incentives and performance based pay
- 1. INCENTIVES AND PERFORMANCE-BASED PAY Subject: Human Resource Management Prof Meenakshi Malhotra Prepared by: Ashok Kumar Nikki Latta Ravneet Kaur MBA GEN A March 15th, 2017
- 2. WHAT ARE INCENTIVES? Incentives are variable awards granted to employees according to variations in their performance. Anything that can attract an employee’s attention and motivate them to work can be called as incentive. An incentive aims at improving the overall performance of an organization.
- 3. IMPORTANCE OF INCENTIVE PLANS Motivational Tool Promoting Teamwork Morale Boosters Higher degree of Service to customers Cost of supervision is reduced Desired results
- 4. PRE-REQUISITES OF EFFECTIVE INCENTIVE SYSTEM The co-operation of workers in the implementation of an incentive scheme is essential . Workers' co-operation may be secured through proper discussion with their representatives. In particular, workers' co-operation is necessary in: I. The methods followed in measuring the results or output upon which payment is based; II. The methods followed in setting wage rates for different classes of work; and III. Appropriate safeguards concerning earnings, job security and settlement of disputes over piece-work rates and allotted time.
- 5. PRE-REQUISITES OF EFFECTIVE INCENTIVE SYSTEM The scheme must be based on scientific work measurement. The standards set must be realistic and must motivate workers to put in better performance. There is greater need for planning. Many incentive schemes, started hurriedly, planned carelessly, and implemented indifferently have failed and have created more problems for the organization than they have tried to solve. Indirect workers, such as supervisors, foremen, charge hands, helpers, crane operators and clerical staff should also be covered by incentive schemes.
- 6. PRE-REQUISITES OF EFFECTIVE INCENTIVE SYSTEM The other safeguards are: The incentive scheme should be appropriate to the type of work carried out and the workers employed. The reward should be clearly and closely linked to the efforts of the individual or group. Individuals or groups should have a reasonable amount of control over their efforts and therefore their rewards. The scheme should operate by means of a well-defined and easily- understood formula. Provisions should be made for controlling the amounts paid, to en- sure that they are proportionate to effort. Provisions should be made for amending rates in defined circumstances
- 8. EARNING VARY IN THE SAME PROPORTION AS OUTPUT
- 9. STRAIGHT PIECE-WORK SYSTEM The Straight Piece-Work System is the simplest incentive method in which the rate per unit of output is fixed, and the earnings of the worker are computed by multiplying his total output by the rate per unit. Such as, if the per unit rate is 10 Paise and the total output is 1000 units, then his earnings will be 0.10 x 1000 = Rs 100.
- 10. STANDARD HOUR SYSTEM The Standard Hour System is an incentive scheme in which the standard time in terms of hours is set for the completion of a job. The rate per hour is then determined. Under this method, the worker is paid for a standard time irrespective of whether the job is completed in the standard time or less. This means that the worker is paid the same wages even if the time spent is more than the standard hours unless he/she is guaranteed the time wages.
- 11. STANDARD HOUR SYSTEM Standard time = 8 Hours Rate per hour = Rs 2 Case 1: Time taken = 6 hours Earnings = 8 x 2= Rs 16 Case 2: Time taken = 10 Hours • Time wages are not guaranteed, then the worker’s earnings will be Rs 16 (8 x2). • Time wages are guaranteed, then the worker’s earnings will be Rs 20 (10 x 2).
- 12. EARNING VARY LESS PROPORTIONATELY THAN OUTPUT
- 13. HALSEY PLAN Under Halsey Plan, the standard time for the completion of a job is fixed and the rate per hour is then determined. If the time taken by a worker is more than the standard time, then he shall be paid according to the time rate, i.e. time taken multiplied by the rate per hour. In case, the worker completes the works in less than the standard time, then he/she will be paid according to the actual time, i.e. time-rate plus the bonus calculated at a specified percentage of the saved time. Generally, the bonus percentage varies from 30-70 percent. The usual bonus share paid to the worker is 50% of the time saved multiplied by the rate per hour
- 14. HALSEY PLAN 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 = 6x 2 = Rs 12 Bonus = ½ x 2 x 2 = Rs Rs 2 Thus, in the above example, the worker’s total earnings are Rs 14 (time wages +bonus), if he has completed the work in 6 hrs, less than the standard time.
- 15. ROWAN PLAN 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. Bonus = Time Saved/ Standard Time
- 16. ROWAN PLAN 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 2 = 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).
- 17. BARTH VARIABLE SHARING PLAN Under Barth Variable Sharing Plan, the earnings of the worker are ascertained by taking the square root of the standard hour multiplied by the number of hours actually taken for the completion of the job and then multiplying it by the worker’s rate per hour.
- 18. BARTH VARIABLE SHARING PLAN Standard Time = 8 hrs Rate per Hour = Rs 2 Case (1): Time Taken = 10 hrs = 8.94 X 2 = Rs 17.88 Case (2): Time Taken: 8 hrs = 8 X 2 = Rs 16 Case (3): Time Taken: 6 hrs = 6.92 X 2 = Rs 13.84 Thus, the worker will earn Rs 13.84, in case he works for less than standard, hours i.e., 6 hrs.
- 19. BEDAUX PLAN The Bedaux 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 Bedaux 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.
- 20. BEDAUX PLAN 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
- 21. Earnings Differing at Different Levels of Outputs
- 22. TAYLOR’S DIFFERENTIAL PIECE RATE SYSTEM There is low rate for output below the standard, and a higher piece-rate for output above the standard with a large bonus of 50% of the time-rate when the standard output is attained.
- 23. TAYLOR’S DIFFERENTIAL PIECE RATE SYSTEM (CONTD.) To illustrate : Standard Output = 100 units Rate per Unit = 10 paise Differentials to be applied: 120 percent of piece-rate at or above the standard 80 percent of piece-rate when below the standard Case (i) Output = 120 units Earnings = 120*(120/100)*0.10= Rs.14.40 Case (ii) Output = 90 units Earnings = 90*(80/100)*0.10=7.20
- 24. MERRICK DIFFERENTIAL PIECE–RATE SYSTEM It is a modification of earlier system with three instead of two rates. E.g. Std Output = 100 units Piece Rate = 10 paise Case (i) Output= 80units Efficiency = 80/100*100=80% Earnings: As the efficiency is less than 83%, only base piece-rate applies: 80*.10=8.00 Case (ii) Output = 90 units Efficiency = 90/100*100=90% Earnings: As the efficiency is more than 83% but less than 100%, 110% of the base piece-rate applies: 90*(110/100)*0.10=9.90 Case (ii) Output = 110 units Efficiency = 110/100*100=110% Earnings: As the efficiency exceeds 100%, 120% of the base piece- rate applies: 90*(120/100)*0.10=13.20
- 25. GANTT TASK SYSTEM The worker is guaranteed his /her time-rate for output below the standard. On reaching the std output or task, which is set at a high level, the worker is entitled to a bonus of 20% of time wages.
- 26. GANTT TASK SYSTEM (CONTD.) It operates as follows: Rate per hr = Rs 0.50 High piece-rate = Rs 0.10 Std Output = 80 units Time Taken = 8hrs Case (i) Output = 70 units As the output is less than the standard only time wages are paid to the worker. Earnings = 8*.50= Rs 4.00 Case (ii) Output = 80 Units Earnings: As output is equal to the standard, the worker is entitled to time wages plus 20% of time wages as bonus. Time wages = 8*.50=4.00 Bonus = 20/100*4=Rs 0.80 Total Earnings = Rs.4.80 Case (iii) Output earnings= 110 Units As the output is more than the standard, the worker is entitled to a high piece- rate. 110*.10= Rs.11.00
- 27. EMERSON’S PLAN A standard is set for the job, & efficiency of each worker is determined by dividing the time taken by the std time.
- 28. EMERSON’S PLAN Illustration: Std Output in 10 hrs = 100 units Rate per hr = Rs 1 Case (i) Output in 10 hrs = 50 units Earnings: Efficiency = 50% As efficiency is below 67 % the worker is entitled to time wages only. 10*1=Rs 10.00 Case (ii) Output in 10 hrs = 100 units Earnings: Efficiency = 100% The worker is entitled to time wages plus 20% of time wages as bonus. Time Wages = 10*1 =Rs 10.00 Bonus = 20/100*10 =Rs 2.00 Earnings: = 10 + 2 =Rs12.00 Case (iii) Output in 10 hrs = 130 units Earnings: Efficiency = 130% At the rate of 20% at 100% efficiency & one percent increase for every one percent increase in efficiency, the worker is eligible for 50% of the time wage as bonus. Time Wages = 10*1 =Rs 10.00 Bonus = 50/100*10 =Rs 5.00 Earnings: = 10 + 5 =Rs15.00
- 29. REFERENCES Human Resource Management (Text and Cases) by K Aswathappa