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Productivity Linked Incentives
&Motivational
ActivitiesPresented By:Chandra PrakashHaresh Pal SinghJashoda GoyalRohit JohariSandeep JoshiSwati Gupta
Date: 1st Feb.2005
What is Productivity?
Productivity is a quantitative measure. It is the measure of how well we use our resources to produce goods and services.
Our major resources are people (labor) and capital (machines, technology, raw materials).
Productivity Framework
Higher Standard of Living
Higher G.D.P
Increase in Employment
Higher Capital Intensity
Higher productivity
Higher Total Factor productivity
Quality & WorkforceQuality of Capital &
System
Quantitative Methods
Qualitative Methods
Better Quality of Life
What Is Productivity Linked Incentive System?
The Productivity-Linked Incentive System is a system which establishes a closer link between wages and productivity so as to enhance competitiveness.
Types of Incentives - What They’re Based…
Piece rate Units produced Standard hour plan Time saved Bonuses Established goals Commissions Sales Stock options Established goals Profit sharing Organizational
profits
Halsey Premium Plan
This plan is a combination of time and speed.
- That every worker is paid according to hourly rate.
- Every worker is paid according to the time he has spent on the work.
- Every worker is given that he has to finish the allotted work within the standard time. If he is able to save the time, he will be paid a bonus for the time he has saved.
- The amount of bonus is 50% of time saved.
Total Earnings = Time Taken * Hourly Rate + (Standard Time – Time Taken) * Hourly Rate * 50%
Rowan Plan
The worker gets wages at an hourly rate for actual time spent on the job.
The worker also gets the guaranteed minimum wages.
The worker gets bonus if the task is finished before the standard time.
The worker here gets the bonus in his proportion of wages of actual time he has taken. 50% or 30% is not taken into consideration in Rowan Plan.
Contd…
The Rowan Plan can be expressed in the following way:
Total Earnings = Time Taken * Hourly Rate
+Bonus
Amount of Bonus = (Time Saved/Standard Time) *Time Taken * Hourly Rate
Gantt Task & Bonus System
This system involves the following: Establishment of standard after carrying out proper
time and motion studies. Workers completing the work in standard time are
100% efficient. Such workers are entitled to their normal wages plus bonus at a fixed percentages of wages earned.
Workers completing the work in less than the standard time get wages for the standard time plus bonus at a fixed percentage of wage earned.
Bonus is 20% (usually) of the time wages earned. Slow workers are paid guaranteed wages for the
day.
Advantages of Incentive Plans
Higher wages for worker and higher profits for companies
Greater competitiveness for companies
Low Inflation
Focus Employee Effort
Variable Costs linked to Results
Tied to Performance
Can Foster Teamwork
Reward those who Perform well
Key Elements of Plws are as Follows:
Fixed Component Basic Wage Annual Increment Contractual Bonus (where applicable)
Variable Component Wage increase for the year based on
Productivity/Profit sharing formula.
Types of Models
Profitability Model
Productivity Model
Combined Model
Profitability Model
Establish the cap to the bonusAccording to profit levels
Profit After Tax Bonus Month (s)Million ($) Salary<1.5 (threshold) 01.5 - 1.99 0.52.0 - 2.49 1.02.5 - 2.99 1.53.0 and above 2.0
THE PRODUCTIVITY MODEL
Fixed Component Basic Wage An Annual Increment
Variable Component
A variable productivity payment to be determined
Formulation
T = A + P
Where;
T = wage increase
A = annual increment
P = variable productivity payment
Example:
Year 1 (T=A+P) If basic wage = 1000 per month, Annual increment (A) = 2% and Productivity
payment (P) = 4%, Basic wage + A = 1000 + 2% (1000) = 1020 (built
into basic wage). P = 4% x 1000 x 12 months = 480 per annum
Year 2: (T=A+P) If basic wage = 1,020; A = 2% and P = 4% Basic Wage + Annual Increment (A) = 1,020 + 2%of
(1,020) = 1,040 per month Productivity payment (P) = 4% x 1,020 x 12 months =
489.60 per month Annual Variable Productivity Payment at end of year
2:
P for year 1 480.00
P for year 2 489.60 Cumulative for 2 consecutive years 969.60
Combined ModelAnnual Profit (in mn.)
Months of Basic Wage
>1.49 1 1 1.25 1.5 1.75 2
1-1.49 .75 .75 1 1.25 1.5 1.75
.70-.99 .50 .50 .75 1 1.25 1.5
.50-.69 .25 .25 .50 .75 1 1.25
< .50 0 0 .25 .50 .75 1
Productiv-ity ratio
<1 1-2.492.5-4.99
5-7.457.5-7.99
>10
Factors For SuccessfulImplementation
Satisfactory Labour-management relations Realistic annual increments Challenging and equitable variable payment Formula for variable payment Applied company-wide Wage system should be – Specific – Measurable – Achievable – Realistic – Time specific
Case-study: Productivity Incentive Scheme for Tea
Pluckersin Tamil Nadu
Till 1980’s workers were paid a fixed rate and a small incentives for extra plucking of leaves.
This was a constant amount per kilogram of leaf but, in due course, the system was refined by having two incentive slabs (categories).
After several rounds of negotiations, an agreement was reached in 1990
Yield of green leaf /hectare/month (Kg.)
Base output /day (Kg.)
Slab
(Kg.)
Incentives rates (INR/ Kg.)
1-400 12 13-15 16+ 0.26 0.31
401-800 14 15-20 21 0.26 0.31
801-1600 15 16-30 31+ 0.26 0.31
1600 & above
16 17-35 36+ 0.26 0.31
1st 2nd 1st slab 2nd slab
Productivity Incentive Scheme for Tea Pluckers,
Tamil Nadu, India
Yield of Green Leaves/Hectare/month
Base output per day
Slab (Kg.) Incentive Rates (Indian Rupees/Kg.)
1st 2nd 3rd 1st 2nd 3rd
1-400 12 13-15 16-30 31+ 0.27 0.35 0.40
401-800 14 15-20 21-40 41+ 0.27 0.35 0.40
801-1600
15 16-30 31-50 51+ 0.27 0.35 0.40
1600
& above
16 17-35 36-60 61+ 0.27 0.35 0.40
Results
Led to a 36 per cent improvement in the plucking average
The benefit to pluckers during the five-year period had gone up by 25 per cent.
10 per cent of the total leaf harvested during 1994 came from pluckers in the 50 kg + slab
Indian Airlines During the period from November 1993 to May
1996, IA entered into MOU’s with various parties for payment of various productivity-linked incentives.
IA did not assess the total financial outgo
resulting from these agreements. IA signed another set of MOU’s with all its unions during the period from January 1996 to October 1997
Cont…
Guidelines (October 1988) of the Bureau of Public Enterprises (BPE) regarding payment of PLI stipulated that the total of bonus and incentive should not exceed 35 per cent of wages.
It was observed that the benefits of PLI ranged from 61 per cent to 1165 per cent of average wages even though capacity utilization in terms of Revenue Tonne Kilometers (RTKm) was much below the available capacity.
Between 1991-92 and 1995-96, the increase in pay and allowances of the executive pilots was 842% and that of non-executive pilots was 134%.
It was not the threat of exodus but the pressures brought upon IA by the pilots through agitation etc. which forced the Management to yield to the unjustified demands of the pilots for further increase in remuneration.
Contd…
Indian Airlines
Year Profit (+)/Loss (-)
Rs in Crores
PLI
1995-96 (-) 109.98 31.78
1996-97 (-) 14.59 163.63
1997-98 (+) 47.27 219.06
1998-99 (+) 13.12 252.26
Total (-) 64.18 666.73
Year Staff Cost
(in
Crores)
Per Employee
Cost
(Lakhs)
Total Exp.
(Cr.)
Total
Operational
Exp.
(in Crores)
Staff Cost as % of TOE
Effective Fleet
Size
93-94 285.45 1.29 2074 1849 15 54
94-95 374.46 1.65 2258 2008 19 58
95-96 571.37 2.53 2599 2310 25 55
96-97 710.48 3.21 2928 2713 26 40
97-98 817.25 3.72 3220 2984 27 40
98-99 875.45 3.99 3431 3129 28 41
Measuring employees’ productivity in any airlines is ‘Available Tonne Kilometer’
(ATKm) Per employee. Year No. of Employee
s
ATKms in millions
ATKm per
Employee
Percentage Increase over
1993-1994
93-94 22,182 1056.888 47,646 -
94-95 22,683 1025.784 45,221 (-)5.09
95-96 22,582 1045.813 46,312 (-)2.80
96-97 22,153 1075.238 48,537 1.87
97-98 21,990 1094.132 49,756 4.43
98-99 21,922 1122.922 51,224 7.51
It May be noted that Increase in the
Productivity per Employee over the next Six
Year Period was Nominal at 7.51% in
Comparison to the increase in Wages per
Employee at 207% over the Same Period.
Contd…
Productivity Enhancement Program
(1/3, 1/3, 1/3) Designed to increase employee productivity
through the elimination of vacant positions, reallocation of workload and shared savings with employees and the company.
One-third of the salary and benefits (excluding health insurance) of the deleted positions would be reallocated to the employees within the unit who are assuming the increased workload .
Contd…
One-third of the salary and benefits (excluding health insurance) would be used to purchase productivity enhancing technology, or other productivity enhancing tools .
The remaining one-third of the salary and benefits (including the full cost of the health insurance) would revert to the State .
Productivity Enhancement Program Position Deletions
And Reallocation ANNUAL SALARY
Benefits@20%
Insurance TOTALSALARY
CLERK 18,000 3,600 2,000 23,600
ACCOUNTANT
25,000 5,000 2,000 32,000
TOTAL 43,000 8,600 4,000 55,600
Productivity Enhancement Program Reallocations
One-third to be reallocated to employees
14,333 2,867 0 17,200
One-third for technology
enhancements
14,333 2,867 0 17,200
One-third reverts to
organization
14,333 2,867 4000 21,200
Total 43,000 8,600 4000 55,600
Saving to State
One third deleted Salary & Benefit Cost 21,200
Technology Enhancement Costs after Year 17,200
Total 38,400
Effective Savings (38,400/55600) 69%
THANKS