INCENTIVES & BENEFITS

Importance of Incentive Payments

Inducement and motivation of workers Enhanced earnings Employees of infosys became richer by Rs 100 crore when they receive bonus on the occasion of company celebrating $1 billion in revenues. Reduction in unit cost of production productivity increases so more number of units produced for given input.

 Increase in production capacity Rail Wheel Factory increases its production capacity to 77000 wheels and 48000 axles from 56800 wheels and 23000, this is due to adoption of group incentive scheme. Better utilization of equipment. Reduced absenteeism. Increased output.

Disadvantages
Too Much Focus On Financial Rewards Unfair Evaluation of Work Performance Teamwork Hindered Employee Expectations

Prerequisites for Implementation

Worker cooperation: It is essential in the implementation of an incentive scheme and this can be secured through proper discussions with their representatives. Workers' co-operation is necessary in the methods followed:

Measuring the results and outputs

In setting wage rates for different classes of work

Safeguards concerning earnings, job security and settlement of disputes

 Scientific work measurement: The standards set must be realistic and must motivate workers to put in better performance. Workers must be provided with necessary tools, equipment and materials so as to enable them reach their standards. Indirect workers: Supervisors, foremen, charge hands, helpers, crane operators, canteen staff, store keepers, and clerical staff should also be covered by incentive schemes. Management commitment: Commitment towards the scheme to implement it in specified cost and time. There are many situations in which the potential gains are just not worth the cost and effort involved. Planning: Incentive schemes, started hurriedly, planned carelessly, and implemented indifferently have failed and have created more problems for the organisation than they have tried to solve.

 The other safeguards are: (i) The incentive scheme should be appropriate to the type of work carried out. (ii) The reward should be clearly and closely linked to the efforts of the individual or group.

(iii) Individuals or groups should be able to calculate the reward at each of the levels of output they are capable of achieving.
(iv) Individuals or groups should have a reasonable amount of control over their efforts and rewards. (v) The scheme should operate by means of a well-defined and easily- understood formula. (vi) The scheme should be properly installed and maintained, (vii) Provisions should be made for controlling the amounts paid, to en- sure that they are proportionate to effort. (viii) Provisions should be made for amending rates in defined circumstances (ix) Create incentives for performance and disincentives for non-performance. (x) Set and review specific objectives for each employee periodically.

Scope of incentive schemes

The incentive payments have a universal appeal and their application is confined to certain important industries. Stated differently, payment by results schemes are difficult to apply in: a) Industries in which measurement of individual or group output is rendered difficult or impossible either by technical consideration or by psychological circumstances which might be prejudicial to output. b) Industries in which the control of quality is necessary and is particularly difficult, or in the case of certain classes of workers, where high quality and precision of work is of prime importance; and c) Industries in which the work is especially dangerous and is particularly to ensure the observance of adequate safety precautions.

Need for Incentive Schemes

Health Education

Behaviour change
Ongoing activities

Types of incentives schemes

ILO classification of schemes of payments by result

Schemes where the workers earnings vary in the same proportion as output. Schemes where earnings vary less proportionately than output. Schemes where earnings vary proportionately more than output. Schemes where earnings differ at different levels of output.

Incentive schemes

Earnings vary in the same proportion as output

Earnings vary less proportionately than output Hasley plan Rowan plan

Earnings vary proportionately more than output

Earnings differ at different levels of output

Straight piece work

Standard hour

Barth scheme Bedaux plan

Taylors diffe Piece rate High piece rate Merrick diff piece rate High standard hour Gantt task system Emersons efficiency plan

Straight Piece Work Simplest, oldest and the most commonly used method Here, rate per unit of output is fixed, & Total earnings of a worker = total output in units*rate per unit e.g. rate per unit is 10 paise and the total output is 100 units, his earnings will be 100*0.10=Rs.10.00 Standard Hour System(also called 100 % gains-sharing) Here, standard time in terms of hours is fixed for completionof a job. The rate per hour is then determined. A worker is paid for a standard time at his or her time-rate if he or she completes the job in the standard time or less oreven more, unless he or she is guaranteed time wages. If time wages are guaranteed, he or she gets paid on the basisof the time taken multiplied by the time-rate

 Examples: Standard time=10 hrs rate per hour-Re 1 Case (i) Time taken= 8 hrs Earnings= 10*1 =Rs. 10.00 Case (ii) Time taken = 12 hrs . (a) Earnings if time wages are not guaranteed= 10*1= 10.00 (b) Earnings if time wages are guaranteed=12*1=Rs 12

Earnings varying proportionately less than output

In all types, time is used as the measure of output and bonus is paid on the time saved, i.e. the difference between the standard time-set for the job and the time actually taken. Called gain sharing schemes as both employee &employer share gains resulting from the saved time. Applied where it is not possible to set standards or to measure the workers output accurately.

Halsey system
Given by E.A. Halsey (an American engineer)Standard time is fixed for the completion of a job & the rate per hour is then determined. Time wages are guaranteed even if the output of the worker is below standard. Bonus paid to a worker is equal to 50% of time saved multiplied by rate per hour.

Example: Standard time= 10 hrs Rate per hour= Re 1 Case (i) Time taken=10 hrs Earnings = 10*1 = Rs. 10.00 Case(ii)Time taken=12 hrs Earnings = 12*1 = Rs. 12.00 Case(iii) Time taken=8 hrs Earnings : (time taken * hourly rate) + bonus Time wages= 8*1 = Rs. 8.00 Bonus= *2*1=Rs. 1.00=Rs. 9.00

 Introduced by D.R owan in 1901. Standard time and rate hour are fixed. Bonus paid to the employee is equal to the proportion of the time saved to thestandard time Example:Standard time= 10 hrs R ate per hour=R e 1 Case (i) Time taken=10 hrs Earnings = 10*1 =R s. 10.00 Case(ii) Time taken=12 hrs Earnings = 12*1 =R s. 12.00 Case(iii) Time taken=8 hrs Earnings : Time taken* hourly rate+ bonus Time wages= 8*1 =R s. 8.00 Bonus= 2/10*8=R s. 1.60=R s. 9.60

 Does not guarantee the time rate unlike Halsey and Rowan systems. Workers pay is ascertained by multiplying the standard hour by the number of hours actually taken to do the job, taking the square root of the product and multiplying it by the workers hourly rate. Example:

Standard time= 10 hrs Rate per hour= Re 1 Case (i)Time taken=12 hrs Earnings = (12*10) = Rs. 10.95*1 Case(ii)Time taken=10 hrs Earnings = (10*10) = Rs. 10*1=Rs.10.00 Case(iii) Time taken=8 hrs Earnings := (8*10)= Rs. 8.94*1=Rs. 8.94

Standard time for a job is fixed. Each minute of the standard time is called a point or B. Each job has a standard number of Bs. The worker receives bonus which is equal to 75% of the no. of points earned, in excess of 60 per hour, multiplied by one sixtieth of the workers hourly rate. If a worker does not reach his or her standard, he or she is paid at the time rate. Example:

Standard time = 10 hrs R ate per hour =R e 1 Case (i) Actual time = 12 hrs Earnings = 12*1=R s. 12.00 Case(ii) Actual time = 8 hrs Earnings: Time wages = 8*1=R s.8.00 Bonus: Standard Bs=10*60=600 Actual Bs = 8*60=480 Bs saved = 120Bonus 75100(1201)/60= Rs. 1.50 Total earnings = 8+1.50=Rs.9.50

GROUP INCENTIVES PLANS

There are many industries which are performing their each and every task in a group. Group-incentive schemes are useful.

Same scheme different customer.

Common in market Many Schemes available.

Piece-Work System

Total Earnings of a group

Earnings are distributed to individual worker

Advantages
Better co-operation among workers; Reduce incidence of absentism;

Reduced Clerical work;

Short Training Time.

Disadvantages
Penalty will be on a group Incentives of no use Rivalry among group members

INCENTIVES SCHEMES IN INDIA

Introduced in 1946; Has not preceded with workers consultation; Vary from Industry-to-Industry; Fine-Tuned with organizations; Incentives need to be substantial for motivating workers; Incentives help in achieving objectives.

INSTALLING AN INCENTIVE SCHEME

Define objectives of payment synstem; Collect facts from existing system; Analyze circumstances ; Compare proposed system with existing system; Conduct an attitude survey; Consult with workers;

 Conduct pay surveys ; Develop pilot test; Revise pay system as per the results; Ensure Effectiveness of information & revised Pay

System.