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Amity Global Business School, Noida


MBA, Semester 1

Human Resource Management

Ms. Mamta Chawla

Amity Global Business School, Noida

1. 2.
Wage payment METHODS Theories for Incentives- Reinforcement & Expectancy Incentive Plans- Individual Vs. Group



Amity Global Business School, Noida

Essentials of a sound incentive plan

Guaranteed minimum wages Simple Equitable

Flexible Supported by workers and unions Motivating Prompt payment

Amity Global Business School, Noida Methods of Wage Payment

Methods of wage payment

The Rate System

Methods of Remuneration

Payment by Results

Flat time High wage rate system

Graduated time rate

Piece rate system Combination of time and piece rate

Premium bonus plans

Group bonus system

Other incentive scheme

Straight piece work

Differential piece work

Profit sharing


T aylor system

Merrick system

Gantt task and bonus systems

Emerson efficiency system

Point schemes

Bedeaux Haynes Manit system system

Halsey premium plan

Rowan scheme

Accelerating premium bonus scheme

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T owne plan

Priestmans production bonus

Rucker plan

Scanlon plan

Amity Global Business School, Noida Methods of Wage Payment

Time wage system: A worker is paid on the basis of time spent on the work, irrespective of the amount of work done. Plus points Simple and easy to operate Guaranteed wages to workers Favoured by trade unions Good for precision jobs Minus points Makes no distinction between efficient and inefficient workers Offers very little to efficient workers Requires close supervision so that workers do not waste their time No relationship exists between wages and productivity

Amity Global Business School, Noida Methods of Wage Payment

Piece rate system: A worker is paid at a stipulated rate per piece or unit of output. This method is suitable where quality of work is not important, work is repetitive in nature, there is sufficient demand for output to guarantee continuous work and the job is a standardised one Plus points
Encourages efficient workers to produce more
Workers adopt better ways of getting things done, to earn more Idle time is reduced to the minimum Workers take every precaution to avoid machine breakdowns. Cost of supervision is less



Amity Global Business School, Noida Methods of Wage Payment

Minus points Delays beyond one's control could affect workers earnings adversely Beginners and slow learners are left behind in the race The focus on quantity would affect quality Workers may stretch themselves to unhealthy levels to earn more Encourages rivalry between workers

Taylor's differential piece rate system: A worker is paid more if he finishes the assigned task before the stipulated time. Merrick's differential piece rate system: This method uses threerates; up to 83%of the standard output workers are paid at the ordinary piece rate; between 83% to 100% at 110% of the ordinary piece rate and above 100% at 120% of the ordinary piece rate.

Amity Global Business School, Noida

Incentive Plans

Amity Global Business School, Noida

Reinforcement theory Expectancy theory

Pay influences employees through

Reinforcement Theory

Amity Global Business School, Noida

Behavior that is rewarded will be repeated.

Amity Global Business School, Noida

Expectancy Theory
If I attempt this level of performance, am I likely to succeed?

Motivational Force = E*I*V

If I achieve this level of performance, am I likely to be rewarded?

What value do I place on the rewards available to me?

Amity Global Business School, Noida

Incentive Programs
Differ by
payment method frequency of payout ways of measuring performance choice of which employees are covered

Fitting program to situation depends on

organizational structure management style type of work

Amity Global Business School, Noida

Individual Vs. Group


Amity Global Business School, Noida

Types of Plans
Merit Pay Individual Incentives Profit Sharing Ownership Gainsharing Group Incentives Alternative Reward Systems

Amity Global Business School, Noida

It is an incentive payment granted to a worker at the end of a particular year, in addition to ones normal standard wage.

The Payment of Bonus Act, 1965

The Act defines an employee who is covered by it as one earning Rs 2,500 p.m. (w.e.f. 1.4.93) basic plus dearness allowance and specifies the formula for calculating the allocable surplus from which bonus is to be distributed. The minimum bonus to be paid has been raised from 4 per cent to 8.33 per cent (w.e.f. 25.9.75) and is sought to be linked to increased productivity in recent times. Through collective bargaining, the workers, through their representative union, can negotiate for more than what the Act provides and get the same ratified by the government, if necessary. In the absence of such a process, the Act makes it mandatory to pay bonus to employees (who have worked in the unit for not less than 30 working days in a year) following a prescribed formula for calculating the available surplus. The available surplus is normally the gross profits for that year after deducting depreciation, development rebate/investment allowance/ development allowance, direct tax and other sums referred to in Sec. 6 The Act applies to every factory or establishment in which 20 or more persons are employed in an accounting year. Currently the position is such that even if there is a loss, a minimum bonus needs to be paid treating the same as deficit to be carried forward and set off against profits in subsequent years (Sec. 15). The Act is proposed to be changed since the amount of bonus, the formula for calculating surplus, and the set off provisions have all been under serious attack from various quarters. 16

Amity Global Business School, Noida

Alternative Reward Systems

alternatives to cash -travel merchandise earned time off symbolic awards
plaques, coffee cups, bananas

Amity Global Business School, Noida

Incentive Plans

Amity Global Business School, Noida

Plan is clearly communicated. Plan is understood by employees and management. Bonuses are easy to calculate. Employees participate in administrating the plan. Employees believe they are being treated fairly. Employees believe they can trust the company and that they have security. Bonuses are awarded as soon as possible after the desired performance.

Conditions for Effective Incentive Plans

Amity Global Business School, Noida

Conditions for Effective Performance-Based Pay Systems

Pay-performance linkage must be perceived by employees Pay is valued by employees Employees must perceive that effort and ability lead to rewarded behavior Performance measurement must be fair Employees must trust the organization Pay program must be understood Employees must be able to control their performance Performance appraisal system cannot be biased There must be enough money to fund incentives A valid job evaluation must have been conducted

Fringe Benefits

Amity Global Business School, Noida

These are extra benefits provided to employees in addition to the normal compensation paid in the form of wages or salaries.

Supplementary forms of compensation Paid to all employees Indirect compensation, since they are not directly related to performance May be statutory or voluntary

Need for fringe benefits

Employee demands

Trade union demands

Employer's preference A kind of social security To improve industrial relations
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Amity Global Business School, Noida Types of Fringe Benefits

Types of Fringe Benefits

Payment for Time not worked

Employee security

Safety and health

Welfare recreational facilities

Old age and retirement benefits

Hours of work

Paid holidays

Shift Holiday premium pay

Paid vacation

Retrenchment compensation

Lay off compensation Workmens compensation Legal aid Health benefits Educational Trans- Parties & Miscefacilities portation picnic llaneous

Safety measures Canteens Consumer Credit Housing societies societies

Employee Welfare Holiday counselling organisations homes

Provident fund Deposit linked insurance Gratuity Medical benefits


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