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Published by: Richi Bansal on Mar 20, 2013
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Types of Wage Incentive Plans

Wage incentive plans may be classified into two broad categories as follows:
1. 2. Individual incentive plans, and Group incentive plans.

Individual Incentive Plans Under individual incentive plans, earnings are related directly to the performance of the individual worker. In case of group incentive schemes, earnings of a group are related to the performance of the group as a whole. Individual incentives may be based on time or output. Under time based plans, a standard time is determined and bonus is given if a worker completes the job in less than standard time. Under output based plans, a standard of output is determined and workers producing more than the standard output are given bonus. Various types of individual incentive plans are given in following diagrams:

1. Individual Incentives Time Based 1. Halsey or Weir Plan This plan was developed by F.A. Halsey and was first introduced in the Weir Engineering Works, England. Under this plan, a standard time is fixed on the basis of past performance records. A worker who completes his job within or more than the standard time is paid a guaranteed time wage. A bonus (usually 50 per cent) of the time saved is paid to a worker who completes his job in less than the standard time. The bonus is calculated o the basis of time rate.

Standards based on past performance may not be scientific and fair. This provides a check against over-speeding and deterioration in quality. . Workers get only half of the benefit of their efficiency. The efficient workers get bonus at a diminishing rate if they save more than 50% of the standard time. Wastage and spoilage may also increase. Efficient workers are discouraged to save more than half of the standard time. Demerits o o The plan is difficult to understand for an average worker. A worker can easily calculate his earnings. Both the employer and the workers share the benefits of time saved. Demerits On the whole. the Halsey plan is useful during the transitionary period when a well-conceived plan based on scientific standards is being introduced. It was developed by James Rowan of England.Merits o o o o o o o o The plan is simple to understand. The plan encourages the workers to be efficient because bonus is based on time saved. Rowan Plan This is a modified form of Halsey Plan. Much clerical work is involved because records of time saved and bonus earned have to be kept for each worker. The bonus is that proportion of the wages which the time saved bears to the standard time. Ex: Let us use the data given under the Halsey Plan Merits o o o The guarantee of minimum wage gives a feeling of security. Both the employee: and the workers get equal benefit of time saved. A guaranteed minimum wage to every worker provides a sense of security. In some textile mills this plan is used while an employee is learning the job. If the workers rush through the job to save more time. the quality of production may suffer. 2. a minimum time wage4 is guaranteed to every worker. Under it. A standard time is determine in advance.

Ex: Standard Time (S) = 10 hrs. standard time for the job is determined scientifically and a minimum time wage is guaranteed to all wo4rkers. There is little incentive after 100 per cent efficiency level. Bedeaux Point Plan This plan was developed by Charles E. Efficiency is measured by comparing the actual time taken with the standard time. For instance. 20 per hr. standard time for the job is set scientifically and it is expressed in terms of B. Bedeaux in 1911.67 per cent). It encourages healthy competition among workers. the time of operation and the rest time both are taken into account.67 per cent efficiency which is within the reach of many workers. Under it. (R) = Rs. Under this plan. Demerits 4. = 10 % upto 75% efficiency = 20% for 75% -100% = 30% beyond 100% Total Wages = (T× R ) + (Percentage of bonus × T × R) Merits o o o o o o Guaranteed time wage provides a sense of security to all workers. Bonus begins at 66. Time Taken Time Wage Bonus (T) = 8 hrs.3. Emerson Efficiency Plan This plan was developed by Harrington Emerson. Employer may fix the standard time at a low level making it impossible for most of the worker s to earn bonus. a standard time of 240 B means the job should be completed within 240 minutes. Bonus is given at an increasing percentage beyond the prescribed level of efficiency (usually 66. minimum time . The plan is not very flexible or selective. In determining the Bs.

wage is guaranteed to all workers. Those who complete the job in less than the standard time are paid bonus for the time saved. Two piece rates are laid down. Taylor’s Differential Piece Rate Plan F. Three workers A. B and C produce 40. Their total wags will be as follows: Worker A : 40 × Rs. The objective is to provide sufficient incentive to workers to work hard and achieve the standard. 120 Worker B : 50 × Rs. 4. The lower rate for those workers who fail to complete the standard task within the allotted time and the hither rate for those who completer the task within or less than the allotted time.00 Worker C : 60 × Rs. 240 In this way. Inefficient workers are penalized but encouraged to reach the standard. All the jobs can be reduced to standard units called Bs. Workers may resent sharing the bonus with foreman.00 per unit. 4. The foreman is motivated to increase productivity as one fourth of the value of time saved is paid to him.000 = Rs. 3.W. The workers who complete the job within or more than the standard time are paid at the normal time rate. Efficiency of different section/workers in the factory can be compared. Taylor. Use of time and motion study help to improve and standardize work methods. 75% of the wages for the time saved are paid as bonus to the worker and 25% of the foreman: Total Wages = S × R + 75% of R ( S – T) Merits o o o o o o o Minimum wages are guaranteed to all workers. Workers have not to share the reward with the foreman. Ex.00 = Rs.Suppose the standard output is 50 units per day. Calculations involved are complicated and workers may not be able to understand them. Under this system. the Father of Scientific Management devised this plan. This plan is suitable in factories wherein a worker is expected to perform different types of jobs.00 and Rs. The piece rates fixed are Rs. Much clerical work is involved. Demerits Output Based 1. Generally. standard task is established through time and motion study. Merits o o o o it provides sufficient incentives to efficient workers to put forth their best efforts. 50 and 60 units respectively during a day. 4. . an inefficient worker is penalized as he gets a lower rate per unit. 200 = Rs. 3.

On the other hand. 200 (Rs. This is so because several workers are required to jointly perform a single operation. Wage increase progressively with increase in efficiency. Workers’ producing less than 83% of the standard output are paid at a basic piece rate. Inefficient workers are not penalized severally.9% of the standard output are classified as substandard and are paid at the same piece rate. Gantt’s Task and Bonus Plan This plan was developed by Henry L.g. Merrick’s Multiple Piece Rate Plan This plan was developed to overcome a drawback in Taylor’s plan. will be paid Rs. Taylor.Demerits o o o o There is no guarantee of minimum wage to workers.. In such cases it is desirable to introduce a group incentive scheme. 2. Workers who achieve or exceed the standard get extra bonus varying between 20% to 50% of the hourly rate for the time allowed for the task. Under such a scheme. Demerits 3. Gantt. 160 + 25% of Rs. Group Incentive Plans In all the incentive wage plans given above. The plan is harsh to workers who are just below the standard. Workers producing more than the standard output are paid at 120% of the basic piece rate. there is sufficient incentive for efficient workers. who completes the task in 10 hours. The skilled and experienced workers are motivated to help and train inexperienced and new members. Merits o o o o o o This plan reduces the severity of the Taylor’s plan. three graded piece rates are prescribed. Those producing from 83% to 100% of the standard output are paid 110% of the basic piece rate. o o o o Individual members of the group who occupy jobs requiring special care and attention have not to bear the whole loss of slow speed. The employer may fix a very high standard which workers may find difficult to achieve. 160). Group incentive plans earned by each. standard time for every task is fixed through time and motion study.W. Minimum time wage is guaranteed to all workers. It is liberal for the efficient workers. e. a close associate of F. . It is less harsh to beginners or learners. the worker who completes the task in 6 hours will receive Rs. the bonus is calculated for a group of workers and the total amount is distributed among the group members in preparation to the wages earned by each. 20) only. incentive is linked to individual performance. It is more flexible. Minimum wage is not guaranteed to workers. It is useful where the performance level is to be increased to 100 per cent. A worker. Merits o o o Minimum wage is assured to all workers. It treats the workers as machines rather than as human beings. assembly line industries it is not possible to determine the performance of an individual worker. But all workers producing from 1% to 82. This drawback relates to an abrupt chang e I piece rate. 160 (8 × Rs. Therefore. A worker who fails to complete the task within the standard time receives wage for actual time spent at the specified rate. 20 per hour and the rate of bonus is 25 per cent. But in some cases. Under it. Ex: Suppose the standard time fixed for the job is 8 hours and the time rate is Rs. Charges of favoritism in the assignment of ‘though’ and ‘easy’ jobs are not likely to occur. Under it. All these factors create teamwork and cooperative sprit in the group.

. There are three main types of group incentive plans. a committee of workers and management sets the standards of performance. Under this plan. The first one is the Priestman Bonus Plan. Group incentive plans. however. suffer from the following disadvantages: o o o An efficient worker may be penalized for the inefficiency of some inefficient members of the group. The group gets bonus when actual output exceeds the standard. Rivalry among the members of the group may defeat the very purpose of team work and cooperation. Under this plan half of the savings in labour cost as a result of output in excess of the standard is distributed among workers and the foreman. Towne’s gain-sharing plan is another system of group incentive. The plan is easy and promotes teamspirit among employees. A minimum wage is guaranteed to each worker. But it makes no distinction between efficient and inefficient workers.o Need for supervision and control is reduced. The foreman gets a certain percentages as fixed in advance. It is a plant-wide scheme designed to involve workers in making suggestions for reducing the cost of operations and improving work methods by showing the gains of increased productivity. The incentive for an individual worker may not be strong enough to motivate. The group supervisor also gets a share in the group bonus. The bonus is paid half yearly. The third type of group incentive plan is known as the Scanlon Plan.

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