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What are the different incentive wage plans?

Mainly there are two kinds of incentive wage plans:

(A) Personnel Incentive Wage Plans
(B) Group Incentive Wage Plans.
(A) Personnel Incentive Wage PlansThese plans motivate the individuals to produce more.
Such plans may be based on lime or production. Following are some of the individual wage
incentive plans.
1. The Halsey Premium PlanA mechanical engineer F.A. Halsey devised this plan. It is a
simple combination of the time-speed basis of payment. The worker gets his wages for the
time he works. For the calculation of premium, a standard time is fixed for each job on the
basis of past performances. If the worker finishes the job before this standard fixed time, he
gets bonus for the time saved by him.
The rate of bonus is 30% to 50% of the wage payable for the time saved. Suppose a worker
gets his wages @ 60 paise per hour. He finishes his work in 15 hours for standard time fixed
is 20 hours. Thus he saves 5 hours. He will get a total wage of Rs. 10.50. This is worked out
as below :
Wage for 15 hours @ 60 paise = Rs. 9.00
Wages for 5 hours (the time saved) @ 50% of the usual hourly rate = Rs. 1.50
9+1.5= Rs. 10.50
He will get Rs. 10.50 and will also earn something more by utilising the time saved i.e., 5
The chief merits of this plan are:
(1) Slow workers are guaranteed a fixed time wage.
(2) Efficient workers get extra wage.
(3) It is an easy and simple device of introducing efficiency.
(1) But the worker gets only 50% benefit of his efficiency. It is said that he can earn in the
saved time, but where is the work.
(2) The quality of the work is not cared for and the waste of material increases.
2. The Rowan Premium PlanIt is widely used in England. It was introduced by James
Rowan of David Rowan & Sons, Glassgow in 1901. It is modification in the Halsey's Plan.
The premium is calculated on a percentage of wages for the time worked and not for the
time saved. This gives more bonus to the workers. It is calculated by the following formula:
Time taken
Bonus = Time Saved X standard time Hourly Rate
Thus, if the worker finishes the job in 15 hours for standard time of 20 hours and the hourly
rate of wage is 60 paise, a worker will get a total of Rs. 11.25.
(1) The total bonus earned does not increase in 'he same proportion in which efficiency
increases and thus there is no possibility of over-spending.
(2) There is less cost on supervision.
(3) The plan is good for beginners and learners.
(4) There is no inducement to the worker to rush through the work.
(1) No difference is made between efficient and inefficient worker.
(2) It is difficult for the workers to understand.
3. Taylor's differential Piece Rate SystemAs a part of scientific management, this plan was
devised by Taylor with a view to provide greater incentives to efficient workers. Under this
plan, a standard task is established by the techniques of time and motion study and two
piece rates are set up for each job. A high piece rate is allowed to those who can make
equal to higher than the standard performance; and for others who cannot reach the
standard, a lower piece rate exists. Thus, this method penalises the slow and lazy worker
and pays incentive to efficient workers.
It makes a distinction between efficient and inefficient workers. Lazy and inefficient workers
are penalised, while efficient workers are rewarded.
The basis of this system is scientific. It is based on proper work study.
It helps in spotting and eliminating inefficient workers.
(1) A worker missing the standard even by narrow margin is penalised heavily.
(2) It is more mechanical and less humane.
(3) Trade unions oppose this plan.
(4) It may lead to discontentment among workers.
4. The Gantt Task and Bonus PlanH.L. Gantt, an associate of Taylor, devised this scheme
on the basis of Taylor's plan. Under this scheme, fixed time rates are guaranteed. Output
standards and time
Standards are established for the performance of each job. Workers completing the
standard job within the standard time or a shorter time receive wages for the standard time
plus a bonus! The bonus is a percentage, varying from 20 to 50, of the wage for the
standard time. When a worker fails to turn out the required quantity of products, he simply
gets his time rate without any bonus.
(1) It is simple and easily understood.
(2) It guarantees day wages and also provides incentive to efficient workmen.
(3) The employer derives the benefit of decreasing it with higher output.
(1) If the minimum wages are kept high due to union pressure, there will not be much
incentive for better performance.
(2) Labour cost is high for low production and also upto standard output because of
guaranteed day wages and bonus.
(3) The scheme is preferred by the totally inefficient workers as well as by the most efficient
workers. Reasonably efficient workers cut a sorry figure.
5. Emerson's Efficiency Bonus PlanThis plan has been named after Harrington Emerson;
the innovator of this plan. Under this plan every worker is guaranteed his day wages
irrespective of his performance.
A standard output is fixed, and is represents 100% efficiency. According to the plan upto 66
2/3 the guaranteed time wages are paid to the workers, after this they are paid bonus at
stated ratio of the time wages.
Emerson used 32 empirical bonus percentages for efficiency beyond 66 2/,3% under this
plan, the bonus starts from 0.01% above 66 2/3% efficiency and increases to 20% at
maximum efficiency. After this point the bonus is 20% above the basic wages plus 1% for
each 1% increase in efficiency.
Advantages (Merits) of Emerson's Efficiency Plan
1. Beginners are encouraged to work hard under this plan.
2. Proper attention is paid to different kinds of workers.
3. It is easy to understand the Emerson's Plan.
4. It possesses rational determination of efficiency.
5. The calculation of efficiency is logical.
6. This plan can be applied to individual tasks as well as group tasks.
Disadvantages (Demerits) of Emerson's Efficiency Plan
1. Labour cost is increased due to payment of bonus on low level of production.
2. There is low rate of bonus in the beginning.
3. It is a complicated plan as far as calculation is concerned.
4. It requires a lot of clerical work.
5. Under this plan, management may be tempted to fix a very high level of standard output.
6. The Bedaux Points Premium PlanUnder this plan, Standard time is divided into
Standard minutes. Each minute of standard time is called Bedaux point or B's. B's are
indicated on each job ticket. Time wages are paid until 100% efficiency is reached. Bonus is
paid on the basis of number of Beduax Points saved. Bonus at 75% of wages of Bedaux
saved is paid to the worker and 25% is paid to the foreman.
(1) Minimum wages are guaranteed to the workers, even if they are not able to compete
their job within the standard time.
(2) Since 25% of the wages for time saved goes to the foreman, he is motivated to get
higher productivity from the workers.
(3) It is suitable where a worker is expected to perform a number of different jobs.
(1) Calculations are complicated and workers are not able to understand it and it involves
heavy clerical expenditure.
(2) Workers do not like that foreman should share their bonus.
Merrick's Multiple Piece Rate PlanIt is an improvement over Taylor's Differential Plan.
According to this plan, three piece rates for a job is fixed. None of these three piece rates
are fixed below the normal level. These three rates are applied in the manner given below:
Rates Bonus Incentive
1. Upto 83 '/3% Normal Rate
2. Above 83 1/3 % to 100% 110% of Normal Rate
3. Above 110% 120% of Normal Rate
(1) This plan is liberal for the efficient workers. The workers producing more, get their
wages at increasing rates.
(2) There is no sudden rise in the wages at one point.
(3) It has all merits of Taylor's Differential plan.
(1) The system does not guarantee minimum wages for the workers.
(2) There is wide gap in slabs. All workers producing 1% to 83% of the standard output are
considered as sub-standard workers and are paid at the same piece rate.
(3) The general criticisms levelled against Taylor's plan also applies to it.
(B) Group Incentive Wage PlanThese are the incentive wage plans which motivate the
group to produce more under individual incentive plans, bonus is paid to the workers on the
basis of individual performance and the amount of bonus payable to a worker is not affected
by the performance of another or other workers. But there are certain situations where it is
difficult to measure the output of an individual worker conveniently or the performance of
one worker is affected by the performance of other workers. In such situations, group
incentive bonus schemes are introduced. Under this scheme, bonus is made payable to all
the workers on a collective basis. This bonus is promised by management in advance of the
commencement of work for securing in effective teamwork. In all cases, a fixed standard of
performance is established and the bonus is given for the results shown over the standard
(1) It creates a collective interest in the work.
(2) High output and economical production is achieved.
(3) Jealousy among workers is prevented.
(4) It ensures better cooperation and team-spirit and reduction in absenteeism.
(5) Routing and scheduling are simplified.
(6) It reduces cost of supervision, cost of calculation of bonus and wastages.
(1) An individual worker may not put his maximum effort in view of equal sharing of bonus
by inefficient workers.
(2) Individual efficiency is not taken into account.
(3) There is difficulty in calculation of bonus to all workers in the group.
SuitabilityGroup incentive wage plan is most suitable in the following cases:
(a) Where it is not possible to measure the performance of each individual worker.
(b) Where the number of workers making a group is not very large.
Where the workers making a group, possess the same or equal skills and abilities.
(d) Where the aim is to provide incentives to indirect workers.
(e) Where the finished product is the result of collective efforts of a group.
Types of Group Incentives Schemes-There are different types of group incentive schemes.
Important among them are as follows:
(1) Priestman PlanThis system of wage payment was first used by Priestman's of Hull in
1917. It is applied to workers who work in groups. It provides for payment of group bonus
in addition to the ordinary time rate to the individual workers. Thus if during a year, an
enterprise is able to reach the predetermined standard output or exceed the previous year's
output, workers are paid increased wages in the same ratio in which output has increased.
For example, if in 1990, the output per worker-hour was 10 units and in 1991, it rises to 11
units per worker-hour, the wages in 1991 would be 10% higher than those in 1990.
An advantage of the system is that it brings about team-spirit among the workers of a
group. If the group as a whole works well, this is bound to add to overall output of the
enterprise and in that case all the workers would stand to benefit.
But its disadvantage is that it may be insufficient to motivate individual workers, particularly
these who possess greater skills and experience.
(2) Scanlon PlanNamed after Mr. Joseph Scanlon of United States, this plan is the most
popular for shaving the gains from increase in productivity. It provides for payment of 10%
participating bonus for every 10% increase in productivity. The benefit is extended to all
employees except the members of top management.
Under the plan, workers are not paid the entire amount of bonus earned by them in any
month. One half of the first 15% of such bonus is set apart for the creation of a reserve
fund. This fund is used to neutralise the effects of any fluctuations in labour costs. In case a
part of such fund remains unused, it too is distributed among the workers in the last month
of the year and then a new fund is a created for the New Year.
(3) Productive BargainingManagement and workers of an enterprise may reach an
agreement under which workers agree to give up unproductive wasteful practices such as
go-slow and work to rule and in return, the management agrees to link the wages and
concessions of increase in productivity.
For this, it is necessary that there should be a strong trade union to force the workers to
honour the agreement. In case there are too many unions not cooperating with one another
such agreement has little chance of succeeding.
(4) Co-partnershipUnder this certain employees are given the option of buying the shares
of the enterprise at reduced price in installments. The employees are choosen on the basis
of seniority or wage levels. Its assumption is that as a shareholder of the company. An
employee is likely to show greater understanding of the company's viewpoint and behave
more responsibly.
As for management, it can cite such schemes as proof of its enlightened outlook and thus
brighten the public image of the enterprise.
(5) Profit-SharingIT is an arrangement by which employees receive a share, fixed in
advance of the profits

Mention the merits and demerits of Group Incentive Wage Plan
(1) It creates a collective interest in the work.
(2) High output and economical production is achieved.
(3) Jealousy among workers is prevented.
(4) It ensures better cooperation and team-spirit and reduction in absenteeism.
(5) Routing and scheduling are simplified.
(6) It reduces cost of supervision, cost of calculation of bonus and wastages.
(1) An individual worker may not put his maximum effort in view of equal sharing of bonus by inefficient workers.
(2) Individual efficiency is not taken into account.
(3) There is difficulty in calculation of bonus to all workers in the group.