Professional Documents
Culture Documents
A. Individual Incentives 1. Taylors Differential Piece Rate System 2. Merricks Differential Piece Rate System 3. Gantt Task and Bonus Plan B. Time based Plans 1. Halsey Plan 2. Rowan Plan 3. Emersons Plan 4. Bedeaux Plan C. Group-based Incentive Plans 1. Priestmans Production Bonus 2. Co-Partnership 3. Scanlon Plan 4. Profit Sharing 5. Employee Stock Option Plan
A. INDIVIDUAL INCENTIVES
ADVANTAGES Taylors plan is easy to understand and operate. It helps the employer in increasing production by offering higher rates to more efficient workers. It attracts efficient workers. Where the overheads are high, its incidence per unit cost is reduced because of increased production.
DISADVANTAGES It penalizes very severely the slow or inefficient workers as a slight fall in production will considerably affect their warnings. It makes wide discrimination between efficient and inefficient workers and thus creates rivalry and disturbance among workers. It does not guarantee the minimum day wages and this insecurity affects the morale of workers. Labour cost will differ between the two levels of performance because of two different rates.
Like Taylors plan, this method also does not guarantee minimum wages. The general criticism levelled against Taylors plan also applies to it except that it lessens the punitive character of Taylors plan.
Total earnings = (Time taken * Rate per hour) + 50% (Time saved * rate per hour) Where, Time saved = Standard time Time taken
2. ROWAN PLAN
This plan was introduced by D. Rowan in 1901. As before, the bonus is paid on the basis of time saved. But unlike a fixed percentage in the case of Halsey Plan, it takes into account a proportion as follows: Time Saved Time Allowed Thus, under this plan Bonus is that proportion of the wages of time taken which the time saved bears to the time allowed or standard time. Bonus = Time Saved Time Allowed (Standard Time) Total Earnings = Time Taken Hourly Rate + Bonus MERITS 1. It assures minimum time wages. It is more liberal than the Halsey plan in that it provides incentive to work and earn extra remuneration. 2. As the increase in effort is much less rewarded after a certain stage, an automatic check for limiting production of inferior quality of goods is ensured. Time Taken Hourly Rate
3. This automatic check enables the worker to earn a fair wage, because there is less chance of rate-cutting by the employer, as he is not paying extraordinary wages. DEMERITS 1. The ordinary worker may find the bonus calculation a bit difficult. 2. Like Halsey Plan, this plan does not encourage extraordinary efficiency. For example, if the time saved is more than half the total, earnings begin decreasing.
This plan provides sliding scale of bonuses. For efficiency below 66.66% only, time wage and no bonus At 66.66% efficiency: time wage +1%of day wage At 90% efficiency: time wage +10%of day wage At 100% efficiency: time wage +20%of day wage
MERITS Easy to understand It is suitable for beginners Gives incentives for skilled and efficient work Can be applied to both individuals as well as group of workers Calculations are logical as we have fair basis for incentive to produce more
DEMERITS It is unsuited for ambitious workers. Once you reach the standard i.e.,100% further incentive is very mild.
Example Standard time (including rest allowance) = 60 hour + 360 Bs Actual time (including rest) = 5 hour = 300 Bs Wage rate = Rs.20 per hour As Bs earned by worker is less than standard Bs to complete the job, Wages = 20 6 * 0.75 * 20 = Rs.135
ADVANTAGES Minimum base wage is guaranteed For time saved as compared to standard time, 75% of the compensation is given to worker. Rest 25% may be given to his supervisor. Bedeaux point may be added up for a worker even if his job requires different assignments in a day.
DISADVANTAGES It tempts the workers to sacrifice for output and might Result in a higher wastage. The calculation of bonus under this scheme requires more clerical work.
2. SCANLON PLAN
DEFINITION: Cost saving productivity-incentive plan in which any saving (computed per unit of output) compared with an agreed upon standard labor cost is shared equally between the workers and the firm. The Scanlon plan has been successfully used by a variety of public and private companies for many decades. These plans combine leadership, total workforce education, and widespread employee participation with a reward system linked to group and/or organization performance. The Scanlon plan is a gain sharing program in which employees share in preestablished cost savings, based upon employee effort. Formal employee participation is necessary with the Scanlon Plan, as well as periodic progress reporting and an incentive formula. The philosophy of the plan is to promote group co-operation and solving of organizational problems. Cooperation and involvement start in the creation of the plan with a Design Team and continue once the Plan is implemented with Production and Screening Teams. CALCULATION OF SCANLON PLAN BONUS: Historically, the Scanlon plan bonus was calculated on the historical ratio of labor cost to sales value of production. Joe believed that is was very important that employees understand how the bonus is calculated and this method was easy for employees to understand. One of the few articles written by Joe Scanlon is about profit sharing. Joe felt that profit sharing as a way to create a bonus was fine as long as everyone understood "profits." He concluded that most don't understand how profits are calculated. Today Scanlon Plans have been created that use only financial measures (like profits), operational measures (like quality) Combinations of financial measures and operational measures and no bonus at all. Financial incentives under the Scanlon Plan are ordinarily offered to all employees including managers and sometimes executives. In several small Scanlon organizations the bonus was even offered to key suppliers. ADVANTAGES: Scanlon Plans increase job satisfaction, financial literacy, engagement, financial performance, quality, and on time delivery. Decreased sick leave usage and reductions in work backlogs and overtime costs. Both the employees and the company receive fair shares. Installation process takes time to implement Once a plan is installed it requires time and energy to maintain.
DISADVANTAGES:
Requires a great deal of training and development of employees. The equal bonus may not reflect the actual work or contribution performed by all staff.
3. CO-PARTNERSHIP
Co- partnership incentive plan is one of the group incentive plans which is similar to Profit- sharing incentive plan. Share of the profit that a company makes may be given in cash or in the form of shares to an employee. Employees are entitled to share the profits at an agreed percentage in addition to the wages. Under Copartnership, share of profit is given in the form of shares. The scheme recognizes the principle that every employee contributes something towards profit and he should be paid a percentage thereof. Here, employees are given shares in the capital of the business and as a result of which they receive profit accruing thereon. These shares may r may not carry voting rights. ADVANTAGES: Co- partnership applies to all employees irrespective of efficiency. It increases the employees morale and thereby reducing labor turnover. It creates a sense of belongingness within employees towards the organization. DISADVANTAGES: Here, profits are shared equally between inefficient and efficient employees, thus creating a sense of dissatisfaction amongst the efficient employees. Share of profit is given once a year. Employees may lose interest in it. Employees generally do not get access to accounts of the organization. They cannot ascertain the profits of the organization. This may lead to confusion which may later result in strikes, lockouts, etc by the employees. 4.
PROFIT SHARING
Profit sharing is a type of group incentive scheme which provides direct or indirect payments to the employees depending on the companys profitability. It is paid in addition to the employees regular salary and bonus.
The profit sharing plans are based on predetermined economic sharing rules that define the split of gains between the company as a principal and employee as an agent. Whatever profit the company is earning, employees will get a fixed percentage of that profit earned. This plan increases the morale of the employees and motivates them. It brings in a sense of belongingness to the employees as they have a share in profit. In this way, the
company motivates the employees by making them feel that they are contributing something towards profit and hence should be paid a percentage there off.
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