Incentive Payments

8/2/2019 Incentive Payments

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Incentive payments Incentive pay links pay (as a reward) to

performance The idea of incentive pay is to create incentives

for employees to improve their job performance by

linking employee pay to employee job performance Incentive pay is also called: Pay for performance Performance-based pay systems Performance-based reward systems

The reward for performance doesnt have tobe pay Pay is one possible reward, not the only possible

reward


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Wage incentives include all the plansthat provide extra pay for extraperformance in addition to regularwages for the job.

It implies monetary inducementsoffered to employees to performbeyond acceptance standards.


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Conditions for Effective

Incentives Plan Plan is clearly communicated. Plan is understood. Rewards are easy to calculate Employees participate in administering the plan Employees believe they are being treated

fairly Employees believe they can trust the company

and that they have security Rewards are awarded as soon as possible afterthe desired performance.


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Types of Incentive Schemes

1. Individual Incentives2. Team Incentives3. Organisational Incentives


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Individual Incentives

Output oriented Time Oriented

Taylors Piece Rate

Merricks Piece Rate

Halsey Plan

Rowan Plan

Gantt Task System

Bedaux Plan

Emersons Efficiency plan

Bonuses Merit Pay Commission


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Piece Rate / Output orientedPiece rate incentive is given to the employees based on the number of

units produced. This plan is practiced in the sectors dealing withmanufacturing of products such as engineering automobile,

telecommunication, FMCG, etc. Demerits

Delays beyond one's control could affect workers earnings adversely Beginners and slow learners are left behind in the race The focus on quantity would affect quality Workers may stretch themselves to unhealthy levels to earn more

Encourages rivalry between workers

Taylor's differential piece rate system: A worker is paid more ifhe finishes the assigned task before the stipulated time.

Merrick's differential piece rate system: This method usesthree rates; up to 83%of the standard output workers are paid atthe ordinary piece rate; between 83% to 100% at 110% of theordinary piece rate and above 100% at 120% of the ordinary piecerate.


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Standard Hour Pay / Time OrientedStandard hour plan providesincentives to employees based on thetime saved by them during the job

course. Employees productivity andquality is evaluated with respect tothe set standards.


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Halsey Plan It takes into account the total time saved by the

employee, and is a useful method for computingthe incentive. The value of time saved by theemployee is computed and the earning is shared bythe employee and the organization. The totalearnings of the worker is computed by theformula given below:

TE = Time taken x Hourly rate + Bonus Bonus = 50% of time saved.


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Rowan Plan In this plan the bonus is calculated on the basis of the time

worked. Thus the premium paid to the worker is a percentageof the time worked. If we consider our previous example,then the total earnings of the worker under the Rowan Planwould be:

Time savedTime allowed

Bonus = Time saved x time taken x hourly ratetime allowed

TE = time taken x hourly rate + bonus


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Gantt Task Day wages are guaranteed. Standard time is fixed. Time and high piece rate is decided. Worker who can not achieve the target is

paid on time basis. Worker who achieves the target, will be

paid wage plus bonus at fixed % (20%). If the worker exceeds the target, he is

paid at higher piece rate.


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Bedeaux plan

In this plan every operation is expressed interms of standard minutes called asB's representing one minute. A workergets time wages for 100 % performance;

ie, finishing the job exactly as perstandards set. If actual performanceexceeds the standard performance interms of B's then 75% of the wages of

time saved is paid to worker as bonus and25% is given to the foreman.


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Emerson's efficiency plan

If the worker achieves 67%efficiency, he gets bonus at agiven rate. The rate of bonus

increases gradually from 67% to100%. Above 100% bonus will be at20% of the basic rate plus 1% foreach increase in efficiency.


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Bonusesare given to employees on a pre established goalor criteria. The organizations set policiesregarding the bonuses. Usually bonuses areprovided during the festive season.

Merit RaisesMerit raises are given on the basis ofpredetermined policies. The employees are givenraise on the basis of their performance. Theperformance standards are set by theorganizations much in advance.


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Organisational Incentives

Profit Sharing Gain Sharing ESOPs

Profit Sharing

Profit sharing incentive plans are practiced in retail and FMCG sectors.Other sectors too implement the plan based on organizational policies. Itrefers to giving out the share of profits the organization earned to all theemployees. Indirectly all the organizations follow the plan by giving out thedividends.

Gain SharingGain sharing incentive plans undertake those employees who giveoutstanding performances and provide for cost saving measures.Organizations believe in sharing the profits with the employees whoare responsible for producing those results.


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An employee stock ownership plan (abbreviated to "ESOP")is the practice of companies giving staff members shares intheir company as part of their salary.

An ESOP is a defined contribution employee benefit planthat allows employees to become owners of stock in thecompany they work for. It is an equity based deferredcompensation plan. Under the ESOP plan, companies providetheir employees the opportunity to acquire the company'sshares at a reduced price over a period of time.

Many companies use employee stock options plans to

compensate, retain, and attract employees. These plans arecontracts between a company and its employees that giveemployees the right to buy a specific number of thecompanys shares at a fixed price within a certain period oftime. Employees who are granted stock options hope toprofit by exercising their options at a higher price than whenthey were granted.


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Team Based Incentive

Here all team members receive an incentivebonus payment when production or servicestandards are met or exceeded. Methods inthis category include Preistmans production

bonus, Rucker plan, Scanlon plan, Towne planand Co partnership. Under co partnership, theworker gets his usual wages, a share in theprofits of the company and a share in themanagement of the company as well.


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Requisites of Effective Incentive System

Cooperation of workers in implementation

of incentive scheme is essential. Scheme must be based on Scientificmeasurement. Standards set must berealistic.

Indirect workers like Supervisors,Foreman, helpers, operators, keepersshould be covered in incentive schemes.

There is great need of planning.


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Incentive Scheme in IndianIndustry

Though incentive schemes are quite old but still ininfancy.

In most of the industries policies are not rational& does not include employees.

Schemes are fine tuned according to industriesbenefit.

Inflation reduces the motivational effect ofIncentive.

Schemes in public sector covers variousattributes of incentive schemes.

In most cases incentive schemes are able toachieve its objective of increasing efficiency andproductivity.


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Fringe BenefitsThese are extra benefits provided to employees in

addition to the normal compensation paid in theform of wages or salaries.Features are: Supplementary forms of compensation

Paid to all employees Indirect compensation, since they are notdirectly related to performance

May be statutory (PF) or voluntary (Transport).

Help to raise the living condition of employees.


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Need for fringe benefits

Employee demands Trade union demands Employer's preference

A kind of social security To improve human & industrial

relations


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Objectives Improve industrial relations. Motivate employees to satisfy their

needs. Provides security against social risk. Promotes employee welfare. Creates sense of belongingness.

Meets legislative requirement withfringe benefits.


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T y p e s o f F r i n g e B e n e f i t s

P a y m e n t f o r T i m eE m p l o y e eS a f e t y a n d W e l f a r e r e c n o t w o r k e d s e c u r i t yh e a l t h f a c i l i t i e s

b e n e f i t s

H o u r s o f P a i d S h i f tH o l i d a yP a i dw o r k h o l i d a y sp r e m i u m p a yv a c a t i o n

R e t r e n c h m e n tL a y o f f c o m p e n s a t i o n c o m p e n s a t i o n

S a f e t y W o r k m e n s H e a l t hm e a s u r e sc o m p e n s a t i o n b e n e f i t s

C a n t e e n sC o n s u m e r C r e d i tH o u s i n gL e g a l a i dE m p l o y e eW e l f a r e H o l i d a yE d u c a t i o n a l T r aP a r t i e s &s o c i e t i e s s o c i e t i e s c o u n sh o m e sf a c i l i t i e s p o r t a

P r o v i d e n t f u n d

D e p o s i t l i n k e d i n s u r a n

G r a t u i t y

M e d i c a l b e n

M i s c el l a n eo u

P e n s i

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Incentive Payments

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