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Mainly there are two kinds of incentive wage plans:
(A) Personnel Incentive Wage Plans
(B) Group Incentive Wage Plans.
(A) Personnel Incentive Wage Plans—These plans motivate the individuals to produce more. Such plans may be based on lime or production. Following are some of the individual wage incentive plans.
1. The Halsey Premium Plan—A mechanical engineer F.A. Halsey devised this plan. It is a simple combination of the time-speed basis of payment. The worker gets his wages for the time he works. For the calculation of premium, a standard time is fixed for each job on the basis of past performances. If the worker finishes the job before this standard fixed time, he gets bonus for the time saved by him.
The rate of bonus is 30% to 50% of the wage payable for the time saved. Suppose a worker gets his wages @ 60 paise per hour. He finishes his work in 15 hours for standard time fixed is 20 hours. Thus he saves 5 hours. He will get a total wage of Rs. 10.50. This is worked out as below :
Wage for 15 hours @ 60 paise = Rs. 9.00
Wages for 5 hours (the time saved) @ 50% of the usual hourly rate = Rs. 1.50
9+1.5= Rs. 10.50
He will get Rs. 10.50 and will also earn something more by utilising the time saved i.e., 5 hours.
Merits
The chief merits of this plan are:
(1) Slow workers are guaranteed a fixed time wage.
(2) Efficient workers get extra wage.
(3) It is an easy and simple device of introducing efficiency.
Demerits
(1) But the worker gets only 50% benefit of his efficiency. It is said that he can earn in the saved time, but where is the work.
(2) The quality of the work is not cared for and the waste of material increases.
2. The Rowan Premium Plan—It is widely used in England. It was introduced by James Rowan of David Rowan & Sons, Glassgow in 1901. It is modification in the Halsey's Plan. The premium is calculated on a percentage of wages for the time worked and not for the time saved. This gives more bonus to the workers. It is calculated by the following formula:
Time taken
Bonus = Time Saved X standard time Hourly Rate
Thus, if the worker finishes the job in 15 hours for standard time of 20 hours and the hourly rate of wage is 60 paise, a worker will get a total of Rs. 11.25.
Merits
(1) The total bonus earned does not increase in 'he same proportion in which efficiency increases and thus there is no possibility of over-spending.
(2) There is less cost on supervision.
(3) The plan is good for beginners and learners.
(4) There is no inducement to the worker to rush through the work.
Demerits
(1) No difference is made between efficient and inefficient worker.
(2) It is difficult for the workers to understand.
3. Taylor's differential Piece Rate System—As a part of scientific management, this plan was devised by Taylor with a view to provide greater incentives to efficient workers. Under this plan, a standard task is established by the techniques of time and motion study and two piece rates are set up for each job. A high piece rate is allowed to those who can make equal to higher than the standard performance; and for others who cannot reach the standard, a lower piece rate exists. Thus, this method penalises the slow and lazy worker and pays incentive to efficient workers.
Merits
It makes a distinction between efficient and inefficient workers. Lazy and inefficient workers are penalised, while efficient workers are rewarded.
The basis of this system is scientific. It is based on proper work study.
It helps in spotting and eliminating inefficient workers.
Demerits
(1) A worker missing the standard even by narrow margin is penalised heavily.
(2) It is more mechanical and less humane.
(3) Trade unions oppose this plan.
(4) It may lead to discontentment among workers.
4. The Gantt Task and Bonus Plan—H.L. Gantt, an associate of Taylor, devised this scheme on the basis of Taylor's plan. Under this scheme, fixed time rates are guaranteed. Output standards and time
Standards are established for the performance of each job. Workers completing the standard job within the standard time or a shorter time receive wages for the standard time plus a bonus! The bonus is a percentage, varying from 20 to 50, of the wage for the standard time. When a worker fails to turn out the required quantity of products, he simply gets his time rate without any bonus.
Merits
(1) It is simple and easily understood.
(2) It guarantees day wages and also provides incentive to efficient workmen.
(3) The employer derives the benefit of decreasing it with higher output.
Demerits
(1) If the minimum wages are kept high due to union pressure, there will not be much incentive for better performance.
(2) Labour cost is high for low production and also upto standard output because of guaranteed day wages and bonus.
(3) The scheme is preferred by the totally inefficient workers as well as by the most efficient workers. Reasonably efficient workers cut a sorry figure.
5. Emerson's Efficiency Bonus Plan—This plan has been named after Harrington Emerson; the innovator of this plan. Under this plan every worker is guaranteed his day wages irrespective of his performance.
A standard output is fixed, and is represents 100% efficiency. According to the plan upto 66 2/3 the guaranteed time wages are paid to the workers, after this they are paid bonus at stated ratio of the time wages.
Emerson used 32 empirical bonus percentages for efficiency beyond 66 2/,3% under this plan, the bonus starts from 0.01% above 66 2/3% efficiency and increases to 20% at maximum efficiency. After this point the bonus is 20% above the basic wages plus 1% for each 1% increase in efficiency.
Advantages (Merits) of Emerson's Efficiency Plan
1. Beginners are encouraged to work hard under this plan.
2. Proper attention is paid to different kinds of workers.
3. It is easy to understand the Emerson's Plan.
4. It possesses rational determination of efficiency.
5. The calculation of efficiency is logical.
6. This plan can be applied to individual tasks as well as group tasks.
Disadvantages (Demerits) of Emerson's Efficiency Plan
1. Labour cost is increased due to payment of bonus on low level of production.
2. There is low rate of bonus in the beginning.
3. It is a complicated plan as far as calculation is concerned.
4. It requires a lot of clerical work.
5. Under this plan, management may be tempted to fix a very high level of standard output.
6. The Bedaux Points Premium Plan—Under this plan, Standard time is divided into Standard minutes. Each minute of standard time is called Bedaux point or B's. B's are indicated on each job ticket. Time wages are paid until 100% efficiency is reached. Bonus is paid on the basis of number of Beduax Points saved. Bonus at 75% of wages of Bedaux saved is paid to the worker and 25% is paid to the foreman.
Merits
(1) Minimum wages are guaranteed to the workers, even if they are not able to compete their job within the standard time.
(2) Since 25% of the wages for time saved goes to the foreman, he is motivated to get higher productivity from the workers.
(3) It is suitable where a worker is expected to perform a number of different jobs.
Demerits
(1) Calculations are complicated and workers are not able to understand it and it involves heavy clerical expenditure.
(2) Workers do not like that foreman should share their bonus.
Merrick's Multiple Piece Rate Plan—It is an improvement over Taylor's Differential Plan. According to this plan, three piece rates for a job is fixed. None of these three piece rates are fixed below the normal level. These three rates are applied in the manner given below:
Rates Bonus Incentive
1. Upto 83 '/3% Normal Rate
2. Above 83 1/3 % to 100% 110% of Normal Rate
3. Above 110% 120% of Normal Rate
Merits
(1) This plan is liberal for the efficient workers. The workers producing more, get their wages at increasing rates.
(2) There is no sudden rise in the wages at one point.
(3) It has all merits of Taylor's Differential plan.
Demerits
(1) The system does not guarantee minimum wages for the workers.
(2) There is wide gap in slabs. All workers producing 1% to 83% of the standard output are considered as sub-standard workers and are paid at the same piece rate.
(3) The general criticisms levelled against Taylor's plan also applies to it.
(B) Group Incentive Wage Plan—These are the incentive wage plans which motivate the group to produce more under individual incentive plans, bonus is paid to the workers on the basis of individual performance and the amount of bonus payable to a worker is not affected by the performance of another or other workers. But there are certain situations where it is difficult to measure the output of an individual worker conveniently or the performance of one worker is affected by the performance of other workers. In such situations, group incentive bonus schemes are introduced. Under this scheme, bonus is made payable to all the workers on a collective basis. This bonus is promised by management in advance of the commencement of work for securing in effective teamwork. In all cases, a fixed standard of performance is established and the bonus is given for the results shown over the standard performance.
Merits
(1) It creates a collective interest in the work.
(2) High output and economical production is achieved.
(3) Jealousy among workers is prevented.
(4) It ensures better cooperation and team-spirit and reduction in absenteeism.
(5) Routing and scheduling are simplified.
(6) It reduces cost of supervision, cost of calculation of bonus and wastages.
Demerits
(1) An individual worker may not put his maximum effort in view of equal sharing of bonus by inefficient workers.
(2) Individual efficiency is not taken into account.
(3) There is difficulty in calculation of bonus to all workers in the group.
Suitability—Group incentive wage plan is most suitable in the following cases:
(a) Where it is not possible to measure the performance of each individual worker.
(b) Where the number of workers making a group is not very large.
© Where the workers making a group, possess the same or equal skills and abilities.
(d) Where the aim is to provide incentives to indirect workers.
(e) Where the finished product is the result of collective efforts of a group.
Types of Group Incentives Schemes-There are different types of group incentive schemes. Important among them are as follows:
(1) Priestman Plan—This system of wage payment was first used by Priestman's of Hull in 1917. It is applied to workers who work in groups. It provides for payment of group bonus in addition to the ordinary time rate to the individual workers. Thus if during a year, an enterprise is able to reach the predetermined standard output or exceed the previous year's output, workers are paid increased wages in the same ratio in which output has increased. For example, if in 1990, the output per worker-hour was 10 units and in 1991, it rises to 11 units per worker-hour, the wages in 1991 would be 10% higher than those in 1990.
An advantage of the system is that it brings about team-spirit among the workers of a group. If the group as a whole works well, this is bound to add to overall output of the enterprise and in that case all the workers would stand to benefit.
But its disadvantage is that it may be insufficient to motivate individual workers, particularly these who possess greater skills and experience.
(2) Scanlon Plan—Named after Mr. Joseph Scanlon of United States, this plan is the most popular for shaving the gains from increase in productivity. It provides for payment of 10% participating bonus for every 10% increase in productivity. The benefit is extended to all employees except the members of top management.
Under the plan, workers are not paid the entire amount of bonus earned by them in any month. One half of the first 15% of such bonus is set apart for the creation of a reserve fund. This fund is used to neutralise the effects of any fluctuations in labour costs. In case a part of such fund remains unused, it too is distributed among the workers in the last month of the year and then a new fund is a created for the New Year.
(3) Productive Bargaining—Management and workers of an enterprise may reach an agreement under which workers agree to give up unproductive wasteful practices such as go-slow and work to rule and in return, the management agrees to link the wages and concessions of increase in productivity.
For this, it is necessary that there should be a strong trade union to force the workers to honour the agreement. In case there are too many unions not cooperating with one another such agreement has little chance of succeeding.
(4) Co-partnership—Under this certain employees are given the option of buying the shares of the enterprise at reduced price in installments. The employees are choosen on the basis of seniority or wage levels. Its assumption is that as a shareholder of the company. An employee is likely to show greater understanding of the company's viewpoint and behave more responsibly.
As for management, it can cite such schemes as proof of its enlightened outlook and thus brighten the public image of the enterprise.
(5) Profit-Sharing—IT is an arrangement by which employees receive a share, fixed in advance of the profits
