INCENTIVE PLANS shiva

INCENTIVE PLANS

Incentive plan provides incentives to workers to produce more and are paid bonus or premium for additional work. This additional payment is called incentive wages. It offers an attraction of extra payment for efficiency or more production. The basic objective of any incentive plan is to increase the production by giving an inducement to workers in the form of higher wages.

KINDS OF INCENTIVE PLANS

INDIVIDUAL INCENTIVE PLANS

GROUP INCENTIVE PLAN

INDIVIDUAL INCENTIVE PLAN

Individual incentive plans may be either time based or production based. Under time based incentive plans, a standard time is determined for doing a job. under the production based incentive plans, a standard of output is determined on scientific basis, and payment of wages is made on the basis of number of units produced by a worker.

GROUP INCENTIVE PLANS

Where it is impossible to relate output to an individual employee’s effort it may be possible to relate it to the efforts of the work group. If in addition, cooperation is required to produce the desired output, then a group incentive plan may be the best alternative. A group incentive plan can reward things that are very different from what an individual plan rewards, in particular : cooperation, teamwork, and coordination of activities

Systems of wage payment

Time wage Piece wage

Wage incentive Plan

Individual incentive plan

Group incentive plan

Based on Time

Based on Productivity

i. Halsey Planii. Rowan Planiii. Emerson

Planiv. Bedeaux

Plan

i. Taylor Planii. Merrick Planiii. Gantt Plan

HALSEY PREMIUM PLAN

Under this plan, a minimum time wage is guaranteed to every worker. A standard time is fixed for the completion of a job. If a worker performs his job in less than the standard

time, he is given bonus. But there is no penalty for performing the job in more than the standard time fixed.

The slow worker is paid the time wages and the efficient worker is paid some bonus in addition to the time wages.

In Halsey plan, bonus is paid to a worker is equal to 50 per cent of time saved multiplied by rate per hour.

MERITS AND DEMERITS OF HALSEY PLAN

MERITS DEMERITS

1. It is simple to understand 1. workers do not secure full benefit of their efficiency but only to the extent of 50%

2 . Both the worker and the employer get the benefit of time saved

2. workers may do the work in hurry and the quality of production may suffer

3. It gives guarantee of minimum wage to every employee

3. There may be difficulties in setting standard standard time for various jobs

FORMULA

Total wages =T*R+50% of (S-T) *R

Where;

S =Standard time

T =Time taken by a worker

R = Rate of wages

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ROWAN PLAN

The Rowan plan is a modification of the Halsey plan. It also guarantees the minimum time wages and does not penalize a slow worker. A standard time is fixed for the completion of a job and bonus is paid to a worker on the basis of time saved. Here efficiency is measured as,

Efficiency = time saved/ standard time

MERITS AND DEMERITS OF ROWAN PLAN

MERITS DEMERITS

1. There is a guarantee of minimum wages to every worker

1. it is difficult to understand this plan by the workers

2. Both the employees and efficient workers are benefited by this plan

2. it is a complicated plan

FORMULA

Total wages =T*R+(T*R*Time saved/Standard time)

Where;

S = Standard time

T = Time taken by a worker

R = Rate of wages

EMERSON’S EFFICIENCT PLAN

In this plan, Emerson suggested guaranteed wage payment to all workers on time rate basis. In addition, bonus or extra payment was suggested to those who prove to be efficient. For determining efficiency, standard time for the job is determined. Efficiency is to be measured on the basis of comparison of actual performance with the standard fixed.

according to Emerson, bonus need not be paid to those workers whose efficiency is less than 66.67%.

MERITS AND DEMERITS

MERITS DEMERITS

1. It gives guarantee of minimum wages to all

1. bonus need not be paid to those workers whose efficiency is less than 66.67%

2. There is an incentive for efficient worker in the form of extra payment

2. it is not liked by below average workers

3. It is fair to all workers as the rate of bonus is related to efficiency

BEDEAUX PLAN

In this plan, the minute is the time unit described as the standard minute and accounted as Bedeaux point B. in determining the Bs, the time operations and the time of rest are taken in to account. The standard time for each job is fixed after understanding time and motion study and expressed in terms of B. the standard time for a job is the number of Bs allowed to complete it. The workers who are not able to or just able to complete the work within standard time are paid at the normal time rate. Those who are able to complete their work earlier are paid bonus.

generally, the bonus paid to the worker is 75% of the wages for time saved. The remaining 25%goes to the foreman.

MERITS AND DEMERITS

MERITS DEMERITS

1. minimum wages are guaranteed to workers

1.calculations under this plan is complicated and workers are not able to understand it.

2. since ¼ of the wages for times saved go to foreman, he is motivated to get higher productivity from the workers

2. workers do not like that foreman should share their bonus.

FORMULA

Total wages =S*R+75% of time saved

Where;

S = Standard time

T = actual time

R = Rate of wages

TAYLOR’S DIFFERENTIAL PIECE RATE SYSTEM

In this plan Taylor did not provide for minimum guarantee wage payment to each worker. Here he suggested two piece rates for the workers. The higher piece rate is suggested to those for those who are above average and inefficient worker will be paid at lower rate.

here, an efficient worker is paid 120% of the piece rate. An inefficient worker is paid only 80% of the piece rate.

MERITS AND DEMERITS

MERITS DEMERITS

1. It encourages workers to be efficient because there is no guarantee of minimum wage payment to workers.

1. there is no guarantee of minimum wage payment to workers

2. it helps in removing inefficient workers from the industrial unit

2. it treats workers not as human beings but as machines

3. it gives special reward to efficient worker and punishment to those who are inefficient

MERRICK’S MULTIPLE PIECE RATE PLAN

This plan offers three grade piece rates rather than two offered by the Taylors plan. The workers who produce less than 83% of standard output are paid at a basic piece rate. Those producing from 83% to 100% of the standard output are paid 110% of the basic piece rate. The workers producing more than 110%of standard output are paid 120% of basic piece rate. This system also does not guarantee minimum wages for the workers.

GANTT’S TASK AND BONUS WAGE PLAN

Unlike Taylor’s and Merrick’s plans, minimum time wage is guaranteed to every worker under Gantt’s task and bonus wage plan. A definite task representing first class performance is fixed as a standard after careful time and motion studies. if a worker achieves or excels it, he gets extra wages varying between 25% to 50% of the hourly rate for the time allowed for the task. But if a worker fails to complete the task within the standard time, he receives only the wages for actual time spent at the specified rate.