1. Incentive Plans

2. Incentive means “an additional payment to the employees as a means of increasing output “
Incentive plans are applicable to all workers and Incentive rates are payable to the more efficient employee as extra compensation for their performance
BOUNS means payment to workers of the entire benefit accruing from savings, time, quality etc.
PREMIUM is the benefits accruing to the firm as the result of higher output, will be shared equally between the management and workers
INCENTIVE

3. Characteristics of incentive plans
Guaranteed minimum wages
Simple and equitable
Economical and flexible
Support (mutual trust)
Motivating
Prompt
Characteristics of incentive plans

4. Types of incentive plans
Individual Incentives
Group Incentives
Organizational Wide Incentives (profit sharing, stock option etc.)
Types of incentive plans

5. Individual Incentives - Types
Piece Rate Work Plans – Taylo’rs Differential and Merrick’s Differential Piece Rate System
Standard Hour Plans – Halsey Plan, Rowan Plan, Gantt Task & Bonus Plan, Bedeaux Paln, Haynes Manit Plan, Emerson’s Efficiency Plan, Accelerated Premium Bonus Plan
Bonuses
Performance - based Incentives
Lump sum Payments
Commissions – Salary Plan, Commission Plan, Combination Plan
Individual Incentives - Types

6. Individual Incentives-Piece Rate Work Plans-Taylor’s Piece Rate System
Coined by father of Scientific Management, F.W. Taylor
Two piece work rates – Higher and Lower
Rewarded based on the Standard time or Standard Output
Slow Worker and Fast Worker
Individual Incentives-Piece Rate Work Plans-Taylor’s Piece Rate System

7. Up to 83% of the standard output workers are paid at the ordinary piece of rate
83% to 100% at 110%
Above 100% at 120%
Individual Incentives-Piece Rate Work Plans-Merrick’s differential Piece Rate System

8. Individual Incentives-Standard Hour Plans–Halsey Plan
Recognizes the individual efficiency and pays bonus on the basis of time saved
Standard time is set for the job and the worker receives guaranteed wages irrespective of whether he completes the job in time or takes more time
If the job is completed in less than the standard time the worker is paid a bonus of 50% of time saved with his normal wages
Total earnings = Time taken x Hourly Rate + Bonus
Individual Incentives-Standard Hour Plans–Halsey Plan

9. Individual Incentives-Standard Hour Plans–Rowan Plan
Instead of Fixed % of bonus , here bonus is that proportion of the wages of time taken which the time saved bears to the standard time
Bonus = (time saved/standard time) x time taken x Hourly rate
Total Earnings = Time taken x Hourly rate + bonus
Individual Incentives-Standard Hour Plans–Rowan Plan

10. Individual Incentives-Standard Hour Plans–Gantt Task & Bonus Plan
Combines time, Piece and Bonus
Day wages are guaranteed
Standard time and High rate per Piece are determined
If a worker reaches the standard, he will be paid wages + Bonus(20% of normal time wage)
If the worker exceeds the standard time, he is paid higher piece rate
If he cant finish, he is paid on time basis
Individual Incentives-Standard Hour Plans–Gantt Task & Bonus Plan

11. Individual Incentives-Standard Hour Plans–Bedeaux plan
Every operation is expressed in terms of standard minutes called as Bedeaux points or “B’s”, each B’s representing one minute
100% of standard time, no bonus
Exceeding standard time, 75% of the wages of the time saved as bonus and 25% to the foreman
Individual Incentives-Standard Hour Plans–Bedeaux plan

12. Individual Incentives-Standard Hour Plans–Haynes maint plan
Instead of B’s here Maint is used
Maint = Man-Minute
Instead of 75%, here 50 % bonus is given and in remaining 50%, 10% to the supervisors and 40% retained back by employers
Individual Incentives-Standard Hour Plans–Haynes maint plan

13. Individual Incentives-Standard Hour Plans–Emerson’s efficiency Plan
Efficiency= 67%, bonus at given rate
Efficiency= 67% to 100%, bonus increases gradually
Efficiency= above 100%, bonus will 20% of basic rate + 1% for each increase in 1% efficiency
Individual Incentives-Standard Hour Plans–Emerson’s efficiency Plan

14. Individual Incentives-Standard Hour Plans–Accelerated bonus plan
Also known as sliding scale Bonus plan
Premium is paid at varying rates for increasing efficiency
Suitable for foreman and supervisors and not for machine operators
No formula and each firm can devise its own
Individual Incentives-Standard Hour Plans–Accelerated bonus plan

15. A bonus is an incentive payment given to an employee beyond one’s normal standard wage
Given at the end of the year
Not a part of basic pay
bonuses

16. Performance-based incentives
Merit pay, Payout
Rewarding based on their performance is a powerful motivator
Individuals are goal oriented, financial rewards can shape goals over time
While high achievers are rewarded, they set benchmark for others to follow
Politics plays an important role- seniority, favoritisms etc.
Every supervisor may not be a competent evaluator
Performance-based incentives

17. Lump sum payment is given at the time of their review
Not added to their base pay
Helps the employee in linking pay and performance
Lump sum payments

18. Commissions for sales people
Straight Salary Plan – only salary
Straight Commission Plan - % of the values of the sales
Combinational Plan – Salary + Commission
Commissions for sales people

19. Impacts of INCENTIVE PLANs
Motivating tool
May sacrifice quality
Rush up – accidents
Produce more and earn more
May Increase wastage
Better utilization of equipment
Unrealistic expectations
Reduced supervision
Frustrations
Reduced scrap
Jealousies may arise
Reduced lost time & absenteeism
Difficult to set standards
May oppose management
High Turnover
Impacts of INCENTIVE PLANs

20. Team or Group Based incentive plans
All team members are rewarded based on the overall performance of the team
May be cash or non cash rewards
Rather than thinking as an individual and makes to think as team
Conflicts occurs when all do not contribute equally(free riders)
E.g. Godrej, Mastek and Boyce
Inter group competition may take place
Team or Group Based incentive plans

21. team based Incentive plans
Preistman’s production plan – points
Rucker plan – added value
Scanlon plan – added value
Towne plan – based on labor cost reduction
Co-partnership – wages + % in profit
team based Incentive plans

22. Organization wide incentive plans
Profit sharing – Cash, Bonus shares, Payment of Bonus Act
Gain Sharing – Individual performance oriented, current distribution payments, Base line calculation
Employee Stock Ownership Plans(ESOP)- shares below market price based on certain eligibility
Organization wide incentive plans

23. Incentive Schemes for Indirect Worker
Repairs and maintenance staff – efficiency
Store Staff – requisitions handled
Office staff – basis of performance
Material handling staff – Materials handled
Executives – Non monetary benefits
Incentive Schemes for Indirect Worker

24. Thank You