12 Different Types of Incentive Plans for the Employees

Under the incentive plans of wage payment, however, both the basic systems are blended together in such a manner that the workers are induced to increase their productivity and the employer happily parts with a part of his increased revenue to encourage the workers towards this end. Under such systems, both time and speed form the basis of wage payment.

Incentive Plans:

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1. Halsey Plan:

It is an American plan originated by F. A. Halsey to encourage efficiency amongst workers as well as to guarantee them wages according to time basis. The standard time required for a job is determined beforehand on the basis of time and motion studies and/or from past records.

Workers who perform the job in less than the standard time and thus save time are rewarded with a bonus, but the worker who takes longer than the standard time is not punished, and is paid wages according to time wage system. The total earnings of a worker under this is equal to the money value of 33,/3 per cent of the time saved in case of standard time set on previous experience and 50 per cent of the time saved when the standards are scientifically set.

Thus, if a job requiring 20 hours is done in 16 hours, the workers will be paid wages for 16 hours + wage for 50 per cent of the time saved, namely, 2 hours. In all, therefore, the worker will get wages for 18 hours. If a worker is paid at the rate of 50 p. per hour, his wages will be calculated as follow: 16 x 50 +4/2 x .50 i.e., Rs. 8.00 + 1.00 = Rs. 9.00.

2. Rowan plan:

Introduced in 1901, by James Rowan of David Rowan and Sons, Glasgow, this plan is quite popular in England. Wages, according to time basis, are guaranteed and the slow worker is not made to suffer.

A standard time is determined beforehand and a bonus is paid according to time save. The only difference between Halsey Plan and Rowan Plan 1 relates to the calculation of the bonus. Under this plan, bonus is based on that proportion of the time saved which the time taken bears to the standard time. It can be expressed as follows:

3. Taylor’s Differential Piece Wage Plan:

F.W. Taylor, the founder of scientific management, devised this system in 1880. He was opposed to the payment of wages on time basis and, therefore, under his system there was no guarantee of wages.

On the other hand, Taylor was firmly of the view that the standard of performance in terms of a fair day’s work can be fixed quite accurately through careful time study. Under Taylor’s plan, standard of output is fixed per hour or per day and two piece wage rates are laid.

Those exceeding the standard or even just attaining it, are entitled to the higher rate and those, whose output is less than the standard output, are paid at a lower rate. For example, the standard may be fixed at 40 units per day and the piece rates may be 30 P. and 25 P. per unit.

If a worker produces 40 units, he should get wages at the rate of 30 P. i.e., Rs. 12.00, but if he produces only 39 units he would be paid at the rate of 25 P. per unit only and his wages would come to Rs. 9.75.

This shows that the penalty of the output being less than the standard output is too severe and the worker would be prompted to try to produce as much as the standard output.

4. Merric Differential or Multiple Piece-rate plans:

It is a modification of the Taylor’s scheme. While Taylor prescribes two-rates-one, for the slow and the inefficient workers and the second, for the efficient ones-, this plan lays down three rates: one for the beginners, the second for the developing workers and the third for the highly skilled and efficient workers.

Like Taylor’s plan, it lays down a standard output through time studies and expects the workers to attain it. No guaranteed time rate is set. Those who are able to produce upto 83% of the standard output become entitled to the first and the lowest piece rate. Those whose output exceed 83% of the standard but do not reach the standard are paid the second higher rate which includes an increase of 10%. Those who attain or exceed the standard get the third, i.e., the highest piece rate on their output which includes a further increase of 10% in the basic rate.

5. Emerson’s Efficiency Plan:

Emerson was also a proponent of scientific management and he devised this system of wages to encourage efficiency amongst workers. Under this system, wages on the time basis are guaranteed even to those workers whose output is below the standard. The workers who prove efficient are paid a bonus.

For the purpose of determining efficiency, either the standard output per unit of time is fixed, or the standard time for a job is determined and efficiency is determined on the basis of a comparison of actual performance against the standard.

6. Gantt’s Task and Bonus Plan:

Under it, wages on time basis are guaranteed to every worker. On the basis of careful study of workers and conditions of work, a good standard of performance under the best conditions is determined. Bonus is paid to those workers how show cent per cent efficiency.

No bonus is payable to a worker if his efficiency is less than 100%. Thus, if a 10-hour job is done in 10 1/2 hours showing an efficiency of 95 per cent, the worker concerned will get wages on time basis for 10 1 /2 hours without any bonus. But at 100 per cent efficiency a bonus of 20 per cent is paid, so that if a 10-hour job is done in 10 hours and if the hourly rate is 50 P.

The worker would get wages for 10 hours, namely, Rs. 5.00 plus a bonus of 20 per cent, namely, Re. 1.00 making a total of Rs. 6.00. If the output reaches the standard task in less than the time set for it, the piece rate will be paid. This system is therefore, essentially a piece rate system with a guarantee of wages on time basis.

7. Bedeaux Point Premium Plan:

The chief novelty of this plan is that the value of time saved is divided between workers and foreman, three-fourths to workers and one-fourth to foreman. This is done on the basis that a worker cannot show good results if his foreman does not fully co-operate with him; therefore, the foreman is also entitled to an incentive. The wages payable to the worker under this plan can also be expressed as wages for the actual time worked plus 75 per cent of the time saved.

8. Hayne’s Plan:

Under this plan, the standard time of a job is fixed in terms of mantis which is the sort form of man-minutes. The worker is paid wages on time basis in any case but if the standard time of various jobs done by him exceeds the actual time, that is to say, if there is a saving of time, the worker will be paid a share of it.

The saving is naturally calculated in terms of mantis (as in case of Bedeaux’s plan). The results saving are divided by 60 to convert it into hours. By multiplying hours so calculated by the time rate, the total value of the time saved is determined.

The benefit of time saved is divided as follows:

(a) If the work is standardized, 5/6th to the workers and 1 /6th to the foreman,

(b) if the work is non-standardised 5/10th to the worker, 1 / 10th to the foreman and 4 /10th to management. Standardised work means work which is of a repetitive nature and non- standardised work means work of different nature every time. The bonus payable to the foreman is credited to a fund.

If the worker loses time due to a fault of the foreman, the foreman will lose his bonus to the extent the works has to be paid wages for idle time. No ma nits are credited to the worker for a product that does not pass inspection.

9. Priest man Bonus System:

This is a plan which takes the productivity of all workers as a whole into account. If, during a year, the output rises either above the standard output or the output of the previous year, the wages of the workers are increased in the same ratio. Thus, if in 1968 the output per worker per hour came to 10 units while in 1969, the hourly output per worker is, on the average, 11 units, the wages in 1969 would be 10 per cent higher than in 1968.

Since this system does not take into account individual efficiency, it will not have a good effect upon individual initiative though workers as a whole may begin to feel that there is some benefit from increased output.

10. Barth Variable Sharing Plan:

This plan is similar to the Halsey and Rowan plans because it is alsobased on standard time set for the completion of a job. Unlike those plans, however, it does not guarantee a time rate. Wages under this plan are calculated according to the following formula:

vStandard hours x actual hours x rate per hour

11. Group Incentive Plans:

The plans which have been discussed above represent incentive plans for individual workers but certain pieces of work can be done only by groups of workers. Group incentive plans are, therefore, necessary for efficient completion of such tasks.

But it should be remembered that, as far as possible, group-work should be avoided because all the members of a group would receive bonus on the same basis even it some of them did not contribute effectively to the completion of the job.

This has an undesirable effect on other members of the group and generally, therefore, it is found that group-work is not done efficiently. But, if there is group-work and incentive is to be provided, it is generally done by fixing a piece rate for the entire job for all the workers.

Care should be taken to divide the piece rate bonus amongst the members of the group according to their skill and to the time devoted by them. For this purpose, the wages of various workers should be calculated first according to time basis and then the extra wage which the group might earn on piece basis should be divided amongst the members in the ratio of wages calculated on time basis.

12. The Scanlon Plan:

The plan which bears the name of Mr. Joseph Scanlon of the United Steel works of America is among the most popular plans for sharing the gains from improvements in productivity. According to this formula, for each 1 % of increase in productive efficiency, a 1 % participating bonus is paid to each employee covered by the plan. All employees except the top management share in the bonus.

Thus, foremen, superintendents, engineers and other managerial staff have a recognised part in the plan. The workers who were previously working on piece rates were guaranteed their regular hourly rate plus their average incentive earnings before the operation of the plan.

One-half of the first 15% of any bonus earned in any month is set aside as a reserve. Such a reserve fund is to be used to meet fluctuations in labour costs. Any “unused portion” of this reserve by November of the given year is paid out in December and a new reserve fund is created.