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A. Individual Incentives 1. Taylor’s Differential Piece Rate System 2. Merrick’s Differential Piece Rate System 3. Gantt Task and Bonus Plan B. Time based Plans 1. Halsey Plan 2. Rowan Plan 3. Emerson’s Plan 4. Bedeaux Plan C. Group-based Incentive Plans 1. Priestman’s Production Bonus 2. Co-Partnership 3. Scanlon Plan 4. Profit Sharing 5. Employee Stock Option Plan
its incidence per unit cost is reduced because of increased production. Under this system. The low rate is for sub – standard performance and high rate for standard and above standard performance. A standard time for job is established. It does not guarantee the minimum day wages and this insecurity affects the morale of workers.A. whereas if he takes longer time he receives the lower piece rate. DISADVANTAGES It penalizes very severely the slow or inefficient workers as a slight fall in production will considerably affect their warnings. he receives the higher piece rate. Labour cost will differ between the two levels of performance because of two different rates. It helps the employer in increasing production by offering higher rates to more efficient workers. If the worker does the work with the standard time. It attracts efficient workers. ADVANTAGES Taylor’s plan is easy to understand and operate. . It makes wide discrimination between efficient and inefficient workers and thus creates rivalry and disturbance among workers.Taylor as a part of the scheme of scientific management. Two piece rates are fixed.W. 83% for inefficient workers and 175% for efficient workers. Where the overheads are high. The main features of the scheme are: Day wages are not guaranteed. TAYLOR’S DIFFERENTIAL PIECE RATE SYSTEM Taylor’s differential system was devised by F. INDIVIDUAL INCENTIVES 1. the standard task is established after careful time and motion study and two piece rates are set.
2. Its specialty is that it combines time rate. he is paid a higher piece rate. he will be paid time rate plus a bonus at a fixed percentage (20%) of normal time rate. It is not easy to understand. are ignored and they receive only minimum wage. 3. The features of this scheme are as follows: Up to 83% of the standard output. and workers producing below the standard output are not penalised by the low piece rate. instead of two. this method also does not guarantee minimum wages. MERRICK’S DIFFERENTIAL PIECE RATE SYSTEM This is a modification of the Taylor’s Differential piece rate system and uses three wage rates. It provides enough opportunities for efficient workers to earn more. then there is a hike in wage-rate. at 120% of the ordinary piece rate. GANTT TASK AND BONUS WAGE PLAN Minimum wage is given to anybody. thus not ignoring the efforts put in. 3. Like Taylor’s plan. A worker who is unable to produce the standard output receives only the time wage. workers are paid at the ordinary piece rate. In this plan minimum wage is guaranteed.2. Above 100%. piece rate and bonus. Thus if a worker attains the standard output. Thus it’s a three in one scheme. The general criticism levelled against Taylor’s plan also applies to it except that it lessens the punitive character of Taylor’s plan. It satisfies the in-efficient worker by providing him time rate wages. The rate of bonus varies as mentioned above. If the worker exceeds the standard. If the job is completed in less time. This hike varies between 20% to 50% of the standard rate. It has time wage. It guarantees daily minimum wage. 83% to 100% of the standard outputs. workers are paid at the ordinary piece rate. Demerits: 1. Merits: 1. 4. 2. piece rate and bonus. He becomes eligible for bonus only when he attains or exceeds the standard output within the standard time. The fluctuations in the output levels of different workers not attaining the standard. who completes the job in standard time. .
Under this plan. It is more liberal than the Halsey plan in that it provides incentive to work and earn extra remuneration. Time saved = Standard time – Time taken 2. Calculation of bonus and total earnings is done by the following formula: Bonus = 50% (Time saved * Rate per hour) Total earnings = (Time taken * Rate per hour) + 50% (Time saved * rate per hour) Where. it takes into account a proportion as follows: Time Saved Time Allowed Thus. it is a simple combination of time and piece methods of wage payment. 2. HALSEY PLAN Introduced by F. But if a worker completes the job in full standard time or more than the standard time. TIME BASED PLANS 1. an automatic check for limiting production of inferior quality of goods is ensured. amount of bonus depends upon the time saved by the worker.A. As the increase in effort is much less rewarded after a certain stage. he gets wage for the time worked plus a bonus equal to 50% of the value of the time saved. he gets wages at the time rate. ROWAN PLAN This plan was introduced by D. A standard time is fixed for each job and if a worker completes the job in less than the standard time. under this plan Bonus is that proportion of the wages of time taken which the time saved bears to the time allowed or standard time. It assures minimum time wages. But unlike a fixed percentage in the case of Halsey Plan. Rowan in 1901. × Time Taken × Hourly Rate . Halsey. Bonus = Time Saved Time Allowed (Standard Time) Total Earnings = Time Taken × Hourly Rate + Bonus MERITS 1. Thus wages according to time basis are guaranteed. As before. the bonus is paid on the basis of time saved.B.
DEMERITS 1. . 2.. he is entitled to get some bonus. The ordinary worker may find the bonus calculation a bit difficult. For efficiency beyond 100% additional 1% bonus is payable for each 1% increase in efficiency. EMERSON’S EFFICIENCY PLAN In this plan bonus becomes payable only when efficiency touches 66 2/3 rd% of the standard laid down. 3. Like Halsey Plan. If a worker takes 10 hrs to complete a job for which standard time fixed is 66 2/3rd% hrs. this plan does not encourage extraordinary efficiency. The plan is very beneficial to the workers as they are guaranteed wages for the actual time and are entitled to get bonus even if they reach 66 2/3 rd% efficiency. time wage and no bonus At 66. This plan provides sliding scale of bonuses.100% further incentive is very mild. the bonus is 20% at the hourly rate.66% only. as he is not paying extraordinary wages.3.66% efficiency: time wage +1%of day wage At 90% efficiency: time wage +10%of day wage At 100% efficiency: time wage +20%of day wage MERITS Easy to understand It is suitable for beginners Gives incentives for skilled and efficient work Can be applied to both individuals as well as group of workers Calculations are logical as we have fair basis for incentive to produce more DEMERITS It is unsuited for ambitious workers. Once you reach the standard i. For efficiency below 66. earnings begin decreasing.e. This automatic check enables the worker to earn a fair wage. For example. because there is less chance of rate-cutting by the employer. The amount of bonus payable increases progressively with increase in efficiency in such a manner that at 100% efficiency. if the time saved is more than half the total.
135 . a minimum base-wage is guaranteed.20 per hour As Bs earned by worker is less than standard Bs to complete the job. Standard time for a job is determined by time study. Each minute of standard time or allowed time is called a Bedaux point (B). The wage payment scheme is as follows: (i) When actual Bs earned by worker (Bw) > Bs for standard time Wage = RS + [B(W) .4. The number of points is being determined in respect of each job. An hour is taken as sixty minutes. If actual time is more than the standard time. Thus hourly rate plus 75% of the points saved. Standard production per hour is determined and the unit of measurement is minute.B(s)] * 0. Excess production is counted in points.75 * 20 = Rs. BEDEAUX INCENTIVE SCHEME It is a combination of time and bonus scheme. for which a bonus of 75% is allowed to the worker and remaining 25% goes to the employer. In this plan also.75R/60 (ii) When Bs caused by worker (Bw) < Bs for standard time Wage = RS Example Standard time (including rest allowance) = 60 hour + 360 Bs Actual time (including rest) = 5 hour = 300 Bs Wage rate = Rs. multiplied by one-sixtieth of hourly rate is the earnings of a worker. Wages = 20 × 6 * 0. the worker is paid on hourly basis.
they can be account for better performance. where there is mass production of standard articles with continuous flow of work. improves employee morale and teamwork. The calculation of bonus under this scheme requires more clerical work. becomes entitled to bonus. On the basis of the ratio of excess performance to standard performance. C. Thus. bonus is paid according to this scheme. easy to understand. Rest 25% may be given to his supervisor. The workers as a whole. if by producing output above the standard output . 75% of the compensation is given to worker. time wage is guaranteed under this scheme. there might be unhealthy competition among employees. Bedeaux point may be added up for a worker even if his job requires different assignments in a day. or by securing points more than the standard points.ADVANTAGES Minimum base wage is guaranteed For time saved as compared to standard time. Obviously. ADVANTAGES Simple. this scheme can be extended to the entire factory. DISADVANTAGES As the bonus is paid based on performance. PRIESTMAN’S PRODUCTION BONUS SCHEME A standard performance in terms of output or point is fixed by this scheme. DISADVANTAGES It tempts the workers to sacrifice for output and might Result in a higher wastage. GROUP BASED INCENTIVE PLANS 1. .
operational measures (like quality) Combinations of financial measures and operational measures and no bonus at all. Joe felt that profit sharing as a way to create a bonus was fine as long as everyone understood "profits. Financial incentives under the Scanlon Plan are ordinarily offered to all employees including managers and sometimes executives. The philosophy of the plan is to promote group co-operation and solving of organizational problems. Today Scanlon Plans have been created that use only financial measures (like profits). SCANLON PLAN DEFINITION: “Cost saving productivity-incentive plan in which any saving (computed per unit of output) compared with an agreed upon standard labor cost is shared equally between the workers and the firm." He concluded that most don't understand how profits are calculated. Both the employee’s and the company receive fair shares. financial literacy. engagement. ADVANTAGES: Scanlon Plans increase job satisfaction. quality. One of the few articles written by Joe Scanlon is about profit sharing. DISADVANTAGES: . Decreased sick leave usage and reductions in work backlogs and overtime costs. financial performance. total workforce education. In several small Scanlon organizations the bonus was even offered to key suppliers. as well as periodic progress reporting and an incentive formula. The Scanlon plan is a gain sharing program in which employees share in preestablished cost savings.2.” The Scanlon plan has been successfully used by a variety of public and private companies for many decades. based upon employee effort. Joe believed that is was very important that employees understand how the bonus is calculated and this method was easy for employees to understand. These plans combine leadership. CALCULATION OF SCANLON PLAN BONUS: Historically. Cooperation and involvement start in the creation of the plan with a Design Team and continue once the Plan is implemented with Production and Screening Teams. Installation process takes time to implement Once a plan is installed it requires time and energy to maintain. Formal employee participation is necessary with the Scanlon Plan. and on time delivery. and widespread employee participation with a reward system linked to group and/or organization performance. the Scanlon plan bonus was calculated on the historical ratio of labor cost to sales value of production.
They cannot ascertain the profits of the organization. Employees generally do not get access to accounts of the organization.partnership applies to all employees irrespective of efficiency. Share of the profit that a company makes may be given in cash or in the form of shares to an employee. Requires a great deal of training and development of employees.sharing incentive plan. Employees are entitled to share the profits at an agreed percentage in addition to the wages. employees will get a fixed percentage of that profit earned. Employees may lose interest in it. The equal bonus may not reflect the actual work or contribution performed by all staff. Whatever profit the company is earning. These shares may r may not carry voting rights. Under Copartnership. profits are shared equally between inefficient and efficient employees. thus creating a sense of dissatisfaction amongst the efficient employees. It is paid in addition to the employee’s regular salary and bonus. Here. This plan increases the morale of the employees and motivates them.partnership incentive plan is one of the group incentive plans which is similar to Profit. PROFIT SHARING Profit sharing is a type of group incentive scheme which provides direct or indirect payments to the employees depending on the company’s profitability. ADVANTAGES: Co. 3. It creates a sense of belongingness within employees towards the organization. In this way. It brings in a sense of belongingness to the employees as they have a share in profit. share of profit is given in the form of shares. etc by the employees. The profit sharing plans are based on predetermined economic sharing rules that define the split of gains between the company as a principal and employee as an agent. It increases the employees’ morale and thereby reducing labor turnover. This may lead to confusion which may later result in strikes. Share of profit is given once a year. employees are given shares in the capital of the business and as a result of which they receive profit accruing thereon. lockouts. the . DISADVANTAGES: Here. The scheme recognizes the principle that every employee contributes something towards profit and he should be paid a percentage thereof. CO-PARTNERSHIP Co. 4.
shares in their company as part of their salary. ESOP participants will be allowed to vote their allocated shares at least on major issues. but democratic way can lead to slow decision-making.)One of the disadvantage to company is that there may be problem when the company compelled to buy back shares from employ when they retires. Since employees are owners they are interested to see that companies shares perform well. 5. companies provide their employees the opportunity to acquire the company's shares at a reduced price or free of cost. ************************************************************************* . (The tax rules vary from country to country. EMPLOYEE STOCK OPTION PLAN An employee stock ownership plan (abbreviated to "ESOP") is the practice of companies giving staff members. Under the ESOP plan. The employee gets tax benefit on interest on loan taken for buying the shares and the dividend is taxfree. Employee ownership appears to increase production and profitability.company motivates the employees by making them feel that they are contributing something towards profit and hence should be paid a percentage there off. An ESOP is a defined contribution employee benefit plan that allows employees to become owners of stock in the company they work for. The company will buy back the shares at a market price when the employee retires. such as closing or selling the company. and improve employees' dedication and sense of ownership.