LABOUR COSTING Incentives Plans

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Incentives Programme Wage incentives include all the plans that provide extra pay for extra performance In addition to regular wages for the job. Wage incentives include all the plans that provide extra pay for extra performance In addition to regular wages for the job. It implies monetary inducements offered to employees to perform beyond acceptance standards. It implies monetary inducements offered to employees to perform beyond acceptance standards.

Different Types of Variable Pay Plans Cash Profit Sharing Stock Ownership or Options Balanced Scorecard Productivity / Gain- Sharing Team / Group Incentives

Short Term Pay-for-Performance Plans Merit Pay Merit Pay Lump-Sum Bonuses Lump-Sum Bonuses Individual Spot Awards Individual Spot Awards Individual Incentives Individual Incentives Merit Pay Merit Pay Lump-Sum Bonuses Lump-Sum Bonuses Individual Spot Awards Individual Spot Awards Individual Incentives Individual Incentives

Long-Term Incentive Plans Employee Stock Ownership Plans (ESOPs) Performance Plans (Performance Share and Performance Unit) Broad-Based Option Plans (BBOP)

Individual Incentives Under a system of individual incentives, all or a portion of an individual’s pay is tied to their performance. Under a system of individual incentives, all or a portion of an individual’s pay is tied to their performance.

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Group Incentives Improve Organizational Performance Improve Organizational Performance Organizational Measures Organizational Measures Measured Periodically Measured Periodically

Team / Group Incentive Plans Gain-Sharing Plans Gain-Sharing Plans Profit Sharing Plans Profit Sharing Plans Earnings-at-Risk Plans Earnings-at-Risk Plans

Individual Incentive Plans Method of Rate Determination Units of production per time period Time period per unit of production (1)(2) (4)(3) Straight piecework planStandard hour plan Bedeaux plan Halsey method Rowan plan Gantt plan Taylor differential piece rate system Merrick multiple piece rate system Pay constant function of production level Pay varies as function of production level Relationship between production level and pay

Types of Incentives Plans The ILO classifies all the schemes of payment by results into four categories: Earning vary in the same proportion as output  Straight Piece Work  Standard Hour Earnings vary less proportionately than output  Halsey Plan  Rowan Plan  Barth Scheme  Bedaux Plan Earnings vary Proportionately More than outputs  High Piece Rate  High Standard Hour Earnings differ at different levels of output  Taylor’s Differential Piece Rate  Merrick Differential Piece Rate  Gantt Task System  Emerson’s Efficiency plan

Halsey Plan Rowan Plan Barth Plan Bedaux Plan Time - Based Output - Based Taylor’s Differential Piece Rate Merrick Differential Piece Rate Gantt Task System Emerson’s Efficiency plan

Halsey Plan Std Time= 10 Hrs Rate per hr= Re 1 Case 1 time taken= 10 Hrs Earnings = 10* 1 Case 2 Time taken = 10 Hrs earnings = 12* 1 Case 3 Time taken = 8 Hrs earnings = 8*1 Bonus = ½*2*1 = Rs 1.00 Rs 9.00

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Rowan Plan Std Time= 10 Hrs Rate per Hr= Re 1 Case 1 time taken= 10 Hrs Earnings = 10* 1 Case 2 Time taken = 10 Hrs earnings = 12* 1 Case 3 Time taken = 8 Hrs earnings = 8*1 Bonus = 2/10*8 = Rs 1.60 Rs 9.60

Barth Plan Std Time= 10 Hrs Rate per Hr= Re 1 Case 1 time taken= 10 Hrs Earnings = 10 * 10 = 10*1= Rs Case 2 Time taken = 12 Hrs earnings = 12* 10 = 10.95*1 = Case 3 Time taken = 8 Hrs earnings = 8*10 = 8.94 * 1 = 8.94

Bedaux Plan Std Time= 10 Hrs Rate per Hr= Re 1 Case 1 time taken= 12 Hrs Earnings = 12 * 1 = Case 2 Time taken = 8 Hrs earnings = 8*1 = 8.00Bonus: Std Bs = 10*60 = 600 Actual Bs = 8*60 = 480 Bs saved = 120 Bonus 75 * 120*1 = Rs Total earnings = = Rs 9.50

Taylor’s Differential Piece-Rate Standard outputs: 100 Units Rate per Unit: 10 paise Differential to be applied: 120% of piece-rate at or above the standards 80% of piece-rate when below the standards Case 1: Outputs= 120 units Earnings = 120* 120 * 0.10 = Rs Case 2: Outputs= 90 units Earnings= 90* 80* 0.10 = Rs

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Merrick Differential piece-rate Straight piece-rates less than 83% of the Std outputs 110% of the base-piece rate for 83%-100% of the Std outputs 120% of the base-piece rate for more than 100% of the Std outputs Case 1 Output = 80 units Efficiency = 80 *100 = 80% 100 Earnings: As the efficiency is less than 83%, only the base pie-rate applies: 80*0.10 = 8.00 Case 2 Output= 90 units Efficiency= 90 *100 = 90%of 100 Earnings: As the efficiency is 83% but less than 100%, 110% the base pie-rate applies: 90*110*0.10 = Case 3 Output= 110 units Efficiency= 110 *100 = 110% 100 Earnings: As the efficiency exceeds 100%, 120% of the base piece-rate applies: 110*120*0.10 =

Gantt Task System Rate per Hr=Re 0.50 High piece-rate = Re 0.10 Std Outputs= 80 units Time taken= 8 Hrs Std Bonus = 20% Case 1 Output= 70 units Earnings As the output is less than the standard only time wages are paid to the worker =8*0.50=Rs 4.00 Case 2 Output =80 units Earnings As the output is equal to the standard, the worker is entitled to time wage plus 20% bonus Time wages=8*0.50= Rs 4.00 Bonus=20*4= Re Total earnings= Rs 4.80 Case 3 Output =110 units As the output is more than th Std, the worker is entitled to a high piece rate 10*0.10= Rs 11.00

Emerson’s Plan Up to 67% of efficiency, the workr is determined by dividing the time taken by the Std Time-rate Up to 100% efficiency, 20% bonus is paid to workers An additional bonus of Rs 1% is added for each additional 1% eficiency Case 1 Output in 10 Hrs: 50 units Efficiency: 50%( below 67%, the worker is eligible for 50% of the time wae as bonus) Case 2 Output in 10 Hrs : 100 units Efficiency : 100% (time-wage + 20% bonus) Case 3 : Output in 10 Hrs : 130 units Efficiency : 130% At the rate of 20% at 100% efficiency and 1% increase for every 1% increase in Efficiency, the worker is eligible for 50% of the time wage as bonus: Time wag=10*1Rs Bonus=50*10.00Rs Rs 15.00

Conditions for Effective Incentives Plans Plan is clearly communicated Plan is clearly communicated Plan is understood Plan is understood Rewards are easy to calculate Rewards are easy to calculate Employees participate in administering the plan Employees participate in administering the plan Employees believe they are being treated fairly Employees believe they are being treated fairly Employees believe they can trust the company and that they have security Employees believe they can trust the company and that they have security Rewards are awarded as soon as possible after the desired performance. Rewards are awarded as soon as possible after the desired performance.

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