Incentives are the monetary benefits paid to the workmen

in recognition of their outstanding performance. They are

defined as “variable rewards granted according to
variations in the achievement of specific results”

Types of incentive plans

2 types or kinds or methods of incentive plans

1) Individual incentive plan

2) Group incentive plan

 1) Individual incentive plan: it may either be time based or

production based. Under time based plan a standard time is fixed
for doing the job. A worker is said to be efficient if he completes
the job in time and he is given the reward for his efficiency.
I) The time based individual incentive plans are:

a) Halsey plan
b) Rowan plan

 a) Halsey plan: under Halsey plan minimum wages are

guaranteed to every worker. A standard time is fixed for the
workers. If the workers finish the work before standard time they
are given bonus. But no penalty if they fails to do that.

Total wages (W) =(T*R)+ (50% of (S-T)*R)

Standard time(S) =15 hours
Time taken (T) = 10 hours
Rate of wages(R) =rs 10 per hour
Bonus (P) = wages of 50% of time saved
Than wages= 10*10+50 %*( 15-10)*10 = rs 125
b) Rowan plan: it is the modification of the Halsey plan it also
guarantees the minimum wages and does not penalize the slow
workers. Standard time is fixed and the bonus is paid on the basis
of time saved

Total wages (W) =(T*R)+[T*R* Time saved/ Standard time]

Standard time(S) =15 hours
Time taken (T) = 10 hours
Rate of wages(R) =rs 10 per hour
Bonus (P) = Time saved/ Standard time
Than wages= 10*10+[10*10* 5/15] = rs 133.33

 
The above discussed wage payment methods were based on the
time while the wage payment methods based on the productivity
are going to be discussed below:
 

ii) The production based individual incentive plans are:

Under the production based incentive plan a standard output is
fixed and the workers are paid on the basis of the production. They
are given incentive if they produced more number of units than the
standard fixed. it includes :

a) Taylor plan
b) Merrick plan

a) Taylor’s differential piece rate system: in this plan, Taylor

did not give minimum guarantee to each worker. As per his
statement it is possible to calculate standard workload for
 every worker on the basis of time and motion studies. He
gave two-piece rates for the workers. The lower rate for
average and less efficient workers who produce less than the
standard production and the higher piece rate for the above
average or efficient workers. So the efficient workers are
paid more than the inefficient workers.

There are only 2 rates fixed

a) 80% of piece rate who can produce less than standard
production.
b) 120% of piece rate who produce more or equal to
standard production

b) Merrick’s multiple piece rate plan: under this plan there are
three grade piece rate rather than two given by Taylor.
Workers who produce Less than 83% are paid basic piece rate
Workers who produce between 83%- 100% are paid 110% of basic
piece rate
Workers who produce more than 100% are paid 120% of basic
piece rate.
Thus this system is improvement over the Taylor’s plan. But this
system also does not give guarantee minimum wages to the
workers. All the workers producing between 1 to 82% of standard
output are considered same and paid at the same piece rate.

2) Group incentive plan: under this method group bonus is given

instead of individual bonus. The bonus is distributed among all the
employees of the organization on the different basis, which are as
follows:
 
a) Priest man’s plan: under this method Bonus is increased in
proportion to increase in output.
Increased production/standard production*100
b) Profit sharing method:  under this method increased profit is
shared among the workers and management as agreed between
both the parties.
c) Scanlon plan: under this method bonus is paid in proportion to
the production 1% bonus if 1% increases in production.