Hrm Presntation on Incentive

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Incentives paymentsIncentives payments

By:Hemant Sharma

1451

PGDBM-A



Employees are like a herd of cats««

««.. Impossible to manage!!!

But

Cat always go to a dish of milk«.



Incentives ProgrammeIncentives Programme

Wage incentives include all the plans thatWage incentives include all the plans that provide extra pay for extra performance In provide extra pay for extra performance In

addition to regular wages for the job.addition to regular wages for the job.

It implies monetary inducements offered toIt implies monetary inducements offered toemployees to perform beyond acceptanceemployees to perform beyond acceptancestandards.standards.



Different Types of Variable PayDifferent Types of Variable Pay

PlansPlans

Cash Profit SharingStock Ownership or

Options

Balanced Scorecard

Productivity / Gain-

SharingTeam / Group

Incentives



Short Term PayShort Term Pay--forfor--PerformancePerformance

PlansPlans

Merit PayMerit Pay

LumpLump--Sum BonusesSum Bonuses Individual Spot AwardsIndividual Spot Awards

Individual IncentivesIndividual Incentives

Merit PayMerit Pay

LumpLump--Sum BonusesSum Bonuses Individual Spot AwardsIndividual Spot Awards




LongLong--Term Incentive PlansTerm Incentive Plans

Employee Stock Ownership PlansEmployee Stock Ownership Plans

(ESOPs)(ESOPs)

Performance PlansPerformance Plans (Performance(Performance

Share and Performance Unit)Share and Performance Unit)

BroadBroad--Based Option Plans (BBOP)Based Option Plans (BBOP)




Under a system of individual incentives, allUnder a system of individual incentives, all

or a portion of an individual¶s pay is tied toor a portion of an individual¶s pay is tied totheir performance.their performance.



Group IncentivesGroup Incentives

Improve Organizational PerformanceImprove Organizational Performance

Organizational MeasuresOrganizational Measures

Measured PeriodicallyMeasured Periodically



Team / Group Incentive PlansTeam / Group Incentive Plans

GainGain--Sharing PlansSharing Plans

Profit Sharing PlansProfit Sharing Plans

EarningsEarnings--atat--Risk PlansRisk Plans



IndividualIndividual Incentive PlansIncentive Plans

M ethod of Rate Determination

Units of production per time period

Time period per unit of production

(1) (2)

(4)(3)

Straight piecework plan Standard hour planBedeaux plan

Halsey 50 - 50 method

Rowan plan

Gantt plan

Taylor differential piece

rate system

M errick multiple piece

rate system

Pay constant function of production level

Pay varies as function of production level

Relationship

between

production level

and pay



Types of Short term Incentives PlansTypes of Short term Incentives PlansThe ILO classifies all the schemes of payment by results intofour categories:

Earning vary in

the same proportion

as output

Straight Piece Work

Standard Hour

Earnings vary

lessproportionately

than output

Halsey Plan

Rowan Plan

Barth Scheme

Bedaux Plan

Earnings vary

ProportionatelyMore than outputs

High Piece Rate

High Standard Hour

Earnings differ

at different levelsof output

Taylor¶s Differential

Piece RateMerrick Differential

Piece Rate

Gantt Task System

Emerson¶s Efficiency

plan



Halsey PlanRowan Plan

Barth Plan

Bedaux PlanTime - Based

Output - Based

Taylor¶sDifferential Piece Rate

Merrick Differential Piece Rate

Gantt Task System

Emerson¶s Efficiency plan



Halsey Plan

Eliminate the limitation of time and piece rate system

Certain amount of work isfixed as a standard output,which is to be completed ina prescribed time

Plan percentage × timesaved × hourly rate

Std Time= 10 HrsStd Time= 10 Hrs Rate per hr= Re 1Rate per hr= Re 1 Plan percentage = 50%Plan percentage = 50%

Case 1 time taken= 10 HrsCase 1 time taken= 10 HrsEarnings = 10* 1Earnings = 10* 1 Case 2 Time taken = 8 HrsCase 2 Time taken = 8 Hrs

Earnings = 10*1+ bonusEarnings = 10*1+ bonus Bonus = ½*2*1 = Rs 1.00Bonus = ½*2*1 = Rs 1.00

Rs 11.00Rs 11.00



Rowan Plan

Guaranteed a minimumwage on a time basis

(T

ime saved *time taken*hourly rate)/standard time

Std Time= 10 Hrs Rate per Hr= Re 1

Case 1 time taken= 10 Hrs Earnings = 10* 1

Case 2 Time taken = 8 Hrs earnings = 10*

1+bonus

Bonus = (2*8*1)/10 = Rs1.60

Rs 11.60



Barth Plan

Not guarranteed to aminimum wage rate

¥(standard time*time

taken*hourly rate)

Std Time= 8 HrsStd Time= 8 Hrs

Rate per Hr= Rs 5Rate per Hr= Rs 5

Case 1Case 1 time taken= 8 Hrstime taken= 8 Hrs

Earnings = 8*5= Rs 40.00Earnings = 8*5= Rs 40.00

Case 2Case 2 Time taken = 6 HrsTime taken = 6 Hrs

Earnings =Earnings = ¥(8*6)*5¥(8*6)*5

34.5034.50



Task Bonus System :-

Used for groups

Team work andcoordination

pre-determined task

Progressive bonus :- Earning increase at

progressive rate once theoutput crosses the standard

output

Point rating system

Each job rated in terms of standard time

Standard unit production per hour = 10 unit per hr

Working hour = 8 hr

Hourly rate = Rs. 5Production at end of the day =

100 units

Normally paid = 8*5 =40

Standard paid = 10*5 =50



Taylor¶s Differential Piece-RateStandard outputs: 100 UnitsStandard outputs: 100 UnitsRate per Unit: 10 paiseRate per Unit: 10 paiseDifferential to be applied:Differential to be applied:120% of piece120% of piece--rate at or above the standardsrate at or above the standards80% of piece80% of piece--rate when below the standardsrate when below the standardsCase 1: OutputsCase 1: Outputs = 120 units= 120 units

Earnings = 120*Earnings = 120* 120120 * 0.10 = Rs 14.40* 0.10 = Rs 14.40100100

Case 2: OutputsCase 2: Outputs = 90 units= 90 unitsEarningsEarnings = 90*= 90* 8080* 0.10 = Rs 7.20* 0.10 = Rs 7.20

100100



Merrick Differential piece-rateStraight piece-rates less than 83% of the Std outputs

110% of the base-piece rate for 83%-100% of the Std outputs120% of the base-piece rate for more than 100% of the Std outputsCase 1 Output = 80 units

Efficiency = 80 *100 = 80%100

Earnings: As the efficiency is less than 83%, only the base pie-rate applies:

80*0.10 = 8.00Case 2 Output = 90 unitsEfficiency = 90 *100 = 90%of

100Earnings: As the efficiency is 83% but less than 100%, 110% the base pie-rate applies:

90*110*0.10 = 9.90

100Case 3 Output = 110 unitsEfficiency = 110 *100 = 110%

100Earnings: As the efficiency exceeds 100%, 120% of the base piece-rate applies:

110*120*0.10 = 13.201



Gantt Task SystemRate per Hr =Re 0.50

High piece-rate = Re 0.10

Std Outputs = 80 units

Time taken = 8 Hrs

Std Bonus = 20%

Case 1 Output = 70 units

Earnings

As the output is less than the standard only time wages are paid to the worker

=8*0.50=Rs 4.00

Case 2 Output =80 units

Earnings

As the output is equal to the standard, the worker is entitled to time wage plus

20% bonus

Time wages =8*0.50= Rs 4.00

Bonus =20*4 = Re 0.80

100

Total earnings = Rs 4.80

Case 3 Output =110 units

As the output is more than th Std, the worker is entitled to a high piece rate

10*0.10= Rs 11.00



Emerson¶s PlanUp to 67% of efficiency, the worker is determined by dividing the time taken by the Std

Time-rate

Up to 100% efficiency, 20% bonus is paid to workers

An additional bonus of Rs 1% is added for each additional 1% efficiency

Case 1 Output in 10 Hrs: 50 units

Efficiency: 50%( below 67%, the worker is eligible for 50% of the time wage as bonus)

Case 2 Output in 10 Hrs : 100 units

Efficiency : 100% (time-wage + 20% bonus)

Case 3 : Output in 10 Hrs : 130 units

Efficiency : 130%

At the rate of 20% at 100% efficiency and 1% increase for every 1% increase in

Efficiency, the worker is eligible for 50% of the time wage as bonus:

Time wag =10*1 Rs 10.00

Bonus =50*10.00Rs 5.00

100

Rs 15.00



Types of Long Term Incentive PlanTypes of Long Term Incentive Plan

Annual bonus

Most common typre

based on the annual

performance of company One time bonus like ³

Diwali bonus´

8.33% of the salary

Profit sharing

Employee earn a shareof the Company¶s

profita) Distribution plan

b) Deferred plan

c) Combination plan



CONT«

Gain sharing

Rewarding groups

Based on team-work,coordination and other

characteristics Share rewards even firm has

not recorded any profits

Employee Stock Plans

Employee are given a partof ownership at a pricelower than market price

ESPP RSP

ESOS

SAR

PS PPO



Types of Employee Stock PlanTypes of Employee Stock Plan

ESPP

Employee Stock Purchase Plan

Acquire share of thecompany immediatelyafter they earn them atlower price then market

Lock in period

RSP

Restricted Stock Plan

Need not put in money

Not ³earned out´ for aspecific time



CO NT«.CO NT«.

ESOS

Employee Stock OptionScheme

Company grants anoption to its employeeto acquire share atfuture date at pre-determined price.

SAR

Stock AppreciationRights / Phantom Shares

Doest not have to put inany money

Right to relinquish thestock



CO NT««CO NT««

PS Phantom Stock Generally to senior

management Not required to put any

money in plan Shadow stock Protects the holder

against any depriciationin value of the stock

PRO Premium Priced Option Performance vesting

option Valid only when market

price reaches or exceedsthe pre-determined

exercise price higher than current market price



Advantage of ESO

Strengthen companyasset base

Increase its equity

Decrease the impact of

corporate taxes Interest of manager with

owner

Opportunity to reward

its employee withoutaffecting its bottom-line

Non Monetary Incentive

Recognition of anemployee¶s contribution

A challengingassignment

Addotionalresponsibility

Free gifts or freevacation

Awards



Conditions for Effective Incentives PlansConditions for Effective Incentives Plans

Plan is clearly communicatedPlan is clearly communicated

Plan is understoodPlan is understood

Rewards are easy to calculateRewards are easy to calculate Employees participate in administering the planEmployees participate in administering the plan

Employees believe they are being treated fairlyEmployees believe they are being treated fairly

Employees believe they can trust the companyEmployees believe they can trust the companyand that they have securityand that they have security

Rewards are awarded as soon as possible after theRewards are awarded as soon as possible after thedesired performance.desired performance.



References:

ICFAI Press Book

Incentive-Wikipedia

www.citehr.com www.autostream.com





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Hrm Presntation on Incentive