UNIT-3

Incentives
BY-Prof.Preeti Dwivedi
 Incentives
• In the words of Burack & Smith,“An incentive scheme is a
plan or program to motivate individual or group
performance. An incentive program is most frequently
built on monetary rewards (incentive pay or a monetary
bonus), but may also include a variety of non-monetary
rewards or prizes”.

• On the other hand, French says, the term “incentive

system” has a limited meaning that excludes many kinds
of inducements offered to people to perform work, or to
work up to or beyond acceptable standards.
 features of an incentive plan

• Consists of both ‘monetary’ & ‘non-monetary’ elements.

• Timing, accuracy & frequency of incentives are the basis

of a successful incentive plans

• Proper communication of the incentive plan to the

employees
 determinants of incentives

1. The Individual
2. The Work situation
• Technology
• Satisfying job assignments
• Feedback
• Equity
 types of incentive scheme
• Individual incentives

• Group incentives
 individual incentive schemes
• Individual payment schemes include payment by results, piecework
and bonuses, work measurement (including measured day work)
and appraisal and performance related pay
• Many sectors of employment use pay systems that contain direct
links to individual performance and results. On an individual basis
this may be via:
1. payment by results (PBR) e.g. bonus, piecework, commission
2. work-measured schemes and pre-determined motion time systems
3. measured day work (MDW)
4. appraisal/performance related pay
5. market-based pay
6. competency and skills based pay.
 Classification of Incentives Plans

Incentives plans

Individual Organizational Group

Time-based
 Profit sharing
 Gain-sharing Time-based
 ESOPs
Output-based
Halsey Plan
Rowan Plan
Emerson’s
Efficiency
plan Time - Based
The Bedeaux
Point Plan

Output - Based
Taylor’s Differential Piece Rate
Merrick Differential Piece Rate
Gantt Task System
 Halsey Premium Plan
• This is a time-saved bonus plan which is ordinarily used when
accurate performance standards have not been established.
• Under this plan, it is optional for a workman to work on the premium
plan or not.
• A standard output within a standard time is fixed on the basis of
previous experience.
• The bonus is based on the amount of time saved by the worker.

Formula:
Wages = T*R+50% of ( S-T) *R
 Halsey Plan
Standard Time (s)= 12 Hrs
Rate per hr= Rs 9
Wages = T*R+50% of ( S-T) *R

Case 1 time taken= 12 Hrs

Earnings = 12* 9

Case 2 Time taken = 8 Hrs

=8*9+ 50/100*4*9
= Rs.90
 Halsey-Premium Plan

Merits:-
1. Simple to understand.
2. Workers get benefit of time saved

Demerits:-
1. The workers do not secure full benefit of their efficiency
but only the 50%.
2. Quality may effect.
 Rowan Premium Plan

In the Rowan Plan, the time saved is expressed as a

percentage of the time allowed, and the hourly rate of
pay is increased by that percentage so that total
earnings of the worker are the total number of hours
multiplied by the increased hourly wages. The plan aims
at ensuring the permanence of the premium rate, which
is often cut by the employer when the worker’s efficiency
increase beyond a certain limit.
Formula : Bonus = Time Saved * Time taken * Hourly rate
Time Allowed
 Rowan Plan
Std Time= 10 Hrs
Rate per Hr= Re 9

Case 1 Time taken= 10 Hrs

Earnings = 10* 9
Case 2 Time taken = 8 Hrs
earnings = 8*9
Bonus = Time Saved * Time taken * Hourly
rate
standard time
Bonus = 2/10*8*9
 Bedeaux Plan
Formula:- Total wages= S*R + 75% Of value of time saved

Case
Std Time= 5 Hrs
Rate per Hr= Rs 6
Actual time= 4 hr
Bonus:

5*6 + 75 *6 = Rs 34.5
100
 Emerson’s Plan
Up to 66.67% efficiency = Minimum wage
66.67 % - 80% = 4% bonus
80- 90 % = 10% bonus
90 – 100 = 20 % bonus
Above 100 % = 1% for every additional unit.

Up to 67% of efficiency, the work is determined by dividing

the time taken by the Std
Time-rate
Up to 100% efficiency, 20% bonus is paid to workers
An additional bonus of Rs 1% is added for each additional 1%
efficiency
 Emerson’s Plan
Case 1 Output in 10 Hrs: 50 units
Efficiency: 50%( below 67%, the worker is eligible for 50% of the time wage as
bonus)
Case 2 Output in 10 Hrs : 100 units
Efficiency : 100% (time-wage + 20% bonus)
 Taylor’s Differential Piece-Rate
Standard outputs: 50 Units/day
Rate per Unit: Minimum = 1.50 Rs/unit
Maximum = 2 Rs/unit
Differential to be applied:
Case 1: Outputs = 40 units
Earnings = 40* 1.50 = Rs. 60
Case 2: Outputs = 50 units
Earnings = 50*2 = Rs.100
Case 3: Outputs = 60 units
Earnings = 60*2 = Rs.120
 Merrick Differential piece-rate
Straight piece-rates less than 83% of the Std outputs
110% of the base-piece rate for 83%-100% of the Std outputs
120% of the base-piece rate for more than 100% of the Std outputs
Case 1 Output = 80 units
Efficiency = 80 *100 = 80%
100
Earnings: As the efficiency is less than 83%, only the base pie-rate applies:
80*0.10 = 8.00
Case 2 Output = 90 units
Efficiency = 90 *100 = 90%
100
Earnings: As the efficiency is 83% but less than 100%, 110% the base pie-rate
applies:
90*110*0.10 = 9.90
100
Case 3 Output = 110 units
Efficiency = 110 *100 = 110%
100
Earnings: As the efficiency exceeds 100%, 120% of the base piece-rate applies:
110*120*0.10 = 13.20
 Organizational Incentives
• Profit Sharing
– A system to distribute a portion of the profits of the organization
to employees.
– Profit sharing is an arrangement by which employees receive in
addition to wages, a share is fixed in advance in profit of the
enterprise.
– It is an agreement between employer & his employee.
– According to International Labour Organization, “Profit-sharing is
a method of industrial remuneration under which an employer
undertakes to pay to employee, a share in net profit of the
enterprise in addition to regular wages”
Primary objectives:
• Increase productivity and organizational performance
• Attract or retain employees
• Improve product/service quality
• Enhance employee morale
13–19
Organization

Co-partnership
– Co-partnership is an extension of profit-sharing.
– Under this method worker’s share in company’s profit is paid in
the form of share by which they become entitled to participate
in decision-making process.
ESOPs (Employee Stock Option Plans)
– This method is originated in the USA in early 90s.
– Under this plan, the eligible employee are allotted company’s
share below the market price.
– The term “stoke option” implies the right of eligible employee
to purchase a certain amount of stoke in future at an agreed
price.
– The eligibility criteria may include length of service,
contribution to the department etc…
 Group Incentives

Compensation system which links pay to a

group's combined performance measured
by reduction in costs, increase in
productivity, progress in attaining firm's
objectives, etc.
 advantages & disadvantages
advantages
• Better co-operation among workers
• Less supervision
• Reduced Absenteeism
• Leads to improved communication and employee
relations.
• Shorter training time
Disadvantages
• Weakens relationship b/w individuals effort and
performance.
• Intra-group conflict
• The incentive may not be strong enough to serve its
purpose
Group
Group based or team-based incentives plans reward all team
members equally based on overall performance of the team
member.
Under group based incentive plan, individual out put can’t be
measured.
So team performance is evaluated on the basis of time taken
rather than output produced, if team complete their target in
well advanced to standard time the team member are eligible
for incentives.
Payment to team members may be made in the form of cash
bonus or in the form of non-cash reward such as pleasure trip,
times off or luxury items.
Team based incentives foster cohesiveness among tem
members.
Methods for team based incentives plans are
– Preistman’s production plan
– Rucker plan
 Types of Group/Team
• Incentives
Gain sharing :- the some percentage of the profit
of organization is shared with the employees.
• Team sharing or Goal Sharing:- an employee may
be paid 20 Rs extra for each 1% improvement.
Eg. Base line – 90%
group achieved – 93%
bonus - 3* 20= Rs.60

. 13–24