PRODUCTIVITY LINKED

INCENTIVES IN SERVICE
SECTER

FORMULATION,MEASUREMENT AND
IMPLEMENTION
 GROUP MEMBERS

JOYDEEP ROY

KRITI ARUN KOMAL RAJDEV

MANJIS KUMAR MANSI ARORA KRATI RASTOGI

 DEFINITION OF PRODUCTIVITY

Productivity is the amount of output per unit of input.

Input element in an organization consists of resources
used in the product creation process,such as
labour,material,energy.
Output consists of a given product, service and the
amount of both.
In case of service sector the output has two aspects
quantitative and qualitative aspects.
Therefore definition of productivity in service sector

Quantity of output and quality of output

Productivity =
PRODUCTIVITY ASPECTS
OUTPUT AND INPUT MEASUREMENT

 Output Measurement

 Measure of the aggregate value of goods or

services sold.
 Gross Output - Intermediate Outputs
 Involves using information on the relative prices
of the goods and services as weights.
 While measuring productivity value measures of
output are then transformed into volume
measures using price indices.
………CONTINUED
 Input Measurement

 The main input is labour, and the total hours

actually worked(THAW) is the preferred measure
of labour output.
 Based on the assumption that the mix of different
kinds of job is much the same at different time
examined.
 A possible approach to capture the differences
in the productivity is given by the indicator of
THAWCP.
………CONTINUED

The weighting scheme adopted is of

simplified method to capture the quality of
input of labour.
TECHNIQUES FOR MEASURING
PRODUCTIVITY

 Productivity is typically measured relative to

some benchmark.

 Productivity measures include single factor

productivity and multifactor productivity measure.
………CONTINUED

 A non- parametric technique

 Includes Data Envelopment Analysis.

 Takes data on organizations outputs and inputs and measures the

efficiency of a particular organization by its distance from the ‘outer
envelope’ of the data.

 The technique relies on the use of extreme observations in the data.

5 WAYS TO IMPROVE PRODUCTIVITY
CONSEQUENCE OF PRODUCTIVITY
IMPROVEMENT
 PRESENT REMUNERATION SYSTEM

The present wage system may be in the form of

 Salary scale

 Salary range

 Minimum and maximum annual increment

 Collective bargaining
PRODUCTIVITY LINKED INCENTIVES IN
AIRLINES

• INDIAN AIRLINES
 WEAKNESS IN PRESENT
REMUNERATION SYSTEM

 The general trend of wage increase is rapid and

not related to productivity improvement.

 Annual increments are pre-determined and are

given automatically to all workers regardless to the
level of performance.

 Remuneration is not related to company

performance.
REASON FOR LINKING PRODUCTIVITY
WITH REMUNERATION
Linking productivity with remuneration
make the following thing possible

 Higher wages for worker and higher profits for

companies

 Greater competitiveness for companies

PRODUCTIVITY LINKED
REMUNERATION
SYSTEM
PRODUCTIVITY MODEL

 In the productivity linked incentive model the

wage has two component. They are
 Fixed component
 Basic wage
 Annual increment
 Variable component linked with
 Productivity and Performance
FORMULATION

T=A+P

Where
 T= Wage increase
 A= Annual increment
 P=Variable productivity payment.
EXAMPLE

If basic wage is equal to Rs.2500 pm,

A= 5%, P=4%
Basic wage + A = Rs.2500 + 5% of
Rs.2500 = Rs. 2625 per month
P = 4% of Rs. 2500 12
= Rs.1200 per annum
Total increment = Rs. 225 per month.
PROFITABILITY MODEL

In this model, the fixed component includes the

basic wage and an annual increment. The variable
component will be determined using a profit-
sharing formula where:

 The formula is to be agreed upon between the

management and union and reviewed periodically.

 Wage incentive is paid if profits exceed a pre-

determined or threshold level which can be
calculated based on absolute or relative form or
average profit earned over a number of years as
follows:
 CONTINUED……..

Absolute form :
 Trading or operating profit
 Net profit before tax
 Profit after tax
Relative form :
 Return on sales
 Return on equity
 Return on assets
 MEASUREMENT OF INCETIVES

Incentive schemes in Public Sector

Budget based reward system, where the reward is

calculated on the bases of the comparison of objectives
and results.
…….CONTINUED
FACTOR FOR SUCCESSFUL
IMPLEMENTATION
 Satisfactory labour management relationship.
 Realistic annual increment.
 Challenging and equitable variable payment.
 Wage system should be
 Specific
 Measurable
 Achievable
 Realistic.
VII PILLARS OF PRODUCTIVITY IT
Move from analog to digital
processes
Open information access
Empower the employees
Use merit based incentives
Invest in corporate culture
Recruit the right people
Invest in human capital
 PRODUCTIVITY LINKED INCENTIVES IN
INDIAN AIRLINES

 Staff of Indian Airlines getting PLI, the increase in its

fleet size will improve the aircraft-employee ratio.

 Under this scheme employees are paid monthly

incentives depending upon the performance of the
airline.
………CONTINUED

 Parameters
 Firstly, timely availability of aircraft for
flying.
 Secondly, time taken by aircraft for
major maintenance purposes.
 Thirdly, number of passengers carried
and on-time performance.
 PRODUCTIVITY MEASURES OF BANK

 Increase Of Productivity through strategic

delivery assessment:-

1. Increase customer satisfaction.

2. Effectively manage production and
service delivery to exceed customer
needs.
 ….CONTINUED
3.To keep up with increasing technology
so as to remain competitive.
4.Identify overall and line of business
objectives and keep them in order.
5.Position people,process and technology to
achieve results.
Increase of productivity through
performance improvement:-

1.Identify line-of-business improvement

initiatives to increase productivity
and efficiency.
2.Compare functional level performance
to institutions of similar asset size.
 ……CONTINUED

3.Develop industry performance

indicators that are specific,actionable
and measurable.
4.Reduce cost and improve income
through evaluation of alternatives.
5.Implement changes and measure
their success.
6.Ensure tasks are completed on-time
and within budget.
Increase of productivity through sales
force development:-

1.Develop measurement-reporting structures to

track employee performance.

2.Develop measures,thresholds and weights that

clearly indicate expected performance levels.
 …………..CONTINUED

3.Balance sales and service.

4.Ensure systems properly reward top performers.

5.Improve and standardize work

processes.

6.Balance staffing required and service

expected with predictive models and routines.