Group incentives

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  • 1. GROUP INCENTIVE PLANS Presented By: Nidhi Kumari (2012MB04) Nitika Gupta (2012MB22) Nikita Juyal (2012MB41) Nitin Singh (2012MB54)
  • 2. 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.
  • 3. 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.
  • 4. 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.
  • 5. Cost Efficiency Bonus Plan Preistmans Production Bonus Plan Rucker Plan Budgeted Expense Plan Scanlon Plan Towne Plan Co-partnership Plan
  • 6. 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 employees Ques: 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=2,70,000 savings= 3,00,000-2,70,000=30,000 Bonus= (( 60/100)*30,000)= 18,000 Bonus to each member=18000/10=1,800
  • 7. 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= 12,000 efficiency achieved= 15,000-12,000= 3,000 increase 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%
  • 8. 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. 80,000 If reduction then 1% of value added given as bonus.
  • 9. Ans: for past 5 years: value-added = labour cost + all cost included + PBT value-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 + PBT value-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
  • 10. ADVANTAGE: 1. Increase employee engagement and organizational performance. 2. Cost savings on overheads also. 3. Increased motivation to employee 4. Easy to implement and no cost involved DISADVANTAGE: 1. Leader dependent plan. 2. More need of Training and Development for employee.
  • 11. 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 employees Ques: 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 =2,70,000 savings= 3,00,000-2,70,000=30,000 Bonus= (( 60/100)*30,000)= 18,000 Bonus to each member=18000/10=1,800
  • 12. 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.
  • 13. 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. 4,40,000 average annual labour cost ( for 4 years) = Rs. 1,20,000 Current year sales = Rs. 1,40,000 actual annual labour cost = Rs. 30,000 Ans: Ratio = (current year sales actual labour cost) * 100 average annual sales = 1,40,000 30,000/4,40,000 = 25%
  • 14. Standard labour cost = (( current year sales * ratio )/100) = (1,40,000 * 25)/100 = Rs. 35,000 Actual labour cost current year = Rs. 30,000 Bonus 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
  • 15. No cost to use the process. Increase employee engagement and organizational performance. Advantages Leader dependent plan. More need of T&D for employee. Disadvantages
  • 16. 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.
  • 17. 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. 2,50,000 Actual 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.
  • 18. 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.
  • 19. Profit sharing. Control sharing. Motivation to work. Sense of belongingness to workers.
  • 20. Encourages co-operation Useful when there are no clearly defined individual goals Increase