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Lesson 13

Lesson 13

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Published by arsha

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Categories:Types, Business/Law
Published by: arsha on Oct 13, 2010
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LESSON
13
INCENTIVES AND EMPLOYEE BENEFITS
CONTENTS
13.0Aims and Objectives13.1Introduction13.2Determinants of Incentives13.3Types of Rewards13.3.1Individual Incentives13.3.2Group or Team based Incentive Plans13.3.3Organisation wide Incentive Plans13.4Wage Incentive Schemes in India13.5Guidelines for Effective Incentive Plans13.6Employee Benefits and Services13.6.1Factors Influencing Benefits and Services13.6.2Objectives of Fringe Benefits13.6.3Employee Security13.6.4Safety and Health13.6.5Health Benefits13.6.6Old Age and Retirement Benefits13.7Safety Engineering13.8Let us Sum up13.9Lesson End Activity13.10Keywords13.11Questions for Discussion13.12Suggested Readings
13.0AIMS AND OBJECTIVES
The lesson highlights the various incentive plans that are currently used in the corporateworld–to motivate direct and indirect employees working at various levels. After studyingthis lesson, you should be able to:
Describe the features of an ideal system of wage payment
List the various methods of wage payment
 
228Personnel Management Concepts
State the incentive schemes available for indirect workers
Understand the need for fringe benefits
Outline the various types of fringe benefits
13.1INTRODUCTION
Wage payment is a matter of great importance to workers. It determines their standardof living, their attitude towards the company and influences their motivation to work. It isan important issue from the employer’s point of view as well, as their profit is affectedby the total wage bill. Remuneration to labour, thus, is a complex problem and is often thebone of contention between workers and employers. Employers want to keep down thewage rates and employees want to see their wages rise continually. To strike a balancebetween the two, it is necessary to select the system of wage payment carefully. Anideal system of wage payment should have the following features.1.
Simple:
The system of wage payment should be simple and easily intelligible to theworker. Above all, it must be perceived by employees as equitable.2.
 Beneficial:
The allocation of gains should be judiciously made among labour andmanagement on some equitable basis.3.
 Equitable:
Each worker should be paid fairly, in line with his effort, abilities andtraining.4.
Guaranteed minimum wage:
The system should guarantee a minimum wage (tomeet bare necessities and comforts of life) to every worker. Pay should be enoughto help an employee cover his basic needs.5.
 Balanced:
Pay, benefits and other rewards should offer a reasonable totalcompensation package.6.
 Incentive-oriented:
The wage system should be such that the workers may feelencouraged to produce more and earn more wages.7.
Quality output:
The system must encourage the worker not only to increase thequantum of output but also improve the quality of output.8.
Certainty:
Wages should be paid in cash on a convenient date, time and placeduring working hours. The system should not have any element of uncertainty.9.
Cost-effective:
Pay should not be excessive, considering what an organisation canafford to pay10.
 Flexible:
The system should be flexible to allow necessary changes, which mayarise from time to time.
13.2DETERMINANTS OF INCENTIVES
The effective use of incentives depends on three variables-the individual, work situation,and incentive plan.Different people value things differently. Enlightened managers realize that all people donot attach the same value to monetary incentives, bonuses, prizes or trips. Employeesview these things differently because of age, marital status, economic need and futureobjectives. However, even though employee reaction to incentives vary greatly, incentivesmust have some redeeming merits. For example, there might be a number of monetaryand nonmonetary incentive programmes to motivate employees. Money, gift certificates,praises, or merit pay are of the continuous parade of promotion.
 
229Incentives andEmployee Benefits
If speed of equipment operation can be varied, it can establish range of the incentive.Workers' job may incorporate a number of activities that he finds satisfying. Incentivesmay take the form of earned time-off, greater flexibility in hours worked, extendedvacation time and other privileges that an individual values.A worker needs to be able to see the connection between his work and rewards. Theseresponses provide important reinforcement. Worker considers fairness or reasonablenessas part of the exchange (or his work, incentives, in general, are important motivators.Their effectiveness depends upon three factors: drives, preference value, and satisfyingvalue of the goal objects.Beyond subsistence level, becoming needs (self-actualization needs) possess greaterpreference value and are more satisfying than deficiency needs (which are necessaryfor survival). Below the subsistence level, however, the reverse holds true." He makesthe following generalizations:i.Incentives, whether they are monetary or non-monetary, tend to increase the levelof motivation in a person.ii.Financial incentives relate more effectively with basic motivation or deficiencyneeds.iii.Non-financial incentives are linked more closely with higher motivation, or becomingneeds.iv.The higher the position of a person in an organization's hierarchy, the greater is hisvulnerability to non-financial incentives."While budgetary restrictions and' temporary improvements in performance place a limiton the potency of money as a motivator, non-financial incentives involve only humaningenuity as investment and also insure a relatively stable acceleration in output. Monetaryincentive imply' external motivation, non-monetary incentives involve internal motivation.Both are important. It is a judicious mix-up of the two that tends to cement incentiveswith motivation. "Subjectivity can be useful in mitigating various problems faced in assigning rewardsthrough formulas based on quantitative performance measures. The use of subjectivityallows evaluators to exploit any additional relevant information that arises during themeasurement period to the benefit of both the firm and the employee. The firm canbenefit through improved incentive alignment and the employee can benefit throughreduced risk.Effective performance measures provide accurate, informative, and timely indicationsof the individual's contributions to firm value (or other organizational goals). Whenquantitative performance measures are effective, formula incentives are likely to beused intensively. However, quantitative performance measures often distort incentives(e.g., because they are incomplete or prone to manipulation) or impose undue risk on theemployee (e.g., because they include uncontrollables). Thus, mitigating distortions toimprove incentive alignment, and filtering out uncontrollables to reduce risk, allow forstronger incentives.Performance measures, especially accounting numbers, can distort incentives becausethey inadequately account for (or ignore entirely) some dimensions of the employee's job. Most jobs involve multiple types of employee efforts and decisions. Ideally,compensation contracts should use all possible information about employees' effects onfirm value, weighted properly, so that incentives are appropriately balanced across differentdimensions of the job.

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