LABOUR COSTING Incentives Plans

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Incentives Programme

Wage incentives include all the plans that provide extra pay for extra performance In addition to regular wages for the job. It implies monetary inducements offered to employees to perform beyond acceptance standards.

Different Types of Variable Pay Plans

Cash Profit Sharing Stock Ownership or Options Balanced Scorecard

Team / Group Incentives

Productivity / Gain- Sharing

Short Term Pay-for-Performance Plans

Merit Pay Lump-Sum Bonuses Individual Spot Awards Individual Incentives

Long-Term Incentive Plans

Employee Stock Ownership Plans (ESOPs)

Performance Plans (Performance

Share and Performance Unit)

Broad-Based Option Plans (BBOP)

Individual Incentives

Under a system of individual incentives, all or a portion of an individuals pay is tied to their performance.

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Group Incentives

Improve Organizational Performance Organizational Measures Measured Periodically

Team / Group Incentive Plans

Gain-Sharing Plans Profit Sharing Plans Earnings-at-Risk Plans

Individual Incentive Plans

Method of Rate Determination
Units of production per time period Time period per unit of production

Pay constant function of production level Relationship between production level and pay Pay varies as function of production level

(1 ) Straight piecework plan

(2 ) Standard hour plan Bedeaux plan

(3 Taylor ) differential piece rate system Merrick multiple piece rate system

(4 ) Halsey 50 - 50 method Rowan plan Gantt plan

Types of Incentives Plans

The ILO classifies all the schemes of payment by results into four categories:
Earning vary in the same proportion as output Earnings vary less proportionately than output Earnings vary Proportionately More than outputs Earnings differ at different levels of output

Straight Piece Work Standard Hour

Taylors Differential High Piece Rate High Standard Hour Piece Rate Merrick Differential Halsey Plan Piece Rate Rowan Plan Gantt Task System Barth Scheme Emersons Efficiency Bedaux Plan plan

Halsey Plan Rowan Plan Barth Plan Bedaux Plan

Time - Based

Taylors Differential Piece Rate Merrick Differential Piece Rate Gantt Task System Emersons Efficiency plan

Output - Based

Halsey Plan
Std Time= 10 Hrs Rate per hr= Re 1 Case 1 time taken= 10 Hrs Earnings = 10* 1 Case 2 Time taken = 10 Hrs earnings = 12* 1 Case 3 Time taken = 8 Hrs earnings = 8*1 Bonus = *2*1 = Rs 1.00 Rs 9.00

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Rowan Plan
Std Time= 10 Hrs Rate per Hr= Re 1 Case 1 time taken= 10 Hrs Earnings = 10* 1 Case 2 Time taken = 10 Hrs earnings = 12* 1 Case 3 Time taken = 8 Hrs earnings = 8*1 Bonus = 2/10*8 = Rs 1.60 Rs 9.60

Barth Plan
Std Time= 10 Hrs Rate per Hr= Re 1 Case 1 time taken= 10 Hrs Earnings = 10 * 10 = 10*1= Rs 10.00 Case 2 Time taken = 12 Hrs earnings = 12* 10 = 10.95*1 = 10.95 Case 3 Time taken = 8 Hrs earnings = 8*10 = 8.94 * 1 = 8.94

Std Time= 10 Hrs Rate per Hr= Re 1 Case 1 time taken= 12 Hrs Earnings = 12 * 1 = 12.00 Case 2 Time taken = 8 Hrs earnings = 8*1 = 8.00 Bonus: Std Bs = 10*60 = 600 Actual Bs = 8*60 = 480 Bs saved = 120 Bonus 75 * 120*1 = Rs 1.50 100 60 Total earnings = 8+1.50 = Rs 9.50

Bedaux Plan

Taylors Differential Piece-Rate

Standard outputs: 100 Units Rate per Unit: 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 Earnings = 120* 120 * 0.10 = Rs 14.40 100 Case 2: Outputs = 90 units Earnings = 90* 80* 0.10 = Rs 7.20 100

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Merrick Differential piece-rate

Straight piece-rates less than 83% of the Std outputs 110% of the base-piece rate for 83%-100% of the Std outputs 120% of the base-piece rate for more than 100% of the Std outputs Case 1 Output = 80 units Efficiency = 80 *100 = 80% 100 Earnings: As the efficiency is less than 83%, only the base pie-rate applies: 80*0.10 = 8.00 Case 2 Output = 90 units Efficiency = 90 *100 = 90%of 100 Earnings: As the efficiency is 83% but less than 100%, 110% the base pie-rate applies: 90*110*0.10 = 9.90 100 Case 3 Output = 110 units Efficiency = 110 *100 = 110% 100 Earnings: As the efficiency exceeds 100%, 120% of the base piece-rate applies: 110*120*0.10 = 13.20

Rate per Hr High piece-rate Std Outputs Time taken Std Bonus

=Re 0.50 = Re 0.10 = 80 units = 8 Hrs = 20%

Gantt Task System

Case 1 Output = 70 units Earnings As the output is less than the standard only time wages are paid to the worker =8*0.50=Rs 4.00 Case 2 Output =80 units Earnings As the output is equal to the standard, the worker is entitled to time wage plus 20% bonus Time wages =8*0.50= Rs 4.00 Bonus =20*4 = Re 0.80 100 Total earnings = Rs 4.80 Case 3 Output =110 units As the output is more than th Std, the worker is entitled to a high piece rate 10*0.10= Rs 11.00

Emersons Plan
Up to 67% of efficiency, the workr is determined by dividing the time taken by the Std Time-rate Up to 100% efficiency, 20% bonus is paid to workers An additional bonus of Rs 1% is added for each additional 1% eficiency Case 1 Output in 10 Hrs: 50 units Efficiency: 50%( below 67%, the worker is eligible for 50% of the time wae as bonus) Case 2 Output in 10 Hrs : 100 units Efficiency : 100% (time-wage + 20% bonus) Case 3 : Output in 10 Hrs : 130 units Efficiency : 130% At the rate of 20% at 100% efficiency and 1% increase for every 1% increase in Efficiency, the worker is eligible for 50% of the time wage as bonus: Time wag =10*1 Bonus Rs 10.00 =50*10.00 Rs 5.00 100 Rs 15.00

Conditions for Effective Incentives Plans

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 after the desired performance.

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