Types of Incentive Schemes/System
• ILO classifies all the schemes of payment by results into four
categories:
1. Incomes Varying in the Same proportion to Output
2. Earnings Varying Proportionately less than Output
3. Earning varying Proportionately more than Output
4. Earnings Differing at Different levels of Output
Incomes Varying in the Same Proportion to
Output
• Worker’s gain or losses is directly proportional to worker’s
output
• Successful only when measurement of standard and
individuals output is extremely accurate
• Straight piece-work
• Two Popular schemes under this system
• Standard hours system
Straight Piece-work
• Rate per unit of output is fixed
• Total Earnings = Total output Rate per unit
Standard Hours System
• Standard hours is fixed for completion of a job.
• Rate per hour is then determined.
Earnings Varying Proportionately less than
Output
• Three allied systems comes in this group
1. Halsey System
2. Rowan System
3. Bedaux System
• Time Rate system is used in all four system
• Bonus is paid on the time saved
• Also called gain sharing schemes
The Halsey System
• Developed by F.A. Halsey
• Provides a way for the fixation of standard time for the completion of
the task.
• Work done in Standard time or more Actual time rate is paid
• Work completed in less than standard time Time Rate + Bonus
• Bonus Specific percentage of time saved
• Bonus = ½ of time saved *time rate
Rowan Premium Plan
• Differs from Hasley plan only in regard to determination of the bonus
• In all other respects, the two are the same
Bonus =
T Actual time taken by worker
S Standard time set for job
R time rate
The Bedaux Point System
• Standard time is divided into number of points
• One minute = one point
• Bonus is paid for 75% of points saved
• Standard time = 20 hours ==1200 pts
• Time taken = 16 hours == 960 pts
• Pt saved= 1200-960 = 240===75% of 240 == 180= 3hr
• Wage rate = Rs. 2 per hour
• total earning = ????? 16*2+3*2= 38
Earning varying Proportionately more than
Output
• This category include two methods
1. The high piece rate
2. High standard hour system
Earnings Differing at Different levels of
Output
• Earning vary from min. to max. at different levels of
output
• Following incentive system comes under this group:
1. Taylor’s Differential Piece Rate system
2. Merrick Differential piece rate system
3. Gantt Task system
4. Emerson’s Efficiency system
Taylor’s Differential Piece Rate system
• Workers are paid on the basis if their degree of efficiencies
• Standard time for the completion of job is fixed on the basis of which
performance of the workers is evaluated.
• Two rates of wages are determined – higher rate and lower rate
• Higher rate workers who reach the standard
• Lower rate workers who are below the standard
• E.g. Standard production 8 units per day of 8 hours
• Workers are expected to do certain units of work within a certain
period of time
• Standard production 8 units per day of 8 hours
• Piece rate 10 rs. higher rate 120% lower rate 80%
• 12rs
• Output =10 unit 12*10= 120
• Output = 6 units 8 *6 = 48
Merrick Differential piece rate system
• A modification of Taylor’s differential piece rate system
• Three piece rates are used to distinguish between the beginners,
average workers and superior workers
• Upto 83% of standard output Normal piece rate
• 83%-100% of standard output 10% above the normal rate
• More than 100% of standard output 20% above the normal rate
• E.g. Standard output 200 units per day of 9 hours and
• piece rate = 10 rs/unit
• Output = (1) 160 (2) 180 (3)220
• Output = 180
• Standard = 200
Gantt Task system
• A mixture of guaranteed time rate with a bonus and piece rate plan
using the differential principle
• Output is below standard time rate is guaranteed
• Output at standard level bonus at 20% on time rate
• Output above standard high piece rate
• this system provide security/encouragement to less efficient workers
• Time rate = rs10 /hr for 40 hrs in a week
• Standard output = 40 units
• Piece rate above standard = 12
• A= 32 400
• B= 40 480rs
• C= 42*12 504
Emerson’s Efficiency system
• Standard time for the job is determined and a minimum time wage is
guaranteed
• Workers are paid according to their efficiency
• Efficiency below 67% time wage only
• Efficiency 67-99% bonus at different %age of basic wage
• Efficiency = 100% bonus at 20% of basic wage
• Efficiency > 100% 20% bonus plus 1% extra bonus for each one 1%
• Standard output in 10 hrs = 100 units
• Rate = 10 rs/hours
• Output= 50 units 100rs
• Output = 100 units 120rs
• Output =130 units
• Efficinecy = 130%
• 100+50= 150rs
Group Incentive Plans
1. Priestman Bonus Plan
2. Scanlon Plan
Priestman Bonus Plan
• A committee representing the management and workers mutually set
the standard of performance or task standard (TS).
• Actual output of group is compared with standard to decide about
incentive
• If AO > TS Bonus
• %age of bonus Payable = (2.66-2.5)/2.5= 6.4%
• Actual Output During the assessment period
• Number of workers in employment during the assessment period
• Standard output in base period
• Number of workers in employment during the base period
• Pb 20000 tonnes
• Wb 8000
• Output per worker =20000/8000= 2.5 tonnes
• Pa= 24000 tons
• Wb= 9000
• Actual output per worker = 24000/9000= 2.66tonnes
Scanlon Plan
• This plan relates labour cost to the total sales volume
• Incentive paid to the workers based on the %age reduction in the
labour to sales ratio
• %age of bonus Payable = (0.16-.14)/.16= 12.5%
• Lb Total labour cost of the base month
• Rb Total sales value for the base month
• La Total labour cost for the assessment month
• Ra Total sales value for the assessment month
• Lb 2.5lakh
• Rb 15 lakh
• Labour to sales ration for the base period = .16
• La 2.25 lakh
• Rb 16 lakh
• Labour to sales ration for assess ment period = .14
Wage Incentive Plans
• Plans for blue-collar workers
• Plans for white-collar employees/salesmen
• Plans for managerial personnel
Plans for blue-collar workers
• Plans under which the rate of extra incentive is in proportion to the
extra output
• Plans under which the extra incentive is proportionately at a lower
rate than the increase in output
• Plans under which the rate of incentives is proportionately higher
than the rate of increase in output
Incentive plans for white-collar employees/
salesmen
• Different incentive plans for sales staff
1. Straight salary method
2. Straight commission method
3. Combination method
Incentives for managerial personnel
• For top level management bonus are generally tied to overall
corporate results.
• %age of base salary that depends upon the level of
performance and company profits
• Mostly paid in cash but in some cases company may use
stock plans
• If a bonus plan seems appropriate careful attention should
be paid to what kind of plan would be more effective.
