Incentives plans

Incentives paymentsIncentives payments

Incentives ProgrammeIncentives Programme

Wage incentives include all the plans that Wage incentives include all the plans that provide extra pay for extra performance In provide extra pay for extra performance In addition to regular wages for the job.addition to regular wages for the job.

It implies monetary inducements offered to It implies monetary inducements offered to employees to perform beyond acceptance employees to perform beyond acceptance standards.standards.

Different Types of Variable Pay Different Types of Variable Pay PlansPlans

Cash Profit Sharing Stock Ownership or Options

Balanced Scorecard

Productivity / Gain- Sharing

Team / Group Incentives

Short Term Pay-for-Performance Short Term Pay-for-Performance PlansPlans

Merit Pay Merit Pay

Lump-Sum BonusesLump-Sum Bonuses

Individual Spot AwardsIndividual Spot Awards

Individual IncentivesIndividual Incentives

Merit Pay Merit Pay

Lump-Sum BonusesLump-Sum Bonuses

Individual Spot AwardsIndividual Spot Awards


Long-Term Incentive PlansLong-Term Incentive Plans

Employee Stock Ownership Plans Employee Stock Ownership Plans (ESOPs)(ESOPs)

Performance Plans Performance Plans (Performance (Performance Share and Performance Unit)Share and Performance Unit)

Broad-Based Option Plans (BBOP)Broad-Based Option Plans (BBOP)


Under a system of individual incentives, all Under a system of individual incentives, all or a portion of an individual’s pay is tied to or a portion of an individual’s pay is tied to their performance.their performance.

Group IncentivesGroup Incentives

Improve Organizational PerformanceImprove Organizational Performance Organizational MeasuresOrganizational Measures Measured PeriodicallyMeasured Periodically

Team / Group Incentive PlansTeam / Group Incentive Plans

Gain-Sharing PlansGain-Sharing Plans

Profit Sharing PlansProfit Sharing Plans

Earnings-at-Risk PlansEarnings-at-Risk Plans

IndividualIndividual Incentive PlansIncentive PlansMethod of Rate Determination

Units of production per time period

Time period per unit of production

(1) (2)

(4)(3)

Straight piecework plan Standard hour plan

Bedeaux plan

Halsey 50 - 50 method

Rowan plan

Gantt plan

Taylor differential piece rate system

Merrick multiple piece rate system

Pay constant function of production level

Pay varies as function of production level

Relationship between production level and pay

Types of Incentives PlansTypes of Incentives PlansThe ILO classifies all the schemes of payment by results into four categories:

Earning vary inthe same proportionas output

Straight Piece WorkStandard Hour

Earnings vary less proportionatelythan output

Halsey PlanRowan PlanBarth SchemeBedaux Plan

Earnings vary ProportionatelyMore than outputs

High Piece RateHigh Standard Hour

Earnings differat different levelsof output

Taylor’s Differential Piece RateMerrick Differential Piece RateGantt Task SystemEmerson’s Efficiency plan

Halsey Plan Rowan PlanBarth PlanBedaux Plan

Time - Based

Output - Based

Taylor’s Differential Piece RateMerrick Differential Piece RateGantt Task SystemEmerson’s Efficiency plan

Halsey PlanStd Time= 10 HrsRate per hr= Re 1

Case 1 time taken= 10 Hrs Earnings = 10* 1Case 2 Time taken = 10 Hrs earnings = 12* 1Case 3 Time taken = 8 Hrs earnings = 8*1 Bonus = ½*2*1 = Rs 1.00 Rs 9.00

Rowan PlanStd Time= 10 Hrs

Rate per Hr= Re 1

Case 1 time taken= 10 Hrs

Earnings = 10* 1

Case 2 Time taken = 10 Hrs

earnings = 12* 1


earnings = 8*1

Bonus = 2/10*8 = Rs 1.60

Rs 9.60

Barth PlanStd Time= 10 Hrs

Rate per Hr= Re 1

Case 1 time taken= 10 Hrs

Earnings = 10 * 10

= 10*1= Rs 10.00


earnings = 12* 10

= 10.95*1 = 10.95


earnings = 8*10

= 8.94 * 1 = 8.94

Bedaux PlanStd Time= 10 HrsRate per Hr= Re 1Case 1 time taken= 12 Hrs Earnings = 12 * 1

= 12.00Case 2 Time taken = 8 Hrs earnings = 8*1

= 8.00Bonus:Bonus: Std Bs = 10*60 = 600Actual Bs = 8*60 = 480Bs saved = 120Bonus 75 * 120*1 = Rs 1.50 100 60Total earnings = 8+1.50 = Rs 9.50

Taylor’s Differential Piece-Rate Standard outputs: 100 UnitsRate per Unit: 10 paiseDifferential to be applied: 120% of piece-rate at or above the standards80% of piece-rate when below the standardsCase 1: Outputs = 120 units Earnings = 120* 120 * 0.10 = Rs 14.40

100Case 2: Outputs = 90 units

Earnings = 90* 80* 0.10 = Rs 7.20 100

Merrick Differential piece-rateStraight piece-rates less than 83% of the Std outputs110% of the base-piece rate for 83%-100% of the Std outputs120% of the base-piece rate for more than 100% of the Std outputsCase 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 unitsEfficiency = 90 *100 = 90%of

100Earnings: As the efficiency is 83% but less than 100%, 110% the base pie-rate applies:

90*110*0.10 = 9.90 100Case 3 Output = 110 unitsEfficiency = 110 *100 = 110%

100Earnings: As the efficiency exceeds 100%, 120% of the base piece-rate applies:

110*120*0.10 = 13.20 100

Gantt Task SystemRate per Hr =Re 0.50High piece-rate = Re 0.10Std Outputs = 80 unitsTime taken = 8 HrsStd Bonus = 20%

Case 1 Output = 70 unitsEarningsAs the output is less than the standard only time wages are paid to the worker

=8*0.50=Rs 4.00Case 2 Output =80 unitsEarningsAs the output is equal to the standard, the worker is entitled to time wage plus 20% bonusTime wages =8*0.50= Rs 4.00Bonus =20*4 = Re 0.80

100Total earnings = Rs 4.80Case 3 Output =110 unitsAs the output is more than th Std, the worker is entitled to a high piece rate10*0.10= Rs 11.00

Emerson’s PlanUp 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 PlansConditions for Effective Incentives Plans

Plan is clearly communicatedPlan is clearly communicated Plan is understoodPlan is understood Rewards are easy to calculateRewards are easy to calculate Employees participate in administering the planEmployees participate in administering the plan Employees believe they are being treated fairlyEmployees believe they are being treated fairly Employees believe they can trust the company Employees believe they can trust the company

and that they have securityand that they have security Rewards are awarded as soon as possible after the Rewards are awarded as soon as possible after the

desired performance.desired performance.

Business

Incentives plans