Incentive Plans
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INCENTIVE PLANS Incentive means “an additional payment to the employees as a means of increasing output “ Incentive plans are applicable to all workers and Incentive rates are payable to the more efficient employee as extra compensation for their performance BOUNS means payment to workers of the entire benefit accruing from savings, time, quality etc. PREMIUM is the benefits accruing to the firm as the result of higher output, will be shared equally between the management and workers INCENTIVE Guaranteed minimum wages Simple and equitable Economical and flexible Support (mutual trust) Motivating Prompt CHARACTERISTICS OF INCENTIVE PLANS Individual Incentives Group Incentives Organizational Wide Incentives (profit sharing, stock option etc.) TYPES OF INCENTIVE PLANS Piece Rate Work Plans – Taylo’rs Differential and Merrick’s Differential Piece Rate System Standard Hour Plans – Halsey Plan, Rowan Plan, Gantt Task & Bonus Plan, Bedeaux Paln, Haynes Manit Plan, Emerson’s Efficiency Plan, Accelerated Premium Bonus Plan Bonuses Performance - based Incentives Lump sum Payments Commissions – Salary Plan, Commission Plan, Combination Plan INDIVIDUAL INCENTIVES - TYPES Coined by father of Scientific Management, F.W. Taylor Two piece work rates – Higher and Lower Rewarded based on the Standard time or Standard Output Slow Worker and Fast Worker INDIVIDUAL INCENTIVES-PIECE RATE WORK PLANS-TAYLOR’S PIECE RATE SYSTEM Up to 83% of the standard output workers are paid at the ordinary piece of rate 83% to 100% at 110% Above 100% at 120% INDIVIDUAL INCENTIVES-PIECE RATE WORK PLANS-MERRICK’S DIFFERENTIAL PIECE RATE SYSTEM Recognizes the individual efficiency and pays bonus on the basis of time saved Standard time is set for the job and the worker receives guaranteed wages irrespective of whether he completes the job in time or takes more time If the job is completed in less than the standard time the worker is paid a bonus of 50% of time saved with his normal wages Total earnings = Time taken x Hourly Rate + Bonus INDIVIDUAL INCENTIVES-STANDARD HOUR PLANS–HALSEY PLAN Instead of Fixed % of bonus , here bonus is that proportion of the wages of time taken which the time saved bears to the standard time Bonus = (time saved/standard time) x time taken x Hourly rate Total Earnings = Time taken x Hourly rate + bonus INDIVIDUAL INCENTIVES-STANDARD HOUR PLANS–ROWAN PLAN Combines time, Piece and Bonus Day wages are guaranteed Standard time and High rate per Piece are determined If a worker reaches the standard, he will be paid wages + Bonus(20% of normal time wage) If the worker exceeds the standard time, he is paid higher piece rate If he cant finish, he is paid on time basis INDIVIDUAL INCENTIVES-STANDARD HOUR PLANS–GANTT TASK & BONUS PLAN Every operation is expressed in terms of standard minutes called as Bedeaux points or “B’s”, each B’s representing one minute 100% of standard time, no bonus Exceeding standard time, 75% of the wages of the time saved as bonus and 25% to the foreman INDIVIDUAL INCENTIVES-STANDARD HOUR PLANS–BEDEAUX PLAN Instead of B’s here Maint is used Maint = Man-Minute Instead of 75%, here 50 % bonus is given and in remaining 50%, 10% to the supervisors and 40% retained back by employers INDIVIDUAL INCENTIVES-STANDARD HOUR PLANS–HAYNES MAINT PLAN Efficiency= 67%, bonus at given rate Efficiency= 67% to 100%, bonus increases gradually Efficiency= above 100%, bonus will 20% of basic rate + 1% for each increase in 1% efficiency INDIVIDUAL INCENTIVES-STANDARD HOUR PLANS–EMERSON’S EFFICIENCY PLAN Also known as sliding scale Bonus plan Premium is paid at varying rates for increasing efficiency Suitable for foreman and supervisors and not for machine operators No formula and each firm can devise its own INDIVIDUAL INCENTIVES-STANDARD HOUR PLANS–ACCELERATED BONUS PLAN A bonus is an incentive payment given to an employee beyond one’s normal standard wage Given at the end of the year Not a part of basic pay BONUSES Merit pay, Payout Rewarding based on their performance is a powerful motivator Individuals are goal oriented, financial rewards can shape goals over time While high achievers are rewarded, they set benchmark for others to follow Politics plays an important role- seniority, favoritisms etc. Every supervisor may not be a competent evaluator PERFORMANCE-BASED INCENTIVES Lump sum payment is given at the time of their review Not added to their base pay Helps the employee in linking pay and performance LUMP SUM PAYMENTS Straight Salary Plan – only salary Straight Commission Plan - % of the values of the sales Combinational Plan – Salary + Commission COMMISSIONS FOR SALES PEOPLE +ve -ve Motivating tool May sacrifice quality Produce more and earn more Rush up – accidents Better utilization of equipment May Increase wastage Reduced supervision Unrealistic expectations Frustrations Jealousies may arise Difficult to set standards May oppose management Reduced scrap Reduced lost absenteeism High Turnover time & IMPACTS OF INCENTIVE PLANS All team members are rewarded based on the overall performance of the team May be cash or non cash rewards Rather than thinking as an individual and makes to think as team Conflicts occurs when all do not contribute equally(free riders) E.g. Godrej, Mastek and Boyce Inter group competition may take place TEAM OR GROUP BASED INCENTIVE PLANS Preistman’s production plan – points Rucker plan – added value Scanlon plan – added value Towne plan – based on labor cost reduction Co-partnership – wages + % in profit TEAM BASED INCENTIVE PLANS Profit sharing – Cash, Bonus shares, Payment of Bonus Act Gain Sharing – Individual performance distribution payments, Base line calculation Employee Stock Ownership Plans(ESOP)- shares below market price based on certain eligibility oriented, ORGANIZATION WIDE INCENTIVE PLANS current Repairs and maintenance staff – efficiency Store Staff – requisitions handled Office staff – basis of performance Material handling staff – Materials handled Executives – Non monetary benefits INCENTIVE SCHEMES FOR INDIRECT WORKER THANK YOU
