Vol.

2, 2006

Wage Incentive Plans

K.B . Sehgal .B.
Assistant Professor, Mechanical and Automobile Engg. Deptt.

Abstract
Since very ancient times, human beings are selling their labour, efforts & time for livelihood. Sound wage-incentive plans, once introduced, will help maintain healthy employee-employer relations. A satisfied employee will operate at higher level of performance and productivity which in return benefits the management immensely and the employee himself as well.
Incentive means encouragement or inducement or reward to any person for putting this best efforts to achieve higher level of quality production. Permanent employees, in a well established organization, tend to loose interest in productivity. Their jobs are secured, so why should they bother for production. The production will decrease on the pretext of lost time due to minor faults in a machine/equipment/tools/materials etc. There may be minor delays due non-co-ordination of feeding of raw materials or in process materials. Once a part of employee's earnings are related to his output, the employee will take initiative to overcome all these minor problems and will try to achieve higher level of performance by putting extra efforts & skill. Incentive scheme should only be introduced in an organization after careful work study by qualified industrial engineers. Time standards for each & every operation will be set after improving the methods of working, layouts, material handling and tooling etc. If the standards are set on the basis of past production records or estimated timings, the employees will improve their methods of working themselves or at the cost of machines and tools, will start earning phenomenal incentive amounts, which ultimately lead to discontinuation of the scheme. Incentive will be paid on the good pieces produced and these will be passed by quality control. Excessive rejection will penalize the incentive earnings by some formulated relations. Some of the wage incentive plans are discussed here below for direct operatives. Straight Piece Rate Plan- If the standard time for a particular job/ operation is 1 hour, the production per shift/day of eight hours will be eight pieces. Decide average earnings per day to perform the job requiring particular skill, education & experience. Say it is Rs 100. Now the piece rate for the job will be Rs. 100/8 = Rs 12.5. If a worker has produced 9 pieces, his earning for that day will be 12.5x9=Rs. 112.5. On the other hand, if he has produced only 7 pieces his earning will be 12.5x7=Rs 87.5. This scheme is very easy to follow. The increase in production is rapid. Minimum wages are not guaranteed, so it is the prime responsibility of management to provide sufficient materials, tools, power, machines & equipment.

Straight Piece Rate with a Guaranteed Base Wage Plan

If the production is less than the targeted production, the worker still gets his minimum guaranteed wage of that day. This system takes care of enforced idleness beyond control of workers. e.g. long hours of power load shedding, m/c breakdown or shortage of materials. The loss time should be minimum of an hour to be booked.

Differential Piece Rate Plan

In this plan, the minimum base wage is not guaranteed. If a worker produces above the out put standard (o.s),

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he gets incentive at higher piece rate On the other hand, if he produces below the output, he gets incentive at lower pc. rate (Refer to line (A) in Fig-1.

W=RT + ( S-T) / 2 x R Where W= wage R= Hourly rate say Rs.8 T= Actual time taken to complete the job, Say 3 hours. S= Allowed time, based on past production records. Say, 4 hours. W=8x3+( 4-3)/2 x 8= Rs 28. Now, the wage rate per hour will be (28/3). Rs 9.67. See Fig-3.

Rowan Plan
It is an improved plan over Halsey. Instead of 50% of time saved, the ratio of time saved to standard time is allowed as bonus ie.Bonus is paid on (S-T) / S rather than (S-T) In Rowan Plan W= RT +(S-T) / S R.T. Taking the previous example W=8x3+ (4-3) /4 x 8x3 =24+6 =Rs. 30 Now, wage rate will be 30/3 =Rs 10 This scheme is useful where output standards (based on past production) are not very accurate. Workers do not like sharing of their earnings in Halsey as well as Rowan Plan. See Fig. 3. Gantt Plan: wage is guaranteed. Workers reaching upto output standards, based on scientific time study, will get normal wage rate. Workers, exceeding output standard, are paid at higher wage rate. Gantt Plan is an improvement over the Taylor's differential piece rate system. See Fig. 3.

This scheme suggested by F.W. Taylor had the disadvantage that an inferior or fresh worker, who was unable to reach the output standard could earn very little and hardly survive. Merrick modified the taylor's plan and introduced Merrick Differential piece rate system. This plan assured a minimum wage to the workers and suggested separate differential piece rates. In an increasing order for workers reaching upto 70%, 100%, 120% of the output standards and above (Refer Fig. 2). Due to its complex design, this plan was not popular.

Time Rate Plan

1. Halsey Plan- The minimum wage is guaranteed. The extra bonus is paid on the basis of time saved. It is a 50-50 plan, 50% benefit of the saved time will be given to employee, where as rest 50% will go to management.

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Bedaux Plan (See Fig. 4)

It is a standard minute plan with guaranteed base wage, in which 1 minute is represented by 1 B. It includes working time as well as personal need time ( Rest Allowance). A worker, producing job of 60 B's in an hour, will achieve 100% efficiency. Bonus will be paid at the rate of 75% of B's above 60 B's in an hour. W=RT +75%(Ns-Nt) /60 x R Where, W=Wage earnings. R= Hourly rate, say Rs.8 T=Actual time taken, say 3 hrs. Ns=Standard B's set for the job, say 240 Nt=No. of B's earned, say 180 Now,W=8x3 + 75%(240-180) / 60 x 8 =24+6 =Rs.30. Here also, the hourly rate will be 30/3 = Rs.10

of the group will be worked out and the incentive amount will be distributed amongst the employees according to their skill / experience level. The scheme is suitable for employees working over a assembly lines, bridge building, house building and ship building etc.

Incentive Scheme for Indirect Employees

Indirect employees like general helpers, material movers, sweepers etc. can be paid incentive based on the over all performance of direct employees of group/ section to whom they are serving. Here the scheme may be 50% or 75% of increase in productivity.

Incentive Scheme for Managerial/ Supervisory Staff

This scheme is based on over all productivity of the plant. For the same output, reduction of employees or cut down of overtime will improve the productivity, last 2 to 3 years average level of productivity will form the base for comparing any particular month's productivity. Every 1% rise in productivity over base will entitle 1% of basic earnings of that employee as incentive.

Emerson's Efficiency Plan (See Fig. 4)

It is an improved version of Bedaux Plan, in which a worker starts earning at 67% of his efficiency level. The earnings are 0 to 20% above 67% and upto 100% efficiency level. Above 100% efficiency level, the worker will get 1% increase in incentive for every 1% rise in his efficiency. Efficiency= (Standard time for the job ) / (Actual time taken to complete the job)

Inference
Incentive schemes are powerful tools for the management to improve productivity of a plant. However these schemes are under severe criticism if hurriedly implemented without agreement of employees or their representatives. The schemes should be well designed and administered by experienced industrial engineers.

References
1. 2. Shanker, Ravi, 2000, Industrial Engineering and Management. Galgotia Publication. New Delhi. Ahuja, K.K, 1979, Industrial Management and Operation Research, Khanna Publishers. New Delhi. Khanna, O.P , 1992, Industrial Engineering and Management, Dhanpat Rai Publication. New Delhi.

Group Incentive Plan

This scheme is suitable, where performance of an individual employee is difficult to measure as he is working in a group to complete the job. The efficiency

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