You are on page 1of 17

Incentives Plans

Wage Incentives Contd.

Types of Wage incentive Plans: 1) Plans for Blue-Collar Workers: I. Short-Term Plans:
Effectiveness depends on employee-management confidence; relations with trade union; quality of communication and supervision; etc. Introduction of the plan by encouraging employee participation and trade union negotiations. Avoidance of unfair actions and proper machinery for settlement of grievances. Careful setting up of productivity standards to avoid goals that are too unrealistic or too easy to achieve.

Wage Incentives Contd.

Important Wage Incentive Plans:


Hasley Premium Plan: A standard output within a standard time fixed. Bonus based on the amount of time saved by the worker. 33% of time saved given to worker as premium. Hasley-Weir Premium Plan: Similar to Hasley Premium Plan except that 50% of the time saved given to worker as premium. 100% Premium Plan: Task standards set by time study/work sampling. Definite hourly rate paid for each task-hour of work performed. Worker is paid the full value (100%) of the time saved.

Wage Incentives Contd.


Bedeaux Point Plan: Used when carefully assessed performance standards have been established. Worker receives a bonus of 75% for the units of time saved. Taylors Differential Piece-Rate Plan: For the employees who reach the standard are given a higher rate to enable them to get the bonus. A lower rate given to employees who are below the standard to motivate them to increase their productivity to receive a higher rate. Gnatt Task and Bonus Plan: Output and time standards established for each job. Workers completing the job in standard/less time receive a bonus ranging from 20%50% of the time allowed.

Wage Incentives Contd.


Emerson Efficiency Plan: A standard time established for a standard task. The day wage is assured. Worker receives bonus depending on his efficiency. Efficiency determined by the ratio between standard time and time actually taken. For 100% efficiency bonus is 20% of assured wage. It goes on increasing with further increase in efficiency. Accelerating Premium System: Provides for a guaranteed minimum wage for output below standard. For average increase in output, small increments given. Better increments conceded for above average output. Very significant increments given for really high output.

Wage Incentives Contd.

II. Long-Term Plans:


Each member of the group receives a bonus based on the output of the group as a whole. Adopted for inter-related jobs. Encourage co-operation among group members. Eliminates the need for close supervision as all members keep close watch at each other. Facilitates on-the-job training as new members get trained by the existing members. Usually applied to small work groups. Group incentive plans are usually profit-sharing schemes and Scanlon plan.

Wage Incentives Contd.

Profit-Sharing:
Stepping stone to industrial democracy. An arrangement by which employees receive a share, of the profits fixed in advance. Involves the determination of an organizations profits at the end of the fiscal year and the distribution of a percentage of the profits to workers as their share. The percentage to be shared by the workers often predetermined at the beginning of the work period and communicated to the workers for their awareness. The amount to be distributed depends on the profits earned by the enterprise.

Wage Incentives Contd.


The basic types of profit-sharing plans in use are: a) Current Profits paid directly to employees in form of cash/cheque/stock as soon as profits are determined. b) Deferred Profits credited to employees accounts to be paid at the time of retirement or in circumstances like disability, death, resignation, etc. c) Combination by which a part of the profits paid in cash and a part is deferred and placed in the employees account in a trust fund.

Wage Incentives Contd.


The basis of profit-sharing plans include: a) Industry Basis: Profits of all the units of an organization in the country are pooled together to determine the share of workers. b) Locality Basis: Profits of all the units of an organization in a particular locality are pooled together to determine the share of workers. c) Unit Basis: Profit of the individual unit of an organization in which the worker is employed determines his share.

Wage Incentives Contd.


d) Department Basis: Various departments of an organization may have different profit-sharing schemes. Workers in a particular department share in the profits made by that department. e) Individual Basis: A worker receives a proportion of the profit which may have been earned by the business through the efforts of that particular worker. Impossible to determine such profits in practice.

Wage Incentives Contd.

Scanlon Plan:
Developed in 1937 by Joseph Scanlon. Designed to involve the workers in making suggestions for reducing the cost of operation, improving working methods, and sharing in the gains of increased productivity. Financial incentives installed to cut down cost and increase efficiency. Departmental and plan screening committees set up to evaluate employee and management cost-cutting suggestions. All the workers, supervisors and managers make cost cutting suggestions to be evaluated by the committees.

Wage Incentives Contd.


A suggestion when implemented and successful leads to the sharing of 75% of the savings. Rest 25% set aside for unforeseen circumstances. Tends to encourage a sense of partnership and sharing among workers. Also encourages labour-management faith and commitment.

Wage Incentives Contd.

2)

Plans for White-Collar Executives/Salesmen:


Salesmen usually given incentives in the form of sales commissions. The types of incentive plan for executives include straight salary method, straight commission method, and combination plan. Around 30% of yearly salary is straight paid as incentives, although the percentage may vary across different products/industries. Payment isn't related to results.

Straight Salary Method:

Wage Incentives Contd.

Straight Commission Method:


Incentives paid by results and only for results. Attracts high performing executives. Sometimes quality of work gets adversely affected.

Combination Method:
Assured minimum earnings. Bonus given for carrying out some specified activities.

Wage Incentives Contd.

3)

Plans for Managers:


Managers also paid incentives in many organizations. For top level management, bonuses are generally tied to overall corporate results. Incentives paid for increased sales/profits. Size of incentives much higher for top level executives.

Non-Monetary Incentives
Many factors unrelated to money can also serve as motivators. Such incentives limited to managers creativity and ability to assess the desires of the individual employees. Need for power and social recognition are particularly satisfied by such incentives.

Examples:

Job assignments that relate to socially attractive individuals/groups. Availability of paneled office, carpeted floor, wall paintings, large desk, private bathroom, impressive job title, own visiting card, own secretary and telephone, reserved parking place, etc.

Non-Monetary Incentives
Leadership and administrative responsibilities. Job enlargement. Verbal praises and publicized awards. Awards to recognize seniority. Awards on best safety performance records. Participation extended on more complex and important job assignments.