INCENTIVES AND

PERFORMANCE-BASED PAY

Subject: Human Resource Management

Prof Meenakshi Malhotra

Prepared by: Ashok Kumar

Nikki Latta

Ravneet Kaur

MBA GEN A

March 15th, 2017

WHAT ARE INCENTIVES?

Incentives are variable awards granted to employees according to variations in their

performance. Anything that can attract an employee’s attention and motivate them

to work can be called as incentive. An incentive aims at improving the overall

performance of an organization.

IMPORTANCE OF

INCENTIVE PLANS

Motivational Tool

Promoting Teamwork

Morale Boosters

Higher degree of Service to customers

Cost of supervision is reduced

Desired results

PRE-REQUISITES OF EFFECTIVE

INCENTIVE SYSTEM

The co-operation of workers in the implementation of an incentive scheme is

essential . Workers' co-operation may be secured through proper discussion with

their representatives. In particular, workers' co-operation is necessary in:

I. The methods followed in measuring the results or output upon which

payment is based;

II. The methods followed in setting wage rates for different classes of work;

and

III. Appropriate safeguards concerning earnings, job security and

settlement of disputes over piece-work rates and allotted time.

PRE-REQUISITES OF EFFECTIVE

INCENTIVE SYSTEM

The scheme must be based on scientific work measurement. The

standards set must be realistic and must motivate workers to put in better

performance.

There is greater need for planning. Many incentive schemes, started

hurriedly, planned carelessly, and implemented indifferently have failed and have

created more problems for the organization than they have tried to solve.

Indirect workers, such as supervisors, foremen, charge hands, helpers, crane

operators and clerical staff should also be covered by incentive schemes.

PRE-REQUISITES OF EFFECTIVE

INCENTIVE SYSTEMThe other safeguards are:

The incentive scheme should be appropriate to the type of work carried out

and the workers employed.

The reward should be clearly and closely linked to the efforts of the

individual or group.

Individuals or groups should have a reasonable amount of control over

their efforts and therefore their rewards.

The scheme should operate by means of a well-defined and easily-

understood formula.

Provisions should be made for controlling the amounts paid, to en- sure

that they are proportionate to effort.

Provisions should be made for amending rates in defined circumstances

TYPES OF INCENTIVE

SCHEMES

EARNING VARY IN THE

SAME PROPORTION AS

OUTPUT

STRAIGHT PIECE-WORK

SYSTEM

The Straight Piece-Work System is the simplest incentive

method in which the rate per unit of output is fixed, and the

earnings of the worker are computed by multiplying his total

output by the rate per unit.

Such as, if the per unit rate is 10 Paise and the total output

is 1000 units, then his earnings will be 0.10 x 1000 = Rs 100.

STANDARD HOUR SYSTEM

The Standard Hour System is an incentive scheme in which the

standard time in terms of hours is set for the completion of a job.

The rate per hour is then determined. Under this method, the

worker is paid for a standard time irrespective of whether the job is

completed in the standard time or less. This means that the worker

is paid the same wages even if the time spent is more than the

standard hours unless he/she is guaranteed the time wages.

STANDARD HOUR SYSTEM

Standard time = 8 Hours

Rate per hour = Rs 2

Case 1: Time taken = 6 hours

Earnings = 8 x 2= Rs 16

Case 2: Time taken = 10 Hours

• Time wages are not guaranteed, then the worker’s earnings will be Rs 16 (8

x2).

• Time wages are guaranteed, then the worker’s earnings will be Rs 20 (10 x 2).

EARNING VARY LESS

PROPORTIONATELY

THAN OUTPUT

HALSEY PLAN

Under Halsey Plan, the standard time for the completion of a job is fixed and

the rate per hour is then determined. If the time taken by a worker is more than

the standard time, then he shall be paid according to the time rate, i.e. time taken

multiplied by the rate per hour. In case, the worker completes the works in less

than the standard time, then he/she will be paid according to the actual time, i.e.

time-rate plus the bonus calculated at a specified percentage of the saved time.

Generally, the bonus percentage varies from 30-70 percent. The usual bonus

share paid to the worker is 50% of the time saved multiplied by the rate per

hour

HALSEY PLAN

Standard Time: 8 hrs

Rate per Hour: Rs 2

Case (1): Time Taken = 8 hrs Earnings = 8 x 2 = Rs 16

Case (2): Time Taken = 10 hrs Earnings = 10 x 2 = Rs 20

Case (3): Time Taken= 6 hrs

Earnings: Time wages = 6x 2 = Rs 12 Bonus = ½ x 2 x 2 = Rs Rs 2

Thus, in the above example, the worker’s total earnings are Rs 14 (time wages

+bonus), if he has completed the work in 6 hrs, less than the standard time.

ROWAN PLAN

Under Rowan Plan, the standard time for the completion of a job

and the rate per hour is fixed. If the time taken by the worker is more

than the standard time, then he is paid according to the time rate, i.e.

time taken multiplied by the rate per hour.

In case, the worker completes the work in less than the standard

time; then he is entitled to a bonus along with the time wages.

Bonus = Time Saved/ Standard Time

ROWAN PLAN

Standard Time = 8 hrs

Rate per hour = Rs 2

Case (1): Time Taken = 8 hrs Earnings = 8 x 2 = Rs 16

Case (2): Time Taken = 10 hrs Earnings = 10 x 2 = Rs 20

Case (3): Time taken = 6 hrs

Earnings:- Time Wages = 6 x 2 = Rs 12

Bonus = 2/8 X 2 = Rs 1.5

Thus, in the above example, the worker completing the work in 6 hrs, less

than the standard time, the total earnings will be Rs 13.50 (time wages+bonus).

BARTH VARIABLE SHARING

PLAN

Under Barth Variable Sharing Plan, the earnings of the worker

are ascertained by taking the square root of the standard hour

multiplied by the number of hours actually taken for the completion

of the job and then multiplying it by the worker’s rate per hour.

BARTH VARIABLE SHARING

PLAN

Standard Time = 8 hrs

Rate per Hour = Rs 2

Case (1): Time Taken = 10 hrs

= 8.94 X 2 = Rs 17.88

Case (2): Time Taken: 8 hrs

= 8 X 2 = Rs 16

Case (3): Time Taken: 6 hrs

= 6.92 X 2 = Rs 13.84

Thus, the worker will earn Rs 13.84, in case he works for less than standard, hours i.e., 6 hrs.

BEDAUX PLAN

The Bedaux Plan is an incentive scheme in which the standard time for the

completion of a job is fixed and the rate per hour is defined. Each minute of the

standard time is called as point or B, such as in one hour there are 60 Bs.

Under Bedaux plan, every job has a standard number of Bs. If the worker

completes the job in more than standard hours, then he is paid according to

the time-rate, i.e. time taken is multiplied by the hourly rate. In case, the work is

completed in hours less than the standard time; then the worker is entitled to the

bonus in addition to the hourly rate. A bonus is equal to the 75% of the

earned/saved points (in excess of 60 per hour) multiplied by one-sixth of the

hourly rate.

BEDAUX PLAN

Standard Time = 8 hrs

Rate per Hour = Re 1

Case (1): Actual Time = 10 hrs Earnings = 10 X 1 = Rs 10

Case (2): Actual Time = 6 hrs

Earnings: Time-wages = 6 X 1= Rs 6

Bonus:

Standard Bs = 60 X 8 = 480 Actual Bs =60 X 6 = 360

Saved Bs = 120 (480-360)

Thus, total earnings = Rs 6 +1.50 = 7.50

Earnings Differing at

Different Levels of Outputs

TAYLOR’S DIFFERENTIAL

PIECE RATE SYSTEM

There is low rate for output

below the standard, and a higher

piece-rate for output above the

standard with a large bonus of 50%

of the time-rate when the standard

output is attained.

TAYLOR’S DIFFERENTIAL PIECE

RATE SYSTEM (CONTD.)

To illustrate : Standard Output = 100 units Rate per Unit = 10 paise

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*(120/100)*0.10= Rs.14.40 Case (ii) Output = 90 units Earnings

= 90*(80/100)*0.10=7.20

MERRICK DIFFERENTIAL

PIECE–RATE SYSTEM

It is a modification of earlier system with three instead of two rates.

E.g. Std Output = 100 units Piece Rate = 10 paise Case (i) Output= 80units

Efficiency = 80/100*100=80% Earnings: As the efficiency is less than 83%, only

base piece-rate applies: 80*.10=8.00 Case (ii) Output = 90 units Efficiency =

90/100*100=90% Earnings: As the efficiency is more than 83% but less than

100%, 110% of the base piece-rate applies: 90*(110/100)*0.10=9.90 Case (ii)

Output = 110 units Efficiency = 110/100*100=110% Earnings: As the efficiency

exceeds 100%, 120% of the base piece- rate applies: 90*(120/100)*0.10=13.20

GANTT TASK SYSTEM

The worker is guaranteed his /her time-rate for

output below the standard. On reaching the std

output or task, which is set at a high level, the

worker is entitled to a bonus of 20% of time

wages.

GANTT TASK SYSTEM

(CONTD.)

It operates as follows: Rate per hr = Rs 0.50 High piece-rate = Rs 0.10 Std

Output = 80 units Time Taken = 8hrs Case (i) Output = 70 units As the output

is less than the standard only time wages are paid to the worker. Earnings =

8*.50= Rs 4.00 Case (ii) Output = 80 Units Earnings: As output is equal to the

standard, the worker is entitled to time wages plus 20% of time wages as bonus.

Time wages = 8*.50=4.00 Bonus = 20/100*4=Rs 0.80 Total Earnings = Rs.4.80

Case (iii) Output earnings= 110 Units As the output is more than the standard,

the worker is entitled to a high piece- rate. 110*.10= Rs.11.00

EMERSON’S PLAN

A standard is set for the job, & efficiency of each worker is determined by

dividing the time taken by the std time.

EMERSON’S PLAN

Illustration: Std Output in 10 hrs = 100 units Rate per hr = Rs 1 Case (i) Output

in 10 hrs = 50 units Earnings: Efficiency = 50% As efficiency is below 67 % the

worker is entitled to time wages only. 10*1=Rs 10.00 Case (ii) Output in 10 hrs =

100 units Earnings: Efficiency = 100% The worker is entitled to time wages plus

20% of time wages as bonus. Time Wages = 10*1 =Rs 10.00 Bonus = 20/100*10

=Rs 2.00 Earnings: = 10 + 2 =Rs12.00 Case (iii) Output in 10 hrs = 130 units

Earnings: Efficiency = 130% At the rate of 20% at 100% efficiency & one percent

increase for every one percent increase in efficiency, the worker is eligible for 50% of

the time wage as bonus. Time Wages = 10*1 =Rs 10.00 Bonus = 50/100*10 =Rs

5.00 Earnings: = 10 + 5 =Rs15.00

REFERENCES

Human Resource Management (Text and Cases) by K Aswathappa