• Incentive pay links pay (as a reward) to performance
– The idea of incentive pay is to create incentives for employees to improve their job performance by linking employee pay to employee job performance – Incentive pay is also called:
• Pay for performance • Performance-based pay systems • Performance-based reward systems
• The reward for performance doesn’t have to be pay
– Pay is one possible reward, not the only possible reward
• Wage incentives include all the plans that provide extra pay for extra performance in addition to regular wages for the job. • It implies monetary inducements offered to employees to perform beyond acceptance standards.
Conditions for Effective Incentives Plan
Plan is clearly communicated. Plan is understood. • • • • •
. Rewards are easy to calculate Employees participate in administering the plan Employees believe they are being treated fairly • Employees believe they can trust the company and that they have security • Rewards are awarded as soon as possible after the desired performance.
Team Incentives 3.Types of Incentive Schemes 1. Organisational Incentives
. Individual Incentives 2.
Taylor’s Piece Rate
Merrick’s Piece Rate
Gantt Task System
•Emerson’s Efficiency plan
FMCG. between 83% to 100% at 110% of the ordinary piece rate and above 100% at 120% of the ordinary piece rate. This plan is practiced in the sectors dealing with manufacturing of products such as engineering – automobile.
. etc. telecommunication.Piece Rate/ Output oriented
Piece rate incentive is given to the employees based on the number of units produced. up to 83%of the standard output workers are paid at the ordinary piece rate. Merrick's differential piece rate system: This method uses three rates. • Demerits
• • • • • 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.
. Employees’ productivity and quality is evaluated with respect to the set standards.• Standard Hour Pay / Time Oriented Standard hour plan provides incentives to employees based on the time saved by them during the job course.
and is a useful method for computing the incentive. The value of time saved by the employee is computed and the earning is shared by the employee and the organization.Halsey Plan • It takes into account the total time saved by the employee. The total earnings of the worker is computed by the formula given below: • TE = Time taken x Hourly rate + Bonus • Bonus = 50% of time saved.
then the total earnings of the worker under the Rowan Plan would be: Time saved Time allowed Bonus = Time saved x time taken x hourly rate time allowed TE = time taken x hourly rate + bonus
• In this plan the bonus is calculated on the basis of the time worked. Thus the premium paid to the worker is a percentage of the time worked. If we consider our previous example.
he is paid at higher piece rate. • If the worker exceeds the target. Standard time is fixed. • Worker who achieves the target. • • • •
. Time and high piece rate is decided. Worker who can not achieve the target is paid on time basis. will be paid wage plus bonus at fixed % (20%).Gantt Task
Day wages are guaranteed.
If actual performance exceeds the standard performance in terms of B's then 75% of the wages of time saved is paid to worker as bonus and 25% is given to the foreman. finishing the job exactly as per standards set.
In this plan every operation is expressed in terms of standard minutes called as “B's” representing one minute. ie. A worker gets time wages for 100 % performance.
Above 100% bonus will be at 20% of the basic rate plus 1% for each increase in efficiency. The rate of bonus increases gradually from 67% to 100%.Emerson's efficiency plan
• If the worker achieves 67% efficiency. he gets bonus at a given rate.
. The organizations set policies regarding the bonuses. The performance standards are set by the organizations much in advance. • Merit Raises Merit raises are given on the basis of predetermined policies. The employees are given raise on the basis of their performance. Usually bonuses are provided during the festive season.• Bonuses are given to employees on a pre established goal or criteria.
. It is given on the basis of business generated by the employee.• Commissions Commission is a variable component of compensation package. It is practiced in the retail. FMCG and other sectors in the marketing and sales segment. Commission is a pre fixed component say 5% of the total sales done by the employee.
Indirectly all the organizations follow the plan by giving out the dividends.Organisational Incentives Profit Sharing Gain Sharing ESOP’s
Profit Sharing Profit sharing incentive plans are practiced in retail and FMCG sectors.
Gain Sharing Gain sharing incentive plans undertake those employees who give outstanding performances and provide for cost saving measures. It refers to giving out the share of profits the organization earned to all the employees. Other sectors too implement the plan based on organizational policies. are
. Organizations believe in sharing the profits with the employees who responsible for producing those results.
• An employee stock ownership plan (abbreviated to "ESOP") is the practice of companies giving staff members shares in their company as part of their salary. retain. companies provide their employees the opportunity to acquire the company's shares at a reduced price over a period of time.
. Under the ESOP plan. It is an equity based deferred compensation plan. • An ESOP is a defined contribution employee benefit plan that allows employees to become owners of stock in the company they work for. and attract employees. • Many companies use employee stock options plans to compensate. These plans are contracts between a company and its employees that give employees the right to buy a specific number of the company’s shares at a fixed price within a certain period of time. Employees who are granted stock options hope to profit by exercising their options at a higher price than when they were granted.
Methods in this category include Preistman’s production bonus. a share in the profits of the company and a share in the management of the company as well.Team Based Incentive
Here all team members receive an incentive bonus payment when production or service standards are met or exceeded. Towne plan and Co partnership. Under co partnership. Rucker plan. the worker gets his usual wages.
. Scanlon plan.
operators. • There is great need of planning. keepers should be covered in incentive schemes. • Indirect workers like Supervisors. helpers.
. Standards set must be realistic. • Scheme must be based on Scientific measurement. Foreman.Requisites of Effective Incentive System
• Cooperation of workers in implementation of incentive scheme is essential.
• Schemes are fine tuned according to industries benefit.Incentive Scheme in Indian Industry
• Though incentive schemes are quite old but still in infancy. • Inflation reduces the motivational effect of Incentive. • In most of the industries policies are not rational & does not include employees. • In most cases incentive schemes are able to achieve its objective of increasing efficiency and productivity. • Schemes in public sector covers various attributes of incentive schemes.
• Help to raise the living condition of employees. Features are: • Supplementary forms of compensation • Paid to all employees • Indirect compensation.Fringe Benefits
These are extra benefits provided to employees in addition to the normal compensation paid in the form of wages or salaries. since they are not directly related to performance • May be statutory (PF) or voluntary (Transport).
Need for fringe benefits • • • • • Employee demands Trade union demands Employer's preference A kind of social security To improve human & industrial relations
. • Promotes employee welfare. • Provides security against social risk. • Creates sense of belongingness. • Meets legislative requirement with fringe benefits.Objectives
• Improve industrial relations. • Motivate employees to satisfy their needs.
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