six years, and it will require about 200 billion tenge” [7]. The resulting question is as follows: how efficiently are these expenses realized?
Now a great work is done looking for efficient methods and ways of stimulating employees. The advance experience of the West and the East in effective management of science, economy, state and community is being adopted.
Efficiency and productivity of labour are tightly connected with the remuneration system. By now the optimal interconnection between the level of salary, efficiency and productivity has not been regulated yet [8, p. 165].
American researchers proposed an effective remuneration system as early as in 1988 [8, p. 164-167]. They write that “ the time has come to ensure close connection between the level of salary, productivity and efficiency… The share of variable and stable payouts should be adjusted and depend on the productivity and profitability… The remuneration system should be created so as to ensure unification, not dissociation of employees within the company, to stimulate cooperation, not conflicts between employees” [8, p.165]. These provisions could facilitate making a progressive system of salary calculation and payout [9, p. 97-101].
Functioning of the economic instrument aimed at reproduction of work force, ensuring development of the company and community, predetermines such a system of wages and bonuses which would encourage employees to do a certain job, taking into account the indicators of quality and volume, establishing a direct interdependence of the individual work outcome and the team work outcome. Thus, the following system of salary and bonuses calculation and payout is proposed, based on the objective necessity requirements. Organization of payroll should encourage effective performance and ensure reproduction of work force needs, considering the possibilities and potential of the developing economy. Let us take salary as V, derivative forms as V1, V2, V3, V4. V1 is the minimum wage. It is equal to the lower limit of the work force cost. At present this value should be equal to the cost of physiological needs of three members of the hired worker’s family, as the community is targeting at extending reproduction. V2 is the average wage determined as the average value between the minimum and the limiting, and it can be calculated with the following formula: 
, (4)
where V3 is the limiting wage. It is determined as the minimum wage multiplied by the coefficient bringing to the limiting value (kp). V3 = V1· kp. (5)
V3 can also be determined by the following way: V3 = V2 + ?p, where ?p – is the increment value from V2 to V3. (6)
V4 is the maximum, or full, wage, which presents the amount of the limiting wage and additional bonus being a part of the surplus profit. Definition of the V4 formula can be given as follows: V4 = V3 + ?m, where ?m is the bonus being the a part of the surplus profit. (7)
Now let us consider methods of labour organization depending on the final results of the commodity circulation subjects’ activity.
a) The method of labour organization on achieving the final results for the month: the hired workers should be given the average wage (V2), and repetition of the targeted achievements for the quarter will make it possible to get the limiting value (V3) for all the three months.
b) The method of labour organization on negative results: the hired workers are given the average wage (V2), and ?p part, as the difference between V3 and V2, will be withheld at the end of the quarter for covering the targeted profit of the company.
c) The method of labour organization on exceeding the targets in commercial activity. At first the profit gained as the difference between the actual and the targeted value is divided into three parts, which are distributed as additional payments to the state budget, a part is left for the development needs of the company, and the third part is used in the form of the bonus, as additional payment for highly productive labour to the employees of the company. And it would be reasonable to distribute the profit, for encouraging the employees for performance over and above the intense target, based on the standards predetermined by the objective necessity requirements, equally among the team. We judge from the fact that, firstly, a part of the profit over target used as incentive will be insignificant as compared to the salary fund; secondly, the equal share of the bonus for each member of the team will strengthen encouragement of labour of low-paid and medium-paid categories of workers, which are the bulk of the team, for exceeding the target of the company upon the whole. This system of organizing the remuneration, considering the basic and additional (bonus) wages together, does not lead to leveling of evaluation of the company employees’ labour activity. . . The above-mentioned remuneration system can be conventionally called advanced. The advanced system of payroll and bonuses ensures consolidation of labour discipline in the team, interest of each employee in performance of the company plan, increase of labour productivity and effectiveness of the company commodity circulation.
We can not but also mention that entrepreneurship activity, which seems to be a variety of labour activity, should also be motivated. However, it is common knowledge that the major motivation of entrepreneurship activity is profit. But the excessive profit will have a negative impact on the community development, and the entrepreneur will be turned into a monster exploiting his own fellow countrymen, aggravating contradictions and conditioning antagonism, which is a destructive force and a self-annihilation factor. The practice of compensation for entrepreneurship activity in highly developed countries: Sweden, Norway, Finland shows that there should not be a big gap between the revenues of the upper layer of the population and the bulk.
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