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Productivity Linked

Incentives
&
Motivational
Activities
Presented By:
Chandra Prakash
Haresh Pal Singh
Jashoda Goyal
Rohit Johari
Sandeep Joshi
Date: 1st Feb.2005
Swati Gupta
What is Productivity?

Productivity is a quantitative measure. It is the


measure of how well we use our resources to
produce goods and services.

Our major resources are people (labor) and


capital (machines, technology, raw materials).
Productivity Framework
Better Quality of Life

Higher Standard of Living

Higher G.D.P

Increase in Higher productivity


Employment

Higher Total Factor


Higher Capital Intensity productivity

Quality of Capital &


Quality & Workforce
System
Quantitative Qualitative Methods
What Is Productivity Linked
Incentive System?
The Productivity-Linked Incentive System is a
system which establishes a closer link between
wages and productivity so as to enhance
competitiveness.
Types of Incentives - What
They’re Based…
 Piece rate Units produced
 Standard hour plan Time saved
 Bonuses Established goals
 Commissions Sales
 Stock options Established goals
 Profit sharing Organizational profits
Halsey Premium Plan
 This plan is a combination of time and speed.
- That every worker is paid according to hourly rate.
- Every worker is paid according to the time he has
spent on the work.
- Every worker is given that he has to finish the
allotted work within the standard time. If he is
able to save the time, he will be paid a bonus for
the time he has saved.
- The amount of bonus is 50% of time saved.
 Total Earnings = Time Taken * Hourly Rate +
(Standard Time – Time Taken) * Hourly Rate * 50%
Rowan Plan
 The worker gets wages at an hourly rate for actual
time spent on the job.
 The worker also gets the guaranteed minimum
wages.
 The worker gets bonus if the task is finished before
the standard time.
 The worker here gets the bonus in his proportion of
wages of actual time he has taken. 50% or 30% is not
taken into consideration in Rowan Plan.
Contd…

The Rowan Plan can be expressed in the following


way:
Total Earnings = Time Taken * Hourly Rate
+Bonus

Amount of Bonus = (Time Saved/Standard Time)


*Time Taken * Hourly Rate
Gantt Task & Bonus
System
This system involves the following:
 Establishment of standard after carrying out
proper time and motion studies.
 Workers completing the work in standard time
are 100% efficient. Such workers are entitled to
their normal wages plus bonus at a fixed
percentages of wages earned.
 Workers completing the work in less than the
standard time get wages for the standard time plus
bonus at a fixed percentage of wage earned.
 Bonus is 20% (usually) of the time wages earned.
 Slow workers are paid guaranteed wages for the
day.
Advantages of Incentive
Plans
 Higher wages for worker and higher profits for
companies
 Greater competitiveness for companies
 Low Inflation
 Focus Employee Effort
 Variable Costs linked to Results
 Tied to Performance
 Can Foster Teamwork
 Reward those who Perform well
Key Elements of Plws are as
Follows:
Fixed Component
 Basic Wage
 Annual Increment
 Contractual Bonus (where applicable)

Variable Component
 Wage increase for the year based on

Productivity/Profit sharing formula.


Types of Models

 Profitability Model

 Productivity Model

 Combined Model
Profitability Model
Establish the cap to the bonus
According to profit levels

Profit After Tax Bonus Month (s)


Million ($) Salary
<1.5 (threshold) 0
1.5 - 1.99 0.5
2.0 - 2.49 1.0
2.5 - 2.99 1.5
3.0 and above 2.0
THE PRODUCTIVITY
MODEL
Fixed Component
 Basic Wage

 An Annual Increment

Variable Component
A variable productivity payment to be determined
Formulation
T=A+P

Where;
T = wage increase
A = annual increment
P = variable productivity payment
Example:
Year 1 (T=A+P)
 If basic wage = 1000 per month,
 Annual increment (A) = 2% and Productivity
payment (P) = 4%,
 Basic wage + A = 1000 + 2% (1000) = 1020 (built
into basic wage).
 P = 4% x 1000 x 12 months = 480 per annum
Year 2:
(T=A+P)
 If basic wage = 1,020; A = 2% and P = 4%
 Basic Wage + Annual Increment (A) = 1,020 + 2%of
(1,020) = 1,040 per month
 Productivity payment (P) = 4% x 1,020 x 12 months =
489.60 per month
 Annual Variable Productivity Payment at end of year
2:
P for year 1 480.00
P for year 2 489.60
 Cumulative for 2 consecutive years 969.60
Combined Model
Annual
Profit (in Months of Basic Wage
mn.)
>1.49 1 1 1.25 1.5 1.75 2
1-1.49 .75 .75 1 1.25 1.5 1.75
.70-.99 .50 .50 .75 1 1.25 1.5
.50-.69 .25 .25 .50 .75 1 1.25
< .50 0 0 .25 .50 .75 1

Productiv- 2.5- 7.5-


<1 1-2.49 5-7.45 >10
ity ratio 4.99 7.99
Factors For Successful
Implementation
 Satisfactory Labour-management relations
 Realistic annual increments
 Challenging and equitable variable payment
 Formula for variable payment
 Applied company-wide
 Wage system should be
– Specific
– Measurable
– Achievable
– Realistic
– Time specific
Case-study: Productivity
Incentive Scheme for Tea
Pluckers
in Tamil Nadu
 Till 1980’s workers were paid a fixed rate and a
small incentives for extra plucking of leaves.
 This was a constant amount per kilogram of leaf
but, in due course, the system was refined by
having two incentive slabs (categories).
 After several rounds of negotiations, an agreement
was reached in 1990
Productivity Incentive Scheme for
Tea Pluckers,
Tamil Nadu,
Yield of Base Slab India
Incentives rates
green leaf output (Kg.) (INR/ Kg.)
/hectare/m /day
onth (Kg.) (Kg.) 1st 2nd 1st slab 2nd slab

1-400 12 13-15 16+ 0.26 0.31

401-800 14 15-20 21 0.26 0.31

801-1600 15 16-30 31+ 0.26 0.31

1600 & 16 17-35 36+ 0.26 0.31


above
Yield of Base Slab (Kg.) Incentive Rates
Green output (Indian Rupees/Kg.)
Leaves/ per 1st 2nd 3rd 1st 2nd 3rd
Hectare day
/month

1-400 12 13-15 16-30 31+ 0.27 0.35 0.40


401-800 14 15-20 21-40 41+ 0.27 0.35 0.40

801- 15 16-30 31-50 51+ 0.27 0.35 0.40


1600
1600 16 17-35 36-60 61+ 0.27 0.35 0.40
&
above
Results
 Led to a 36 per cent improvement in the plucking
average

 The benefit to pluckers during the five-year period


had gone up by 25 per cent.

 10 per cent of the total leaf harvested during 1994


came from pluckers in the 50 kg + slab
Indian Airlines
 During the period from November 1993 to May
1996, IA entered into MOU’s with various
parties for payment of various productivity-
linked incentives.

 IA did not assess the total financial outgo


resulting from these agreements. IA signed
another set of MOU’s with all its unions during
the period from January 1996 to October 1997
Cont…
 Guidelines (October 1988) of the Bureau of Public
Enterprises (BPE) regarding payment of PLI
stipulated that the total of bonus and incentive
should not exceed 35 per cent of wages.
 It was observed that the benefits of PLI ranged
from 61 per cent to 1165 per cent of average wages
even though capacity utilization in terms of
Revenue Tonne Kilometers (RTKm) was much
below the available capacity.
Contd
…
Between 1991-92 and 1995-96, the increase in pay
and allowances of the executive pilots was 842%
and that of non-executive pilots was 134%.
 It was not the threat of exodus but the pressures
brought upon IA by the pilots through agitation
etc. which forced the Management to yield to the
unjustified demands of the pilots for further
increase in remuneration.
Indian Airlines
Year Profit (+)/Loss (-) PLI
Rs in Crores
1995-96 (-) 109.98 31.78

1996-97 (-) 14.59 163.63

1997-98 (+) 47.27 219.06

1998-99 (+) 13.12 252.26

Total (-) 64.18 666.73


Year Staff Per Total Total Staff Effective
Cost Employe Exp. Operational Cost Fleet
(in e (Cr.) Exp. as % Size
Crores Cost of
(in Crores) TOE
) (Lakhs)

93-94 285.45 1.29 2074 1849 15 54

94-95 374.46 1.65 2258 2008 19 58

95-96 571.37 2.53 2599 2310 25 55

96-97 710.48 3.21 2928 2713 26 40

97-98 817.25 3.72 3220 2984 27 40

98-99 875.45 3.99 3431 3129 28 41


Measuring employees’
productivity in any airlines is
‘Available Tonne Kilometer’
Year (ATKm)
No. of Per
ATKms in employee.
ATKm per Percentage
Employee millions Employee Increase over
s 1993-1994
93-94 22,182 1056.888 47,646 -
94-95 22,683 1025.784 45,221 (-)5.09
95-96 22,582 1045.813 46,312 (-)2.80
96-97 22,153 1075.238 48,537 1.87
97-98 21,990 1094.132 49,756 4.43
98-99 21,922 1122.922 51,224 7.51
Contd

It May be noted that Increase in the
Productivity per Employee over the next Six
Year Period was Nominal at 7.51% in
Comparison to the increase in Wages per
Employee at 207% over the Same Period.
Productivity Enhancement
Program
(1/3, 1/3, 1/3)
 Designed to increase employee productivity
through the elimination of vacant positions,
reallocation of workload and shared savings with
employees and the company.

 One-third of the salary and benefits (excluding


health insurance) of the deleted positions would be
reallocated to the employees within the unit who
are assuming the increased workload .
Contd…
 One-third of the salary and benefits (excluding
health insurance) would be used to purchase
productivity enhancing technology, or other
productivity enhancing tools .

 The remaining one-third of the salary and benefits


(including the full cost of the health insurance)
would revert to the State .
Productivity Enhancement
Program Position Deletions And
Reallocation
ANNUAL Benefits@2 Insurance TOTAL
SALARY 0% SALARY

CLERK 18,000 3,600 2,000 23,600

25,000 5,000 2,000 32,000


ACCOUNTANT

TOTAL 43,000 8,600 4,000 55,600


Productivity Enhancement Program
Reallocations
One-third to be 14,333 2,867 0 17,200
reallocated to
employees
One-third for 14,333 2,867 0 17,200
technology
enhancements
One-third 14,333 2,867 4000 21,200
reverts to
organization
Total 43,000 8,600 4000 55,600
Saving to State
 One third deleted Salary & Benefit Cost 21,200

 Technology Enhancement Costs after Year 17,200

Total 38,400

 Effective Savings (38,400/55600) 69%


THANK
S