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Incentives payments

Incentives Programme

Wage incentives include all the plans that


provide extra pay for extra performance In
addition to regular wages for the job.

It implies monetary inducements offered to


employees to perform beyond acceptance
standards.

Different Types of Variable Pay


Plans
Cash Profit Sharing

Stock Ownership or
Options

Balanced Scorecard

Team / Group
Incentives

Productivity / GainSharing

Short Term Pay-for-Performance


Plans

Merit Pay

Lump-Sum Bonuses

Individual Spot Awards

Individual Incentives

Long-Term Incentive Plans


Employee Stock Ownership Plans
(ESOPs)

Performance Plans (Performance

Share and Performance Unit)

Broad-Based Option Plans (BBOP)

Individual Incentives

Under a system of individual incentives, all


or a portion of an individuals pay is tied to
their performance.

Group Incentives

Improve Organizational Performance


Organizational Measures
Measured Periodically

Team / Group Incentive Plans

Gain-Sharing Plans

Profit Sharing Plans

Earnings-at-Risk Plans

Individual Incentive Plans


Method of Rate Determination
Units of production per
time period

Time period per unit of


production

(1)
Pay constant function of
production level
Relationship
between
production level
and pay
Pay varies as function of
production level

Straight piecework plan

(2)
Standard hour plan
Bedeaux plan

(3)
Taylor differential piece
rate system
Merrick multiple piece
rate system

(4)
Halsey 50 - 50 method
Rowan plan
Gantt plan

Types of Incentives Plans


The ILO classifies all the schemes of payment by results into
four categories:
Earning vary in
the same proportion
as output

Straight Piece Work


Standard Hour

Earnings vary
Earnings vary
Proportionately
less
proportionately More than outputs
than output

Earnings differ
at different levels
of output

Taylors Differential
High Piece Rate
High Standard Hour Piece Rate
Merrick Differential
Halsey Plan
Piece Rate
Rowan Plan
Gantt Task System
Barth Scheme
Emersons Efficiency
Bedaux Plan
plan

Halsey Plan
Rowan Plan
Barth Plan
Bedaux Plan

Time - Based

Taylors Differential Piece Rate


Merrick Differential Piece Rate
Gantt Task System
Emersons Efficiency plan

Output - Based

Halsey Plan
This plan was first designed by
Halsey in 1890. Under this plan,
a standard time is fixed for
completing a work in advance. A
person taking standard or more
time is paid for the time taken by
him. A worker completing his
task in less than the standard time
is paid for some of the time
saved. The payments for time
saved vary from 33 1/3% to 66
2/3 % but generally wages for
one half of time saved is paid.

Rowan Plan
This system is similar to that of Halsey plan. A worker is
guaranteed minimum wages for time spent on the job. He gets
bonus for completing the job in less than the standard time. The
only difference between Halsey and Rowan plans is the method of
calculating bonus is that proportion of the wages of the time taken
which he saved bears to the standard time allowed. Wages are
calculated by the following relations:
W = T x R + (S T / S) x T x R
Example 2.
Standard Time : 32 Hours

Solution.

Actual Time taken : 26 Hours

26 x 4 + (32 26 / 32) x 26 x 4= 104 + 6 /


32 x 26 x 4

Hourly Rate : Rs. 4

= 104 + 19.50 = Rs. 123.50

Barth Plan
Under this plan, wages are not guaranteed. This system is
suitable to beginners and learners. The earning is
computed by multiplying the rate per hour by the
geometric mean of standard hours and actual hours
worked.

Bedaux
Plan
It is a combination of time and bonus
scheme. Standard time for a job is
determined by time study. Standard
production per hour is determined and the
unit of measurement is minute. An hour is
taken as sixty minutes. Each minute of
standard time or allowed time is called a
point Bedaux point.

Std Time= 10 Hrs


Rate per Hr= Re 1
Case 1 time taken= 12 Hrs
Earnings = 12 * 1
= 12.00
Case 2 Time taken = 8 Hrs
earnings = 8*1
= 8.00
The number of points is being determined in Bonus:
respect of each job. If actual time is more
Std Bs
= 10*60 = 600
= 8*60 = 480
than the standard time, the worker is paid on Actual Bs
Bs saved
= 120
hourly basis.
Bonus
75 * 120*1 = Rs 1.50
Excess production is counted in points, for
100 60
Total earnings = 8+1.50
which a bonus of 75% is allowed to the
= Rs 9.50
worker and remaining 25% goes to the
employer. Thus hourly rate plus 75% of the
points saved, multiplied by one-sixtieth of
hourly rate is the earnings of a worker.

Taylors Differential Piece-Rate


Standard outputs: 100 Units
Rate per Unit:
10 paise
Differential to be applied:
120% of piece-rate at or above the standards
80% of piece-rate when below the standards
Case 1: Outputs = 120 units
Earnings = 120* 120 * 0.10 = Rs 14.40
100
Case 2: Outputs = 90 units
Earnings = 90* 80* 0.10 = Rs 7.20
100

Merrick Differential piece-rate


Straight piece-rates less than 83% of the Std outputs
110% of the base-piece rate for 83%-100% of the Std outputs
120% of the base-piece rate for more than 100% of the Std outputs
Case 1 Output = 80 units
Efficiency = 80 *100 = 80%
100
Earnings: As the efficiency is less than 83%, only the base pie-rate applies:
80*0.10 = 8.00
Case 2 Output = 90 units
Efficiency
= 90 *100 = 90%of
100
Earnings: As the efficiency is 83% but less than 100%, 110% the base pie-rate applies:
90*110*0.10 = 9.90
100
Case 3 Output = 110 units
Efficiency
= 110 *100 = 110%
100
Earnings: As the efficiency exceeds 100%, 120% of the base piece-rate applies:
110*120*0.10 = 13.20

Rate per Hr
High piece-rate
Std Outputs
Time taken
Std Bonus

=Re 0.50
= Re 0.10
= 80 units
= 8 Hrs
= 20%

Gantt Task System

Case 1 Output
= 70 units
Earnings
As the output is less than the standard only time wages are paid to the worker
=8*0.50=Rs 4.00
Case 2 Output
=80 units
Earnings
As the output is equal to the standard, the worker is entitled to time wage plus
20% bonus
Time wages
=8*0.50= Rs 4.00
Bonus
=20*4 = Re 0.80
100
Total earnings
= Rs 4.80
Case 3 Output
=110 units
As the output is more than th Std, the worker is entitled to a high piece rate
10*0.10= Rs 11.00

Emersons Plan
Up to 67% of efficiency, the workr is determined by dividing the time taken by the Std
Time-rate
Up to 100% efficiency, 20% bonus is paid to workers
An additional bonus of Rs 1% is added for each additional 1% eficiency
Case 1 Output in 10 Hrs: 50 units
Efficiency: 50%( below 67%, the worker is eligible for 50% of the time wae as bonus)
Case 2 Output in 10 Hrs : 100 units
Efficiency : 100% (time-wage + 20% bonus)
Case 3 : Output in 10 Hrs : 130 units
Efficiency : 130%
At the rate of 20% at 100% efficiency and 1% increase for every 1% increase in
Efficiency, the worker is eligible for 50% of the time wage as bonus:
Time wag =10*1

Rs 10.00

Bonus

=50*10.00 Rs 5.00
100
Rs 15.00

Conditions for Effective Incentives Plans

Plan is clearly communicated


Plan is understood
Rewards are easy to calculate
Employees participate in administering the plan
Employees believe they are being treated fairly
Employees believe they can trust the company
and that they have security
Rewards are awarded as soon as possible after the
desired performance.

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