An insight into Wage Incentives

|Meaning |Pros & Cons | Kinds| Analysis| Fringe Benefits|

Incentive Compensation or Wage Incentives

• Extra financial motivations designed to stimulate human effort by rewarding the person.

• Given to improve performance thereby achieving desired results.

• Designed to attract and retain talent and for better utilization of human resource

Valid Incentive Plan - Essentials

• Mutual trust & understanding while developing an incentive plan.

• Sound Industrial relations

• Worker’s participation

• Scientific standards for payment of wages

• Guaranteed minimum wage

• Simplicity

• Equitable

Valid Incentive Plan - Essentials

• Economical

• Flexibility

• Prompt Payment

• Adequate Incentive

• Ceiling on earnings

• Based on reasonable standards

• Grievance Machinery

• Proper Appraisal system

• Follow-up

Wage Incentive Plans

Individual Incentives

Time Based

1. Halsey Plan

2. Rowan Plan

3. Emerson Plan

4. Bedeaux Plan

Output Based

1. Taylor Plan

2. Merrick Plan

3. Gantt Plan

Group Incentives

1. Priestman Plan

2. Scanlon Plan

Wage Incentive Plan

Individual Incentive

• Earnings directly related to the individual’s performance.

• Time based or output based.

• Based on standard time and calculations therein.

Group Incentive• All other incentive plans

given apart from individual incentive plans.

• Creates teamwork and motivates new members

• Defeats rivalry among members

I n d i v i d u a l I n c e nt i v e P l a n sHalsey or Weir Plan

• Developed by F.A. Halsey in Weir engineering works

• A worker who completes his job in less than standard time is paid more

• A bonus (usually 50 % ) of the time saved is paid

• The bonus is calculated based on the time rate system

Merits

• Simple & easy to understand• Employer & worker get equal benefit• Guaranteed minimum wage for all

Demerits

• Not scientific and fair• Quality of work might be absent due to

workers rush to completion• Much clerical work involved• Wastage and spoilage may increase

Total Wages = time taken * Rate of wage + 𝐵𝑜𝑛𝑢𝑠 %

100∗

(standard time − time taken)∗rate

Rowan Plan

• It was developed by James Rowan of England

• A minimum wage guaranteed to every worker

• A standard time is determined in advance

• Total wages =

• T*R + (T*R*𝑇𝑖𝑚𝑒 𝑠𝑎𝑣𝑒𝑑

𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑡𝑖𝑚𝑒)

Emerson Plan

• It was developed by Harrington Emerson

• Standard time for the job is determined scientifically

• Bonus is given at an increasing percentage beyond the prescribed level of efficient

• Total wages=

• (T*R)+(% of bonus*T*R)

Bedeaux point plan

• This plan was developed by Charles E. Bedeaux

• Standard time divided into standard minutes

• Workers who completed the less than standard time are paid bonus

• Bonus is 75% of the wages for worker and 25% for foreman

Taylor’s differential piece rate system

• Its about time and motion study where two piece rates are laid down

• Lower rate for workers who fail to complete the task with in the time

• higher rate for those who completes with in the time

Merrick’s multiple piece rate

• This plan was developed to overcome a drawback which relates to an abrupt change in piece rate

• Workers producing less than 83% of standard output are paid B.P.R

• Those producing from 83% to 100% are paid 110% B.P.R those producing more than standard output are paid 120% of the B.P.R.

Gantt’s Task and Bonus plan

• This plan was developed by Henry L. Gantt

• Minimum wage is guranteedto all workers

• A worker who fails to complete the task with in given time paid for actual time spent

• Workers who achieve or exceed the standard gets extra bonus varying between 20% to 50%

GROUP INCENTIVES PLANS In some cases, E.g.., assembly line industries it is not possible

to determine individual performance

Group based or team-based incentives plans reward all teammembers equally based on overall performance of the teammember.

Under group based incentive plan, individual out put can’t bemeasured.

So team performance is evaluated on the basis of time takenrather than output produced, if team complete their target inwell advanced to standard time the team member are eligiblefor incentives.

CONTINUED…..

Payment to team members may be made in the form of cashbonus or in the form of non-cash reward such as pleasuretrip, times off or luxury items.

Methods for team based incentives plans are

– Preistman’s production plan

– Towne’s plan

– Scanlon plan

Wage Incentive - PROS

Improvements in work flow

Man machine relationship

Motivation to earn more

ProductivityImproves Discipline

Minimising Absenteeism

Reduces cost of supervision

Aggravates Team Work

Creates Co-operation

Wage Incentives - CONSWorkers may

overwork and might spoil their

health

Risk of absence in quality due to

time factor

Resistance from employees

Changes in technical factors

Disregard of safety

regulations

Faulty management as a reason behind incentive plans

Jealousy and conflict

Increase in cost More clerical

work

Fringe Benefits

fringe benefits refers to the extra benefits

provided to employees in addition to

the normal compensation paid in the

form of wage or salary.

Main features

supplementary forms

paid to all employees

indirect compensation

help raise the living conditions

may be statutory or voluntary

Objectives of Fringe Benefits

• To create & improve sound IR.

• To motivate the employees.

• To provide security to the employees.

• To protect the health of the employees.

• To promote employee’s welfare.

• To create a sense of belongingness.

• To meet the requirements of various

legislations relating to FB.

Types of Fringe Benefits

Payment for time not worked.

Employee security.

Safety & health.

Workmen’s compensation.

Health benefits.

Voluntary arrangements.

Welfare & recreational facilities.

Old age & retirement benefits.