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GROUP INCENTIVE PLANS Presented By: Nidhi Kumari (2012MB04) Nitika Gupta (2012MB22) Nikita Juyal (2012MB41) Nitin Singh (2012MB54)

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Page 1: Group incentives

GROUP INCENTIVE PLANS

Presented By: Nidhi Kumari (2012MB04)

Nitika Gupta (2012MB22) Nikita Juyal (2012MB41)

Nitin Singh (2012MB54)

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Reward all team members equally based on overall performance.

Applied when – There is a community of interest. It is not possible to measure individual

performance.

Examples include assembly line operations, chemical processes, blast furnace operation etc.

INTRODUCTION

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Generally, smaller groups are better and more effective.

Dependent on the type of group task.

Large groups may be effective in case of a line operation.

In case of a welder, group strength may be only two.

GROUP SIZE

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CONDITIONS FOR SUCCESSFUL GROUP INCENTIVE PLANS

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A team based incentive with links to individual payouts.

Team and individual performance goals are set.

If team hits its goals, team members earn their incentive only if they also hit their individual goals.

Team incentive is 12% to 15% of monthly base pay.

EXAMPLE: GE Information System

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Cost Efficiency Bonus Plan Preistman’s Production Bonus Plan Rucker Plan Budgeted Expense Plan Scanlon Plan Towne Plan Co-partnership Plan

VARIOUS GROUP INCENTIVES SCHEMES

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Steps:1) Determines standard cost for the various. elements of cost.2) Actual cost incurred by group.3) Compare Incurred Cost and Standard Cost.4) Finally, pre-determind percentage of the savings is distributed in the form of bonus to

the employeesQues: Standard cost = Rs. 3,00,000

Actual Production cost= Rs. 2,70,000 No. of Members=10

Group is eligible for 60% of cost saved as bonus.Ans: given: standard cost=3,00,000

actual cost=2,70,000savings= 3,00,000-2,70,000=30,000

Bonus= (( 60/100)*30,000)= 18,000Bonus to each member=18000/10=1,800

COST EFFICIENCY BONUS PLAN

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Steps:1) Determines standard performance in terms of units or points.2) Actual performance in units is measured .3) Compare standard performance and Actual performance .4) a) actual performance exceeds standard performance, bonus is given based on excess

production achieved and pre-determind percentage of bonus .b) actual performance below standard performance, no bonus given

Ques: Standard production=12,000 units Actual production=15,000 units

Group is eligible for 75% of increase in efficiency as bonus to employees.Ans: Actual production= 15,000

Standard production= 12,000efficiency achieved= 15,000-12,000= 3,000increase in efficiency = (3,000/12,000) * 100= 25%Bonus= 75% of 25= 18.75%

Bonus to each member of 10-member group = 18.75 / 10 =1.875%

PREISTMAN’S PRODUCTION BONUS PLAN

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Assumption: Pay portion of Value Added remains near constant share unless drastic change in policy or organisation mismanagement.

Steps:1) Calculate value added for given data in defined time period.2) Calculate ratio of labour cost to value added.3) Calculate value-added of subsequent years and ratio of labour cost to

value added.4) Now, if reduction in ratio then certain amount of value added given as

bonus.Ques: for past 5 years: for subsequent 5 years:

Labour cost = Rs.2,00,000 Labour cost = Rs. 2,20,000 all cost included = Rs.1,40,000 all cost included = Rs. 1,50,000

PBT = Rs.60,000 PBT = Rs. 80,000If reduction then 1% of value added given as bonus.

RUCKER PLAN

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Ans: for past 5 years: value-added = labour cost + all cost included + PBTvalue-added = 2,00,000 + 1,40,000 + 60,000 = Rs. 4,00,000

Ratio = (labour cost / value added) * 100= (2,00,000 / 4,00,000) * 100= 50%

For subsequent 5 years :value-added = labour cost + all cost included + PBTvalue-added = 2,20,000 + 1,50,000 + 80,000 = Rs. 4,50,000

Ratio = (labour cost / value added) * 100 = (2,20,000 / 4,50,000) * 100 = 48.9%

Now, since ratio is reduced so bonus payable = ( 1% of 4,50,000) = Rs. 4,500

Bonus to each member of 10-member group = 4,500/10= Rs. 450

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ADVANTAGE:1. Increase employee engagement and organizational performance.2. Cost savings on overheads also.3. Increased motivation to employee4. Easy to implement and no cost involved

DISADVANTAGE:1. Leader dependent plan.2. More need of Training and Development for employee.

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Steps:1) Determines total budgeted expense .2) Actual total expenditure incurred by group.3) Compare total budgeted expense and Actual total expenditure.4) Finally, pre-determind percentage of the savings is distributed in the form of bonus

to the employeesQues: total budgeted expense = Rs. 3,00,000

Actual total expenditure = Rs. 2,70,000 No. of Members=10

Group is eligible for 60% of savings as bonus.Ans: given: total budgeted expense =3,00,000

Actual total expenditure =2,70,000savings= 3,00,000-2,70,000=30,000

Bonus= (( 60/100)*30,000)= 18,000Bonus to each member=18000/10=1,800

BUDGETED EXPENSE PLAN

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Constant proportion of the added value of output is paid to the workers who are responsible for the addition of the value.

Ratio of labour cost to sales value of production.

Scanlon plan

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Calculation:1) Calculate current year sales and actual labour cost.

2) Compare current year sales and current year actual labour cost .3) Calculate ratio of fixing bonus.4) Finally Standard Labour Cost is computed using ratio.5) Compare standard labour cost to actual labour cost for bonus payable.Ques: Given:

average annual sales( for 4 years) = Rs. 4,40,000average annual labour cost ( for 4 years) = Rs. 1,20,000Current year sales = Rs. 1,40,000actual annual labour cost = Rs. 30,000

Ans: Ratio = (current year sales – actual labour cost) * 100average annual sales

= 1,40,000 – 30,000/4,40,000 = 25%

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Standard labour cost = (( current year sales * ratio )/100) = (1,40,000 * 25)/100 = Rs. 35,000

Actual labour cost current year = Rs. 30,000Bonus payable = (Standard labour cost – Actual labour cost)

= 35,000 – 30,000 = Rs. 5,000

Bonus to each member of 10-member group = 5,000/ 10 = Rs. 500

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Advantages & Disadvantages

Advantages

No cost to use the process. Increase employee

engagement and organizational performance.

Disadvantages

Leader dependent plan. More need of T&D for

employee.

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Cost reduction by foremen and workers. Steps:

1. Standard labour cost per unit for a particular period is determined.2. If actual labour cost per unit is less than the standard labour cost, 50% of the saving in labour cost is distributed among workers and foremen in proportion to their wages.

Towne plan

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Calculation:1) Calculate Standard Labour Cost per unit.2) Calculate Actual Labour Cost per unit.3) Compare actual labour cost and standard labour cost to compute savings.4) Bonus calculated = 50% of savings Ques:

Standard Labour cost per unit = Rs. 2,50,000Actual Labour cost per unit = Rs. 2,00,000

Ans.Savings = Standard Labour Cost per unit – Actual Labour cost = 2,50,000 – 2,00,000 = Rs. 50,000

Since, actual labour cost less than standard labour cost 50% of savings given as bonus.Bonus = (50% of 50,000) = Rs. 25,000

Bonus to each member of 10-member group = 25,000/10 = Rs. 2,500.

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Worker gets his usual wages. Employees share the capital as well as profits. Improved over all other systems of wage payment. Offers recognition of the claim of the dignity of

labour.

Co - partnership

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Advantages of Co-Partnership Profit sharing. Control sharing. Motivation to work. Sense of belongingness to workers.

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Encourages co-operation Useful when there are no clearly defined individual

goals Increase of output/productivity Better quality of work Less supervision Increase motivation

ADVANTAGES

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Bonus shared by all Bonus fixation & ascertainment is difficult. Rivalry among the members defeats the purpose of

Team-Work and Co-operation Equal rewards considered unfair by hard working

employees Efficient worker may be penalized for inefficiency of

other members in group

DISADVANTAGES

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Set quantifiable targets when evaluating team performance for rewards

Ensure top performers earn highest rewards

Link team performance to company’s profits

Offer uniform non team based incentives to employees within each grade

BEST PRACTICES

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1) Cost Accounting Theory And Practice 12Th Ed. By Bhabatosh Banerjee.2) Cost Accounting: Principles And Practice By Dutta.3) Human Resource Management By Durai Pravin.4) http://www.tutorsonnet.com/homework_help/types_of_cost/

labor_and_machinery_cost/labour_group_bonus_plans_assignment_help_online_tutoring.htm

5) Human Resource Management Approach, Prentice Hall, Inc. © 2006 By David Oakes.

6) Human Resource Management By Robert L. Mathis and John H. Jackson.

7) Human Resource Management By K. Aswathappa.8) Human Resource Management By V S P Rao.

REFERENCES

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THANK YOU..