incentives and performance based pay ppt

1. INCENTIVES AND
PERFORMANCE-BASED PAY
Subject: Human Resource Management
Prof Meenakshi Malhotra
Prepared by: Ashok Kumar
Nikki Latta
Ravneet Kaur
MBA GEN A
March 15th, 2017

2. WHAT ARE INCENTIVES?
Incentives are variable awards granted to employees according to variations in their
performance. Anything that can attract an employee’s attention and motivate them
to work can be called as incentive. An incentive aims at improving the overall
performance of an organization.

3. IMPORTANCE OF
INCENTIVE PLANS
 Motivational Tool
 Promoting Teamwork
 Morale Boosters
 Higher degree of Service to customers
 Cost of supervision is reduced
 Desired results

4. PRE-REQUISITES OF EFFECTIVE
INCENTIVE SYSTEM
 The co-operation of workers in the implementation of an incentive scheme is
essential . Workers' co-operation may be secured through proper discussion with
their representatives. In particular, workers' co-operation is necessary in:
I. The methods followed in measuring the results or output upon which
payment is based;
II. The methods followed in setting wage rates for different classes of work;
and
III. Appropriate safeguards concerning earnings, job security and
settlement of disputes over piece-work rates and allotted time.

5. PRE-REQUISITES OF EFFECTIVE
INCENTIVE SYSTEM
 The scheme must be based on scientific work measurement. The
standards set must be realistic and must motivate workers to put in better
performance.
 There is greater need for planning. Many incentive schemes, started
hurriedly, planned carelessly, and implemented indifferently have failed and have
created more problems for the organization than they have tried to solve.
 Indirect workers, such as supervisors, foremen, charge hands, helpers, crane
operators and clerical staff should also be covered by incentive schemes.

6. PRE-REQUISITES OF EFFECTIVE
INCENTIVE SYSTEM
The other safeguards are:
 The incentive scheme should be appropriate to the type of work carried out
and the workers employed.
 The reward should be clearly and closely linked to the efforts of the
individual or group.
 Individuals or groups should have a reasonable amount of control over
their efforts and therefore their rewards.
 The scheme should operate by means of a well-defined and easily-
understood formula.
 Provisions should be made for controlling the amounts paid, to en- sure
that they are proportionate to effort.
 Provisions should be made for amending rates in defined circumstances

7. TYPES OF INCENTIVE
SCHEMES

8. EARNING VARY IN THE
SAME PROPORTION AS
OUTPUT

9. STRAIGHT PIECE-WORK
SYSTEM
 The Straight Piece-Work System is the simplest incentive
method in which the rate per unit of output is fixed, and the
earnings of the worker are computed by multiplying his total
output by the rate per unit.
 Such as, if the per unit rate is 10 Paise and the total output
is 1000 units, then his earnings will be 0.10 x 1000 = Rs 100.

10. STANDARD HOUR SYSTEM
 The Standard Hour System is an incentive scheme in which the
standard time in terms of hours is set for the completion of a job.
The rate per hour is then determined. Under this method, the
worker is paid for a standard time irrespective of whether the job is
completed in the standard time or less. This means that the worker
is paid the same wages even if the time spent is more than the
standard hours unless he/she is guaranteed the time wages.

11. STANDARD HOUR SYSTEM
 Standard time = 8 Hours
Rate per hour = Rs 2
 Case 1: Time taken = 6 hours
Earnings = 8 x 2= Rs 16
 Case 2: Time taken = 10 Hours
• Time wages are not guaranteed, then the worker’s earnings will be Rs 16 (8
x2).
• Time wages are guaranteed, then the worker’s earnings will be Rs 20 (10 x 2).

12. EARNING VARY LESS
PROPORTIONATELY
THAN OUTPUT

13. HALSEY PLAN
 Under Halsey Plan, the standard time for the completion of a job is fixed and
the rate per hour is then determined. If the time taken by a worker is more than
the standard time, then he shall be paid according to the time rate, i.e. time taken
multiplied by the rate per hour. In case, the worker completes the works in less
than the standard time, then he/she will be paid according to the actual time, i.e.
time-rate plus the bonus calculated at a specified percentage of the saved time.
Generally, the bonus percentage varies from 30-70 percent. The usual bonus
share paid to the worker is 50% of the time saved multiplied by the rate per
hour

14. HALSEY PLAN
 Standard Time: 8 hrs
Rate per Hour: Rs 2
Case (1): Time Taken = 8 hrs Earnings = 8 x 2 = Rs 16
Case (2): Time Taken = 10 hrs Earnings = 10 x 2 = Rs 20
Case (3): Time Taken= 6 hrs
Earnings: Time wages = 6x 2 = Rs 12 Bonus = ½ x 2 x 2 = Rs Rs 2
Thus, in the above example, the worker’s total earnings are Rs 14 (time wages
+bonus), if he has completed the work in 6 hrs, less than the standard time.

15. ROWAN PLAN
 Under Rowan Plan, the standard time for the completion of a job
and the rate per hour is fixed. If the time taken by the worker is more
than the standard time, then he is paid according to the time rate, i.e.
time taken multiplied by the rate per hour.
 In case, the worker completes the work in less than the standard
time; then he is entitled to a bonus along with the time wages.
 Bonus = Time Saved/ Standard Time

16. ROWAN PLAN
 Standard Time = 8 hrs
Rate per hour = Rs 2
Case (1): Time Taken = 8 hrs Earnings = 8 x 2 = Rs 16
Case (2): Time Taken = 10 hrs Earnings = 10 x 2 = Rs 20
Case (3): Time taken = 6 hrs
Earnings:- Time Wages = 6 x 2 = Rs 12
Bonus = 2/8 X 2 = Rs 1.5
 Thus, in the above example, the worker completing the work in 6 hrs, less
than the standard time, the total earnings will be Rs 13.50 (time wages+bonus).

17. BARTH VARIABLE SHARING
PLAN
 Under Barth Variable Sharing Plan, the earnings of the worker
are ascertained by taking the square root of the standard hour
multiplied by the number of hours actually taken for the completion
of the job and then multiplying it by the worker’s rate per hour.

18. BARTH VARIABLE SHARING
PLAN
 Standard Time = 8 hrs
Rate per Hour = Rs 2
 Case (1): Time Taken = 10 hrs
= 8.94 X 2 = Rs 17.88
 Case (2): Time Taken: 8 hrs
= 8 X 2 = Rs 16
 Case (3): Time Taken: 6 hrs
= 6.92 X 2 = Rs 13.84
 Thus, the worker will earn Rs 13.84, in case he works for less than standard, hours i.e., 6 hrs.

19. BEDAUX PLAN
 The Bedaux Plan is an incentive scheme in which the standard time for the
completion of a job is fixed and the rate per hour is defined. Each minute of the
standard time is called as point or B, such as in one hour there are 60 Bs.
 Under Bedaux plan, every job has a standard number of Bs. If the worker
completes the job in more than standard hours, then he is paid according to
the time-rate, i.e. time taken is multiplied by the hourly rate. In case, the work is
completed in hours less than the standard time; then the worker is entitled to the
bonus in addition to the hourly rate. A bonus is equal to the 75% of the
earned/saved points (in excess of 60 per hour) multiplied by one-sixth of the
hourly rate.

20. BEDAUX PLAN
 Standard Time = 8 hrs
Rate per Hour = Re 1
Case (1): Actual Time = 10 hrs Earnings = 10 X 1 = Rs 10
Case (2): Actual Time = 6 hrs
Earnings: Time-wages = 6 X 1= Rs 6
Bonus:
Standard Bs = 60 X 8 = 480 Actual Bs =60 X 6 = 360
Saved Bs = 120 (480-360)
Thus, total earnings = Rs 6 +1.50 = 7.50

21. Earnings Differing at
Different Levels of Outputs

22. TAYLOR’S DIFFERENTIAL
PIECE RATE SYSTEM
There is low rate for output
below the standard, and a higher
piece-rate for output above the
standard with a large bonus of 50%
of the time-rate when the standard
output is attained.

23. TAYLOR’S DIFFERENTIAL PIECE
RATE SYSTEM (CONTD.)
 To illustrate : Standard Output = 100 units Rate per Unit = 10 paise
Differentials to be applied: 120 percent of piece-rate at or above the standard 80
percent of piece-rate when below the standard Case (i) Output = 120 units
Earnings = 120*(120/100)*0.10= Rs.14.40 Case (ii) Output = 90 units Earnings
= 90*(80/100)*0.10=7.20

24. MERRICK DIFFERENTIAL
PIECE–RATE SYSTEM
 It is a modification of earlier system with three instead of two rates.
 E.g. Std Output = 100 units Piece Rate = 10 paise Case (i) Output= 80units
Efficiency = 80/100*100=80% Earnings: As the efficiency is less than 83%, only
base piece-rate applies: 80*.10=8.00 Case (ii) Output = 90 units Efficiency =
90/100*100=90% Earnings: As the efficiency is more than 83% but less than
100%, 110% of the base piece-rate applies: 90*(110/100)*0.10=9.90 Case (ii)
Output = 110 units Efficiency = 110/100*100=110% Earnings: As the efficiency
exceeds 100%, 120% of the base piece- rate applies: 90*(120/100)*0.10=13.20

25. GANTT TASK SYSTEM
 The worker is guaranteed his /her time-rate for
output below the standard. On reaching the std
output or task, which is set at a high level, the
worker is entitled to a bonus of 20% of time
wages.

26. GANTT TASK SYSTEM
(CONTD.)
 It operates as follows: Rate per hr = Rs 0.50 High piece-rate = Rs 0.10 Std
Output = 80 units Time Taken = 8hrs Case (i) Output = 70 units As the output
is less than the standard only time wages are paid to the worker. Earnings =
8*.50= Rs 4.00 Case (ii) Output = 80 Units Earnings: As output is equal to the
standard, the worker is entitled to time wages plus 20% of time wages as bonus.
Time wages = 8*.50=4.00 Bonus = 20/100*4=Rs 0.80 Total Earnings = Rs.4.80
Case (iii) Output earnings= 110 Units As the output is more than the standard,
the worker is entitled to a high piece- rate. 110*.10= Rs.11.00

27. EMERSON’S PLAN
 A standard is set for the job, & efficiency of each worker is determined by
dividing the time taken by the std time.

28. EMERSON’S PLAN
 Illustration: Std Output in 10 hrs = 100 units Rate per hr = Rs 1 Case (i) Output
in 10 hrs = 50 units Earnings: Efficiency = 50% As efficiency is below 67 % the
worker is entitled to time wages only. 10*1=Rs 10.00 Case (ii) Output in 10 hrs =
100 units Earnings: Efficiency = 100% The worker is entitled to time wages plus
20% of time wages as bonus. Time Wages = 10*1 =Rs 10.00 Bonus = 20/100*10
=Rs 2.00 Earnings: = 10 + 2 =Rs12.00 Case (iii) Output in 10 hrs = 130 units
Earnings: Efficiency = 130% At the rate of 20% at 100% efficiency & one percent
increase for every one percent increase in efficiency, the worker is eligible for 50% of
the time wage as bonus. Time Wages = 10*1 =Rs 10.00 Bonus = 50/100*10 =Rs
5.00 Earnings: = 10 + 5 =Rs15.00

29. REFERENCES
 Human Resource Management (Text and Cases) by K Aswathappa