of Incentives Plans

Incentives payments
By:
Sheeba Rehman
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
Stock
Sharing
Ownership or
Options
Balanced
Scorecard
Productivity /
Gain- Sharing
Team / Group
Incentives
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 individual’s pay is tied to
their performance.
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 Time period per
production per unit of production
time period
(1 (2
) )
Pay constant Straight Standard hour
function of
production level
piecework plan plan
Relationshi Bedeaux plan

p between
production (3 (4
level and
pay
Taylor ) ) - 50
Halsey 50
Pay varies as differential method
function of piece rate
production level Rowan plan
system
Gantt plan
Merrick multiple
piece rate
system
Types of Incentives Plans
The ILO classifies all the schemes of payment by results into
four categories:
Earnings vary Earnings differ
Earnings vary
Earning vary in Proportionately at different levels
less
the same proportion of output
proportionately More than outputs
as output
than output
Straight Piece Work High Piece Rate Taylor’s Differential

Standard Hour High Standard Hour Piece Rate
Merrick Differential
Halsey Plan
Piece Rate
Rowan Plan
Gantt Task System
Barth Scheme
Emerson’s Efficiency
Bedaux Plan
plan
Halsey Plan
Rowan Plan
Barth Plan Time - Based
Bedaux Plan
Taylor’s Differential Piece Rate

Merrick Differential Piece Rate Output - Based
Gantt Task System
Emerson’s Efficiency plan
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
earnings = 8*1
Bonus = ½*2*1 = Rs 1.00
Rs 9.00
Rowan Plan
Std Time= 10 Hrs
Rate per Hr= Re 1
Earnings = 10* 1
earnings = 12* 1
earnings = 8*1
Bonus = 2/10*8 = Rs 1.60
Rs 9.60
Barth Plan
Std Time= 10 Hrs
Rate per Hr= Re 1
Earnings = 10 * 10
= 10*1= Rs 10.00
earnings = 12* 10
= 10.95*1 = 10.95
earnings = 8*10
= 8.94 * 1 = 8.94
Bedaux Plan
Std Time= 10 Hrs
Rate per Hr= Re 1
Earnings = 12 * 1
= 12.00
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
Taylor’s 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
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
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
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 =Re 0.50
High piece-rate
Std Outputs
= Re 0.10
= 80 units
Gantt Task System
Time taken = 8 Hrs
Std Bonus = 20%

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
Emerson’s 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 Rs 10.00
Bonus =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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of Incentives Plans

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Incentives payments

 It implies monetary inducements offered to

Employee Stock Ownership Plans

Performance Plans (Performance

Broad-Based Option Plans (BBOP)

 Under a system of individual incentives, all

Relationshi Bedeaux plan

Straight Piece Work High Piece Rate Taylor’s Differential

Taylor’s Differential Piece Rate

Case 1 time taken= 10 Hrs

Case 1 Output = 70 units

 Plan is clearly communicated

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