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**Presented by: Namrata Gupta Roll no.-11
**

1 11 April 2010

**TYPES OF INCENTIVE SCHEMES
**

y The International Labor Organization (ILO) classifies

all the schemes of payment by results into four categories. They are: 1. Schemes where the worker s earnings vary in the same proportion as output. 2. Schemes where earnings vary less proportionately than output. 3. Schemes where earnings vary proportionately more than output. 4. Schemes where earnings differ at different levels of output.

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**Incomes Varying in Proportion to Output
**

y The chief characteristics of the schemes where

incomes vary in proportion to output is that any gains or losses resulting directly from a worker s output accrue to him or her. y There are two popular incentive schemes which come under the first category: Straight piece-work Standard hour system

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**Straight Piece-Work
**

y It is the simplest, oldest and the most commonly used y

y y y

method. The rate per unit output is fixed, and the total earnings of a worker are arrived at by multiplying the total output(measured in terms of unit) by the rate per unit. Here, earnings of the worker directly depend upon his or her performance. Example : If the rate per unit is 10 paise and the total output of an employee is 100 units, his or her earnings will be 100 x 0.10 =Rs 10.00

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**Standard Hour System
**

y In this system, standard time in terms of hours is fixed

for completion of a job. The rate per hour is then determined. y A worker is paid for a standard time at his or her timerate if he or she completes the job in the standard time or less. y Worker is paid the same wages if he or she takes more than the standard time, unless he or she is guaranteed time wages. y If time wages are guaranteed , he or she gets paid on the basis of the time taken multiplied by the time-rate.

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**The following examples illustrate the method:
**

y Standard time = 10 hrs y Rate per hour = Re 1 y Case (i):

Time taken = 8 hrs Earnings = 10 x 1 = Rs 10.00 Case (ii): Time taken = 12 hrs Earnings if the time wages are not guaranteed = 10 x 1 = Rs 10 Earnings if the time wages are guaranteed = 12 x 1 = Rs 12

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**Earnings Varying Proportionately Less than Output
**

y In this scheme, time is used as the measure of output

and bonus is paid on the time saved, i.e., the difference between the standard time-set for the job and the time actually taken. y There are four schemes under this method: Halsey System Rowan System Barth Variable Sharing System Bedaux System

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Halsey System

y Under this system, standard time is fixed for the

completion of a job ,the rate per hour is then determined and then bonus is paid. y If the worker takes the standard time or more to complete the job, he or she gets paid at the time rate. y Bonus paid to a worker is equal to 50 percent of time saved multiplied by rate per hour. y The following examples illustrate the scheme:

y Standard time = 10 hrs y Rate per hour = Re 1

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Case(i) : Time taken = 10 hrs Earnings = 10 x 1 = Rs 10.00 Case (ii) : Time taken = 12 hrs Earnings = 12 x 1 = Rs 12.00 Case (iii): Time taken = 8 hrs Earnings: Time wages = 8 x 1 = Rs 8.00 Bonus = ½ x 2 x 1 = Rs 1.00 Rs 9.00

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Rowan System

y Under this system too, standard time and rate per hour

are fixed. y If the time taken to complete the job is equal to or exceeds the standard time, the employee is paid for the time taken at the rate per hour. y Bonus paid to the employee is equal to the proportion of the time saved to the standard time.

y The following examples illustrate the scheme:

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y Standard time = 10 hrs y Rate per hour = Re 1

Case(i) : Time taken = 10 hrs Earnings = 10 x 1 = Rs 10.00 Case(ii): Time taken = 12 hrs Earnings = 12 x 1 = Rs 12.00 Case(iii): Time taken = 8 hrs Earnings = 8 x 1 = Rs 8.00 Bonus = 2/10 x 8 = Rs 1.60 Rs 9.60

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**Barth Variable Sharing System
**

y This system does not guarantee the time-rate. y The worker s pay is ascertained by multiplying the

standard hour by the number of hours actually taken to do the job, taking the square root of the product and multiplying it by the worker s hourly rate.

y For example: y Standard time = 10 hrs y Rate per hour = Re 1

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Case(i): Time taken = 12 hrs Earnings = 12x 10 = 10.95 x 1 = Rs 10.95 Case(ii): Time taken = 10 hrs Earnings = 10 x 10 = 10 x 1 = Rs 10.00 Case(iii): Time taken = 8 hrs Earnings = 8 x 10 8.94 x 1 = Rs 8.94

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Bedaux Scheme

y Under the Bedaux scheme , standard time for the job is y y y

y y y

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fixed. Each minute of the standard time is called a point or B. Each job has standard number of Bs. The worker receives bonus which is equal to 75 per cent of the number of points earned, in excess of 60 per hour, multiplied by one sixtieth of the worker s hourly rate. An example to illustrate the Bedaux system is as follows: Standard time=10 hrs Rate per hour = Re 1

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Case(i): Time taken = 12 hrs Earnings = 12 x 1 = Rs 12.00 Case(ii): Time taken = 8 hrs Earnings: Time wages= 8 x 1= Rs 8.00 Bonus: Standard Bs = 10 x 60 = 600 Actual Bs = 8 x 60 = 480 Bs saved =120 Bonus = 75 x 120x1 = Rs 1.50 100 60 Total earnings = Rs 9.50

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**Earnings Varying Proportionately More than Output
**

This scheme includes two methods: High piece rate : It is similar to straight piece work method differing only

in high rate of incentives paid. For each one per cent increase in output above the standard, there may be 4/3 times increase in earnings as compared to one per cent increase in earnings . The higher the rates start applying after the standards have been reached.

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High standard hour system : y It is similar to standard hour system but the only

difference is the higher rate of bonus paid as otherwise in simple standard hour system.

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**Earnings Differing at Different Levels of Output
**

y This group includes several schemes: Taylor s Differential Piece-Rate system; Merrick Differential Piece-Rate system; Gantt Task system; Emerson s Efficiency system;

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**Taylor s Differential Piece Rate System
**

y It was developed by F.W. Taylor in 1880. y In this system, an efficient worker (whose output

exceeds standard output) is paid 120 percent of the piece rate. y An inefficient worker (worker output falls short of standard ) is paid only 80 per cent of the piece rate. y To illustrate the Taylor s piece rate system, we take following: Standard output = 100 units Rate per unit = 10 paise

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y Differentials to be applied:

120 percent of piece-rate at or above the standard 80 percent of piece-rate when below the standard Case(i): Output = 120 units Earnings = 120 x 120 x 0.10 = Rs 14.40 100 Case(ii): Output = 90 units Earnings = 90 x 80 x 0.10 = Rs 7.20 100

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**Merrick Differential Piece-Rate System
**

Under this system, straight piece rate is paid to the

worker up to 83 per cent of the standard output. For efficiency more than 83 % but below 100 %,rate payable is 110% of base piece rate and above 100 % is 120 % of base piece rate.

The Merrick system can be illustrated as follows: Standard output = 100 units

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**Piece-rate = 10 paise
**

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y Case(i):

Output = 80 units Efficiency = 80 x 100 = 80% 100 Earnings : As the efficiency is less than 83 per cent, only the base piece-rate applies: 80 x 0.10 = Rs 8.00 Case (ii): Output = 90 units Efficiency= 90 x 100 = 90% 100 Earnings: As the efficiency is more than 83 per cent but less than 100 per cent,110 per cent of the base piece-rate applies: 90 x 110 x 0.10 = Rs 9.90 11 April 2010 22 100

y Case(iii):

Output = 110 units Efficiency = 110 x 100 = 110% 100 As the efficiency exceeds 100 per cent, 120 per cent of the base piece-rate applies: 110 x 120 x 0.10 = Rs 13.20 100

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**Gantt Task System
**

y Under this system, the worker is guaranteed his or her

time-rate for output below the standard. y On reaching the standard output or task, which is set at a high level , the worker is entitled to a bonus of 20 per cent of the time wages. y The Gantt Task system operates as follows: Rate per hour = Re 0.50 High piece-rate = Re 0.10 Standard output = 80 units Time taken = 8 hrs

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Case(i): Output = 70 units As the output is less than the standard only time wages are paid to the worker. Earnings = 8 x 0.50 = Rs 4.00 Case(ii): Output = 80 units Earnings: As the output is equal to the standard , the worker is entitled to time wages plus 20 per cent of time wages as bonus. Time wages = 8 x 0.50 = Rs 4.00 Bonus = 20 x 4 = Re 0.80 100 Total earnings = Rs 4.80

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y Case(iii):

Output = 110 units Earnings: As the output is more than the worker is entitled to a high piece-rate. 110 x 0.10 = Rs 11.00

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Emerson s Plan

y Under the Emerson s Plan, up to 67 per cent of

efficiency , only time rate is paid to the worker. y A guaranteed bonus of 20 per cent at 100 per cent efficiency is paid. y An additional bonus of 1 per cent , for each additional 1 per cent efficiency is added. y The following example illustrates the method: Standard output in 10 hrs = 100 units Rate per hour = Re 1

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y Case(i):

Output in 10 hrs = 50 units Earnings: Efficiency = 50 per cent As the efficiency is below 67 per cent the worker is entitled to time wages only. 10 x 1 = Rs 10.00 Case(ii): Output in 10 hrs = 100 units Efficiency = 100 per cent

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y The worker is entitled to time wages plus 20 per cent of

time wages as bonus. Time wages = 10 x 1 =Rs 10.00 Bonus = 20 x 10 = Rs 2.00 100 = Rs 12.00 Case(iii): Output in 10 hrs = 130 units Efficiency = 130 per cent As the rate of 20 per cent efficiency and one per cent increase for every one per cent increase in efficiency , the worker is eligible for 50 per cent of the time wage as bonus.

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Time wages = 10 x 1 = Rs 10.00 Bonus = 50 x 10 = Rs 5.00 100 = Rs 15.00

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