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GROUP INCENTIVE PLANS
Presented By: Nidhi Kumari (2012MB04)
Nitika Gupta (2012MB22) Nikita Juyal (2012MB41)
Nitin Singh (2012MB54)
Reward all team members equally based on overall performance.
Applied when – There is a community of interest. It is not possible to measure individual
performance.
Examples include assembly line operations, chemical processes, blast furnace operation etc.
INTRODUCTION
Generally, smaller groups are better and more effective.
Dependent on the type of group task.
Large groups may be effective in case of a line operation.
In case of a welder, group strength may be only two.
GROUP SIZE
CONDITIONS FOR SUCCESSFUL GROUP INCENTIVE PLANS
A team based incentive with links to individual payouts.
Team and individual performance goals are set.
If team hits its goals, team members earn their incentive only if they also hit their individual goals.
Team incentive is 12% to 15% of monthly base pay.
EXAMPLE: GE Information System
Cost Efficiency Bonus Plan Preistman’s Production Bonus Plan Rucker Plan Budgeted Expense Plan Scanlon Plan Towne Plan Co-partnership Plan
VARIOUS GROUP INCENTIVES SCHEMES
Steps:1) Determines standard cost for the various. elements of cost.2) Actual cost incurred by group.3) Compare Incurred Cost and Standard Cost.4) Finally, pre-determind percentage of the savings is distributed in the form of bonus to
the employeesQues: Standard cost = Rs. 3,00,000
Actual Production cost= Rs. 2,70,000 No. of Members=10
Group is eligible for 60% of cost saved as bonus.Ans: given: standard cost=3,00,000
actual cost=2,70,000savings= 3,00,000-2,70,000=30,000
Bonus= (( 60/100)*30,000)= 18,000Bonus to each member=18000/10=1,800
COST EFFICIENCY BONUS PLAN
Steps:1) Determines standard performance in terms of units or points.2) Actual performance in units is measured .3) Compare standard performance and Actual performance .4) a) actual performance exceeds standard performance, bonus is given based on excess
production achieved and pre-determind percentage of bonus .b) actual performance below standard performance, no bonus given
Ques: Standard production=12,000 units Actual production=15,000 units
Group is eligible for 75% of increase in efficiency as bonus to employees.Ans: Actual production= 15,000
Standard production= 12,000efficiency achieved= 15,000-12,000= 3,000increase in efficiency = (3,000/12,000) * 100= 25%Bonus= 75% of 25= 18.75%
Bonus to each member of 10-member group = 18.75 / 10 =1.875%
PREISTMAN’S PRODUCTION BONUS PLAN
Assumption: Pay portion of Value Added remains near constant share unless drastic change in policy or organisation mismanagement.
Steps:1) Calculate value added for given data in defined time period.2) Calculate ratio of labour cost to value added.3) Calculate value-added of subsequent years and ratio of labour cost to
value added.4) Now, if reduction in ratio then certain amount of value added given as
bonus.Ques: for past 5 years: for subsequent 5 years:
Labour cost = Rs.2,00,000 Labour cost = Rs. 2,20,000 all cost included = Rs.1,40,000 all cost included = Rs. 1,50,000
PBT = Rs.60,000 PBT = Rs. 80,000If reduction then 1% of value added given as bonus.
RUCKER PLAN
Ans: for past 5 years: value-added = labour cost + all cost included + PBTvalue-added = 2,00,000 + 1,40,000 + 60,000 = Rs. 4,00,000
Ratio = (labour cost / value added) * 100= (2,00,000 / 4,00,000) * 100= 50%
For subsequent 5 years :value-added = labour cost + all cost included + PBTvalue-added = 2,20,000 + 1,50,000 + 80,000 = Rs. 4,50,000
Ratio = (labour cost / value added) * 100 = (2,20,000 / 4,50,000) * 100 = 48.9%
Now, since ratio is reduced so bonus payable = ( 1% of 4,50,000) = Rs. 4,500
Bonus to each member of 10-member group = 4,500/10= Rs. 450
ADVANTAGE:1. Increase employee engagement and organizational performance.2. Cost savings on overheads also.3. Increased motivation to employee4. Easy to implement and no cost involved
DISADVANTAGE:1. Leader dependent plan.2. More need of Training and Development for employee.
Steps:1) Determines total budgeted expense .2) Actual total expenditure incurred by group.3) Compare total budgeted expense and Actual total expenditure.4) Finally, pre-determind percentage of the savings is distributed in the form of bonus
to the employeesQues: total budgeted expense = Rs. 3,00,000
Actual total expenditure = Rs. 2,70,000 No. of Members=10
Group is eligible for 60% of savings as bonus.Ans: given: total budgeted expense =3,00,000
Actual total expenditure =2,70,000savings= 3,00,000-2,70,000=30,000
Bonus= (( 60/100)*30,000)= 18,000Bonus to each member=18000/10=1,800
BUDGETED EXPENSE PLAN
Constant proportion of the added value of output is paid to the workers who are responsible for the addition of the value.
Ratio of labour cost to sales value of production.
Scanlon plan
Calculation:1) Calculate current year sales and actual labour cost.
2) Compare current year sales and current year actual labour cost .3) Calculate ratio of fixing bonus.4) Finally Standard Labour Cost is computed using ratio.5) Compare standard labour cost to actual labour cost for bonus payable.Ques: Given:
average annual sales( for 4 years) = Rs. 4,40,000average annual labour cost ( for 4 years) = Rs. 1,20,000Current year sales = Rs. 1,40,000actual annual labour cost = Rs. 30,000
Ans: Ratio = (current year sales – actual labour cost) * 100average annual sales
= 1,40,000 – 30,000/4,40,000 = 25%
Standard labour cost = (( current year sales * ratio )/100) = (1,40,000 * 25)/100 = Rs. 35,000
Actual labour cost current year = Rs. 30,000Bonus payable = (Standard labour cost – Actual labour cost)
= 35,000 – 30,000 = Rs. 5,000
Bonus to each member of 10-member group = 5,000/ 10 = Rs. 500
Advantages & Disadvantages
Advantages
No cost to use the process. Increase employee
engagement and organizational performance.
Disadvantages
Leader dependent plan. More need of T&D for
employee.
Cost reduction by foremen and workers. Steps:
1. Standard labour cost per unit for a particular period is determined.2. If actual labour cost per unit is less than the standard labour cost, 50% of the saving in labour cost is distributed among workers and foremen in proportion to their wages.
Towne plan
Calculation:1) Calculate Standard Labour Cost per unit.2) Calculate Actual Labour Cost per unit.3) Compare actual labour cost and standard labour cost to compute savings.4) Bonus calculated = 50% of savings Ques:
Standard Labour cost per unit = Rs. 2,50,000Actual Labour cost per unit = Rs. 2,00,000
Ans.Savings = Standard Labour Cost per unit – Actual Labour cost = 2,50,000 – 2,00,000 = Rs. 50,000
Since, actual labour cost less than standard labour cost 50% of savings given as bonus.Bonus = (50% of 50,000) = Rs. 25,000
Bonus to each member of 10-member group = 25,000/10 = Rs. 2,500.
Worker gets his usual wages. Employees share the capital as well as profits. Improved over all other systems of wage payment. Offers recognition of the claim of the dignity of
labour.
Co - partnership
Advantages of Co-Partnership Profit sharing. Control sharing. Motivation to work. Sense of belongingness to workers.
Encourages co-operation Useful when there are no clearly defined individual
goals Increase of output/productivity Better quality of work Less supervision Increase motivation
ADVANTAGES
Bonus shared by all Bonus fixation & ascertainment is difficult. Rivalry among the members defeats the purpose of
Team-Work and Co-operation Equal rewards considered unfair by hard working
employees Efficient worker may be penalized for inefficiency of
other members in group
DISADVANTAGES
Set quantifiable targets when evaluating team performance for rewards
Ensure top performers earn highest rewards
Link team performance to company’s profits
Offer uniform non team based incentives to employees within each grade
BEST PRACTICES
1) Cost Accounting Theory And Practice 12Th Ed. By Bhabatosh Banerjee.2) Cost Accounting: Principles And Practice By Dutta.3) Human Resource Management By Durai Pravin.4) http://www.tutorsonnet.com/homework_help/types_of_cost/
labor_and_machinery_cost/labour_group_bonus_plans_assignment_help_online_tutoring.htm
5) Human Resource Management Approach, Prentice Hall, Inc. © 2006 By David Oakes.
6) Human Resource Management By Robert L. Mathis and John H. Jackson.
7) Human Resource Management By K. Aswathappa.8) Human Resource Management By V S P Rao.
REFERENCES
THANK YOU..