Incentives Scheme

m m
Contents
m Introduction & MDW System ± Prerna
Thakur(209)
m Payment by result ± Dhrubajyoti
Maitra(192)
m Group incentives ± Shweta Kotnala(120)
m Company wide incentives ± Shruti Negi(60)
m Behavioral and financial aspects ±
Aditya Choudhary(182)
m Practical Applications ± Ankita Dalal(185)
m

K An
is a formal scheme
used to promote or encourage specific
actions or behavior by a specific group of
people during a defined period of time. .
K It is an employee motivational program
designed to encourage commitment to
increase productivity.

Incentives schemes can be classified into ±
A) Individual incentives schemes:-
m Measured day work system.
m Payment by results system.
B) Group incentive system.
C) Plant wide /Company wide incentive
system.
D) Financial incentives.
m

m ºnder this system of individual incentives,

all or a portion of an individual pay is tied to
their performances.
m There is a direct link between individual
performance and remuneration.

m ºnder this system, an employee have to
maintain a target level of output in order to
secure a stable higher wage rate.
m If employee performance falls below target,
their wage rate will downgraded.
m It suits organizations where a high , steady
and predictable level of performance is
required rather than highest individual
performance.
h
m Mmployees who fulfills specified target level of
output will secure higher wage rate.
m Mmployee if not meeting target level for a period
1-First given warning and
2-If again the same is repeated the basic wage rate
is reduced.
m Two levels of wages:-

1-An agreed higher level of wages for a specific
higher level of consistent performance.
2-Basic wage for lower levels of performance.
`
m It is the continuous relation between money and

results.
m It gives different results would different wages.
m The schemes are modified to accommodate the

modern day requirement that the woker are
guaranteed a minimum flat wage rate.
h

m It is the level of output rate or productivity above
which the incentive starts.
m It is established jointly by management and labour.
m It is considered as µnormal¶ or µfair¶ and can be

expected from an unmotivated but other
conscientious and fit workers.
`

m Management is more interested in MPL.
m It is maintained by day after day without any
harmful effect on the worker.
m A worker is now µfinancially motivated¶ here.
m It is function of human ability and of
management expectations about an average
workers productivity.
m MPL is used for establishing the APL(with the
concurrence of labour)
`

m Depending upon the MPL and APL the

participation ratio can be established.
m MPL and APL are physiological ans
psychological norms employees bargain with
management.
m The presumed relationship is that MPL is one-
third more than APL(MPL=4/3APL).
m
`
m Management to provide materials, machines

and reduce µwaiting time¶.
m µOutput at what cost¶?[increase material usage,
improper usage of machines].
m Other expenses[New wage, inventory policies
etc].
m Arise of wage, deployment changes from
section to section.

m Changes in methods and technology.

m Management loosing control over the output of
the employees leading to effect on production
control.
m Difficult integrate between incentive and non-
incentive employees.
m PBR scheme on fluctuating income for
worker[worker may not be there all the time,
worker may not be able to work a the same pace
all the time].
!
``
m Protection of Quality.
m Protection against Wastage.
m Indirect workers and Incentives.

r!"`m m
u ºsed to increase social cohesiveness of staff,

foster cooperation and team effort
u Free-Riding Mffect
u Group incentives is restored to, where the

enhanced earnings of the group are distributed
amongst the members in an equitable manner
agreed upon earlier.

u Rewards employees for their
collective performance
u ºse has increased in industry
u 2 types
Team - based or small group
Gain sharing

#
u Behavioral theory tells us that some of the needs

of human beings are the need for security and a
sense of belonging to a group.
u It has been observed that many workers limit

their own incentive earnings so that they do not
face alienation from other workers of their
working group.
Cont«
u As a group, they are expected to behave like an

individual when responding to the increased
earnings with increased output performance.
u Incentives requires a commanlity of interests within

that group.
u h :
Difficult to identify individual contributions

Branch based activities (Savings
mobilization)
MFI wants to set common goals
Free Riding can be mitigated

u Better sharing and linking-up of work resulting in
increase in productivity.
u Better inter checking of quality of product
u Supervising, time-keeping and incentive

accounting are simplified.
u The problem of including indirect workers in an

incentive system are also taken care to an extent.
Ô
u There may be a leveling effect.
u Problems in distributing incentives in the group.
u least control of the management on the output.

u Many company likes to retain the principle
of motivation by financial incentives.
u ºltimate objective is to enhance the over all

productivity of the plant or company.
u This calls for working in an integrated

manner with cooperation from all the
departments of a company.
Cont«
u This cooperation is to be achieved through the
use of financial incentives.
u A suitable measure of productivity established

by agreement between the management and the
workers.
u This is used to distribute the labour cost

savings amongst all the workers of the
company.
Some of the companywide incentive plans are

u Type of gain sharing plan that pays a bonus to employees for incremental
improvements.
u The Scanlon plan was developed by Joseph N. Scanlon in the 1930s
u A typical Scanlon plan includes an employee suggestion program, a

committee system, and a formula-based bonus system.
u The simplest formula is: base ratio = HR payroll costs divided by net sales or
production value.
u A Scanlon organization is characterized by teamwork and employee

participation. A bonus is paid when the current ratio is better than that of the
base period.
u A Scanlon plan focuses attention on the variables over which the organization
and its employees have some control.

`
u a type of gain sharing program that is concerned with the value added by
labor.
u The Rucker plan was developed in the 1950s by Allen W. Rucker.
u A typical Rucker plan includes a suggestion program, a committee system,

and a bonus formula, based on value added.
u It assesses the relationship between the value added to goods as they pass
through the manufacturing process, and the total labor costs.
u Bonuses are earned when the current ratio is better than the base ratio
over a given time period.
u`
u

u

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hm!"hh`!$m m
Presumes that every man is capitalist at heart.
But money is often only a ³hygiene´ factor.
So it deals with only one of the several motivating

factors.
$m h mhm m
Much space for labor-management bargaining.
May perpetuate old technologies and practices.
May be difficult for the employees to comprehend.
Quality of output may become a judgmental issue.
Problems in planning of production .

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W = R.T + (P/100) (S-T).R
where W: wage of worker, R : wage rate, T : actual

time taken to complete job, P : percentage of profit
shared with worker, S : std. time allowed.
The worker is paid a % of time saved over the

standard rate per piece.
Standard time is fixed for each job/operation
If the labour completes at standard time or more
he is given the standard price.

W=R.T + ((S-T)/S).R.T
where W: wage of worker, R : wage rate,

T : actual time taken to complete job, S :
std. time allowed.
The bonus hours are calculated as the

proportion of the time taken which the time
saved bears to the standard time allowed
ë $ `"%
Standard outputs: 100 ºnits
Rate per ºnit: 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
Marnings = 120* 120 * 0.10 = Rs 14.40
100
Case 2: Outputs = 90 units
Marnings = 90* 80ù% &%'( )%
100

Ô
*
Has 3
categories for Mfficiency Price rate applicable
payment
ºp to 83% Normal rate
ºp to 100% 10% above Normal

rate
Above 100% 20% above Normal

rate

m
`
' Plan is clearly communicated

' Plan is understood
' Rewards are easy to calculate
' Mmployees participate in administering the plan
' Mmployees believe they are being treated fairly
' Mmployees believe they can trust the company and
that they have security
' Rewards are awarded as soon as possible after the
desired performance.
ëÚ%(
)#*

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What are the main topics discussed in the document?

What are the main topics discussed in the document?

What are some of the key events mentioned?

What are some of the key events mentioned?

m m

m ºnder this system of individual incentives,

m Two levels of wages:-

m It is the continuous relation between money and

m It gives different results would different wages.

m The schemes are modified to accommodate the

m It is established jointly by management and labour.

m It is considered as µnormal¶ or µfair¶ and can be

m Depending upon the MPL and APL the

m Management to provide materials, machines

m Changes in methods and technology.

m Protection against Wastage.

m Indirect workers and Incentives.

u ºsed to increase social cohesiveness of staff,

u Group incentives is restored to, where the

u ºse has increased in industry

u Behavioral theory tells us that some of the needs

u It has been observed that many workers limit

u As a group, they are expected to behave like an

u Incentives requires a commanlity of interests within

Difficult to identify individual contributions

u Better inter checking of quality of product

u Supervising, time-keeping and incentive

u The problem of including indirect workers in an

u There may be a leveling effect.

u Problems in distributing incentives in the group.

u least control of the management on the output.

u ºltimate objective is to enhance the over all

u This calls for working in an integrated

u A suitable measure of productivity established

u This is used to distribute the labour cost

u The Scanlon plan was developed by Joseph N. Scanlon in the 1930s

u A typical Scanlon plan includes an employee suggestion program, a

u A Scanlon organization is characterized by teamwork and employee

u The Rucker plan was developed in the 1950s by Allen W. Rucker.

u A typical Rucker plan includes a suggestion program, a committee system,

u        

        Î`!

u         

Presumes that every man is capitalist at heart.

But money is often only a ³hygiene´ factor.

So it deals with only one of the several motivating

Much space for labor-management bargaining.

May perpetuate old technologies and practices.

May be difficult for the employees to comprehend.

Quality of output may become a judgmental issue.

Problems in planning of production .

where W: wage of worker, R : wage rate, T : actual

 The worker is paid a % of time saved over the

where W: wage of worker, R : wage rate,

The bonus hours are calculated as the

ºp to 100% 10% above Normal

Above 100% 20% above Normal

' Plan is clearly communicated

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m m

u

Î`!

u

Presumes that every man is capitalist at heart.

But money is often only a ³hygiene´ factor.

So it deals with only one of the several motivating

Much space for labor-management bargaining.

May perpetuate old technologies and practices.

May be difficult for the employees to comprehend.

Quality of output may become a judgmental issue.

Problems in planning of production .

The worker is paid a % of time saved over the

The bonus hours are calculated as the