INCENTIVES

INDIVIDUAL INCENTIVES
1) Piece Rate Work Plan
i) Taylor's Differential Piece Rate System -F.W Taylor
 there shall be two piece rates, one is lower and the other is higher
 standard of efficiency is determined either in terms of time or output based on time
and motion study
 if a worker finishes work within standard time (or produces more than standard output
within the standard time) he will be given high piece rate.

ii) Merrick's Differential Piece Rate System- Merrick

 upto 83% of the standard output workers are paid at the ordinary piece rate
 83%-100% at 110% of the ordinary piece rate
 above 100% at 120% of the ordinary piece rate

2) Standard Hour Plans

i) Halsey Plan- F.A Halsey
 standard time is fixed for each job or operation
 time rate is guaranteed and the worker receives the guaranteed wages irrespective of
whether he completes the work in the time allowed or takes more time to do the same.
 if the job is completed in less than the standard time, the worker is paid a bonus of
50% (33.33% under Halsey Weir Plan) of time saved at time rate in addition to his
normal time wages.

Total Earnings = Time taken x Hourly rate plus Bonus

Bonus = 50% of time saved

ii) Rowan Plan- D.Rowan

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. A bonus is the percentage of worker’s time rate. This
means, the bonus/premium is calculated on the percentage of wages earned for working on a
job and is not calculated for the time-saved, as in the case of Halsey Plan. This percentage is
equivalent to the proportion of the time saved to the standard time.
Rowan's Proportion= Time saved/ Time allowed
Bonus= (Time saved/Time allowed) x Time taken x Hourly Rate
Total Earnings= (Time taken x Hourly Rate) + Bonus

The incentive scheme under Rowan Plan can be illustrated by the examples given below:
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 6 = 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).

iii) Gantt Task and Bonus Plan

 day wages are guaranteed.
 standard time for task is fixed and both time wages as well as a high rate per piece are
determined.
 a worker who cannot finish the work within the standard time is paid on time basis.
 if a worker reaches the standard, he will be paid time wage plus bonus at a fixed
percentage (20%) of normal wage time.
 if the worker exceeds the standards, he is paid a higher piece rate.

iv) Bedeaux Plan

The Bedeaux 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 Bedeaux 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.
Even if the worker does not reach the standard, then he is paid according to the time-rate.
This scheme can be illustrated by examples given below:
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

v) Haynes Manit Plan

the only differences in this plan and Bedeaux plan are:-

 standard is fixed in terms of standard minute known as 'Manit', instead of Bedeaux.

Manit stands for man-minute.
 bonus is only 50% as against 75% of the Bedeaux Plan. Of the remaining 50%,
10% bonus is paid to supervisors and 40% is retained by the employers.

vi) Emerson's Efficiency Plan

Under Emerson Plan, the standard time for the completion of a task is fixed against which
the actual performance of the workers is measured. The worker’s efficiency can be
determined by dividing the time taken by the standard time.
In Emerson Plan, the worker is paid only the time rate for the efficiency up to 67%. At
100% efficiency, the worker is paid time wages, plus a bonus of 20% on the wages earned.
The worker is paid one percent additional bonus for each additional one percent efficiency
added after the standard. The Emerson plan can be understood through an example given
below:
Standard output in 10 hrs = 200 units
Rate per unit = Rs 2
Case (1): Output in 10 hrs = 100 units
Efficiency = 50% (100/200 x 100)
As efficiency is below 67% the worker is entitled to only time wage, thus, Earnings = 10 x 2
= 20.
Case (2): Output in 10 hrs = 200 units
Efficiency = 100% (200/200 x 100)
As the efficiency is 100%, then the worker is paid time wages, plus a bonus of 20% on wages
earned. Thus,
Earnings:
Time Wages = 10 x 2 = Rs 20
Bonus = 20/100 x 20 = Rs 4
Total earnings = Rs 24
Case (3): Output in 10 hrs = 260 units
Efficiency = 130% (260/200 x 100)
For 100% efficiency, the worker will get a bonus of 20% on wages earned, plus one percent
additional bonus for every one percent increase in efficiency, i.e. 30%. Thus, the total bonus
of 50% of time wage is paid to the worker.
Earnings:
Time wages = 10 x 2 = Rs 20
Bonus = 50/100 x 20 = Rs 10
Total Earnings = Rs 30
vii) Accelerated Premium Bonus Plan (Sliding Scale Bonus
Plan)
 Under accelerated premium plan, the rate of bonus payable to the workers will
increase along with increase in efficiency. The skilled workers are highly encouraged
under this plan.
 this plan is more suitable for foreman and supervisors because it will stimulate them
to get higher production from workers under their supervision.
 there is no particular formula for this scheme and every company develops its own
scheme.

GROUP INCENTIVE PLAN

1) Preistman's Production Bonus
 the standard output and standard time for each department is predetermined in
consultation with the workers.
 Bonus is payable to the department when the actual production exceeds the standard
production.
 The bonus is calculated as a percentage on such excess production and distributed to
all employees in that particular department by increasing their normal wages by the
same percentage the actual production increased over the standard.
 This method not only applicable for excess of actual production over the standard but
also saving in material and labour costs is also considered for payment of bonus. The
main drawback in this system is the efficiency of individual worker is not considered
and inefficient workers can also claim for bonus in this system.

For example, the standard set for a particular division is 10,000 units and actual production
achieved is 12,000 units. There is excess production of 20% over the standard output. The
employees in that particular division are eligible for 20% increase in their normal salaries as
bonus. In this system the time wages are guaranteed if actual production of the particular
division, department, group is less than the standard output.

2) Scanlon Plan
 constant proportions (i.e. ratio of wages to sales value) of the added value of output is
paid to the workers who are responsible for the addition of value.
 the added value is the change in the market value ( including profits) resulting from
an alteration in the form, location or availability of product service, excluding the cost
of purchased materials or services used in production.

3) Rucker Plan
 also called as share of production plan.
 Under this plan, the workers will get a fixed percentage of ‘value added’. Value
added is defined as “the increase in market value resulting from an alteration in
 the form, location or availability of a product or service excluded the cost of
goods and services purchased from outside.”
 This plan suggests the payment of bonus on the basis of reduction in the ratio between
labour earnings and added value.

4) Towne Plan
 standard cost of production is determined and saving in cost is calculated as
difference between the standard cost and actual cost.
 In addition to the normal wages, 50% of the saving in cost is paid as bonus to workers
and supervisors in proportion to their normal earnings.

5) Co-Partnership Plan
 Co-partnership plan is also known as ‘co-ownership’ involve the issue of shares to
employees so that they may feel identified with the business.
 The employees, being shareholders also, will take more care of machines and
materials as it will increase the sense of belonging and will work towards the progress
of the organization along with that their share value also increases. The bonus earned
by the employees are allowed to leave their bonus amount in the form of bonus
shares.
 The improved productivity means low cost of production and higher profits, and
improved standard of living of the workers.

FRINGE BENEFITS
The term fringe benefits refer to the extra benefits provided to employees in addition to the
normal compensation paid in the form of wage or salary.

 they are supplementary forms of compensation.

 paid to all employees (unlike incentives which are paid to specific employees whose
work is above standard) based on their membership in the organisation.
 they are indirect compensation
 they help raise living conditions
 may be statutory or voluntary

Types of Fringe Benefits

1) Payment for time not worked

 Hours of work
 Paid Holidays
 Shift Premium
 Holiday Pay
 Paid Vacation
2) Employee Security

 Retrenchment Compensation
 Lay off compensation

3) Safety and Health

 Safety Measures
 Workers Compensation
 Health Benefits

4) Welfare Recreational Facilities

 Canteens
 Consumer Societies
 Credit Societies
 Housing
 Legal Aid
 Employee Counselling
 Welfare Organisations
 Holiday Homes
 Educational Facilities
 Transportation
 Parties and Picnic
 Miscellaneous

5) Old Age and Retirement Benefits

 Provident Fund
 Deposit Linked Insurance
 Gratuity
 Medical Benefits
 Pension