INCENTIVE PLANS

BY-
KHUSHBOO SINGH
ROLL NO- IM/2K6/32
 INCENTIVE

An incentive is a formal scheme which implies monetary

inducements offered to employees to perform beyond
acceptance.

According to National Commission on Labor “wage incentive

are extra financial motivation. They are designed to stimulate
human effort by rewarding over time rated remuneration for
improvements in the present or targeted result.
 TYPES OF INCENTIVE PLAN

1. INDIVIDUAL INCENTIVE PLAN

2. GROUP INCENTIVE PLANS

3. ORGANISATION INCENTIVE PLANS

 TYPES OF VARIABLE PAY

PROFIT AWARD EMPLOYEES A PERCENTAGE OF

SHARING COMPANY’S PROFIT

GAIN SHARES PRODUCTIVITY PROFITS

SHARING
INCENTIVE STOCK
OPTION
STOCK
NONQUALIFIED STOCK
OPTION
OPTION

BALANCE INCLUDES INFORMATION OF RECRUITMENT,

SCORECA TRAINING AND PERFORMANCE.
RD
 TYPES OF INCENTIVE PLANS
The ILO classifies all the schemes of payment by results into
four categories
Earning vary Earnings
Earnings vary Earnings vary
in differ
less Proportionatly
the same at different
proportionatly More than
proportion levels
than output outputs
as output of output

•Straight •Taylor’s
• Halsey Plan •High Piece
Piece Work Differential
• Rate
Rowan Plan
•Standard •Merrick plan
• •High
Hour Bedaux Plan Standard Hour
•Gantt plan
 INDIVIDUAL INCENTIVE PLANS
Methods of rate determination

UNITS OF PRODUCTION TIME PRODUCTION PER

PER TIME PERIOD UNTI TIME
1. STAIGHT PIECE WORK 1. STANDARD HOUR
PAY CONSTANT PLAN PLAN
FUNCTION OF
PRODUCTION LEVEL 2. BADEAUX PLAN

PAY VARIES AS 1. TAYLOR 1. HALSEY 50-50 PLAN

FUNCTION OF DIFFERENTIAL PIECE
PRODUCTION LEVEL RATE SYSTEM. 2. ROWAN PLAN

2. MERRICK MULTIPLE 3. GANTT PLAN

PIECE RATE SYSTEM
 PIECE RATE WORK PLAN
1. The output standarsd is being set for the job through time and
motion study.

Different ways to do the activity to attain the final

MOTION STUDY
production
•
TIME STUDY Average time alloted for completing each activity

2. Establish compensable factors:- The factors depending on which

the compensation is decided. These factors are:-

a. BASE PAY RATE:- The minimum amount to be paid.

b. OUTPUT:- bonus if meets the deadline on time or before time.

 C. FIXED OR VARIABLE INCENTIVE RATE:- It is the pay rate per unit produced
over the entire productivity schedule. The three variation on incentive rate
scales are:-

FIXED INCREASIN DECREASI

RATE G RATE NG RATE

 d. MAXIMUM PAY RATE:- Determines maximum output rate that could be

achieved by no more than 5% of the employees and piece rate is divided.

3. MONITOR THE PLANS:- The plan is being analyzed both quantitatively and
qualitatively.
 STRAIGHT PIECE WORK
In this plan, the financial incentive is
same for all the points on the individuals
production curve.

It is labor intensive.

Example:- In apparel industry, the wage is

payable on the basis of sewing every
product.
 TAYLOR DIFFERENTIAL PIECE
RATE PLAN
Provides two different piece rates for the same
work.

If the production is achieved above the standard

a higher rate of 20% the wage is given.

Example-
 if production is<100 unit/hr = Rs 8/unit.
If production is >100 unit/hr = 20% of 8+8

= Rs 9.64/unit
 MERRICK PLAN

It was proposed by D W Merrick. Three differential pay rate

stages:-

• Straight piece-rates less than 83% of the Std outputs.

•110% ofthe base-piece rate for 83%-100% of the Std outputs
•120% ofthe base-piece rate for more than 100% of the Std
outputs

 
 HALSEY PLAN
Rate per hour = Rs 15/hour
Time allowed for job = 20 hours
Time taken = 15 hours

Calculate the total earnings of the worker under the Halsey plan

S (standard time)= 20 hours

T(time taken)= 15 hours
R(rate) =Rs 15 per hour.
Total earnings = TXR+50%(S-T)XR
= 15X15+50/100(20-15)X15
= 225+2.5X15

Total wages for 15 hrs = 262.5

The effective rate of earnings = 262.5/15= Rs17.5
 ROWAN PLAN
Rate = Rs.80/hr
Std time = 6 hrs

EMPLOYEE A EMPLOYEE B
Time taken = 5.1 hrs ( 85% of Time taken = 4.2 hrs ( 70% of
std time)
std time)
So, 15% of sharing.
So, 30% of sharing
Now pay = 80x1.15
= 92 Now pay = 80x1.3
= 104
Actual pay = 92x5.1
= 460.1 Actual pay = 104x4.2
= 436.81
 BEDAUX PLAN

standard time = 20 hours ie 1200 Bs in terms of minutes(20x60)

time taken = 16 hours ie 960 Bs
saving = 240 Bs or 4 hours (4x60)
time rate = Rs 20/- per hour
total saving = Rs 80 ( 4x20)
the worker will get 75% of Rs 80
Time wages for 16 hours = 320
Bonus 75% of 4hrs wages (75% of 80) = 60

Total earnings = 380

 GANTT PLAN
Standardoutput per day = 1000 units
Guaranteed payment = Rs 500/= ie 50 Ps/unit

Worker A produces 850 units, so his performace is 85%-he will get Rs 500/- the
guaranteed wages.

WorkerB’s level of performance is 1000 units. So he will get Rs 500 plus 20% bonus
pertaining to standard time ie 20% of 500 ie Rs 100. so Rs 600

Worker C ‘s output is 1100 units, so his level of performance is 110% and therefore
he
will get 20% piece wages as bonus

Piece wages for 1100 units @ 50 paise = Rs 550

20% bonus of rs. 500 = rs 110
Total = Rs 660
 GROUP INCENTIVE PLAN

1. SMALL GROUP INCENTIVE PLAN:- Effective when

there is a great degree of interdependence
Ex:- construction of the building

2 PLANTWIDE GROUP INCENTIVE PLAN :-

Organization sharing of profit
Ex:- union carbide gives bonus to employees
based on return of capital
 SCANLON PLAN
Sales value of product = $2000000
Std labor cost = $500000
Labor ratio = 25% ($500000/$2000000)
Current labor cost = $400000
Actual saving done to increase the efficiency =
&100000 ($500000-$400000)
Reserve for deficit = $100000- 25% of $1000000

= $75000
Management share= 25% of 750000
Labor share = 75% of 750000
 RUKER PLAN
It is same as Scanlon plan but the only difference is in the
distribution pattern of the bonus.

Suppose saving = $100000

So, contribution in reserve fund = 40%
Distributed among employees monthly = 60%

If the reserve fund is saved at the end of the year, it is being

distributed among the employees and the employer.
THANK YOU