INCENTIVE

MANAGEMENT

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 INCENTIVES
 ‘Incentive’ may be defined as any
reward or benefit given to the
employee over and above his wage
or salary with a view to motivating
him to excel in his work. Incentives
include both monetary as well as
non-monetary rewards. A scheme of
incentive is a plan to motivate
individual or group performance. 3
 MERITS OF INCENTIVES
 Higher output
 Greater profits
 No problem of idle time
 Supervision does not pose any problem
 Efficient workers are able to earn more
 Possible to identify inefficient and dull
workers
 Rate of labour turnover is bound to be low
 Reduction in complaints and grievances
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 REQUIREMENTS OF A
SOUND INCENTIVE PLAN
1) Trust and confidence
2) Consensus required
3) Assured minimum wage
4) No scope for bias or favoritism
5) Simple to operate
6) Beneficial to both the workers and the
management
7) Sound system of evaluation
8) Redressing grievances
9) Review
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 TYPES OF INCENTIVES
Types of Incentives

Financial or Pecuniary Incentives Non-financial Incentives

1. Wages 1. Job Security

2. Salary 2. Recognition
3. Premium 3. Participation
4. Bonus 4. Pride in Job
5. Delegation of Responsibility
6. Quick Promotion
7. Facilities for Development
8. Labour Welfare Amenities

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CATEGORIES OF VARIABLE PAY
PLANS

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CONDITIONS FOR SUCCESSFUL GROUP/TEAM
INCENTIVES

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Incentiv
e Plans

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 INCENTIVE PLANS
 Piece Rate

Piece rate incentive is given to the employees based

on the number of units produced. This plan is
practiced in the sectors dealing with manufacturing of
products such as engineering – automobile,
telecommunication, FMCG, etc.

 Commissions

Commission is a variable component of compensation

package. It is given on the basis of business
generated by the employee. Commission is a pre fixed
component say 5% of the total sales done by the
employee. It is practiced in the retail, FMCG and other
sectors in the marketing and sales segment.
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 INCENTIVE PLANS
 Bonuses
Bonuses are given to employees on a pre
established goal or criteria. The organizations set
policies regarding the bonuses. Usually bonuses
are provided during the festive season.

 Merit Raises
Merit raises are given on the basis of
predetermined policies. The employees are given
raise on the basis of their performance. The
performance standards are set by the
organizations much in advance.
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 INCENTIVE PLANS
 Standard Hour Pay
Standard hour plan provides incentives to
employees based on the time saved by them
during the job course. Employees’
productivity and quality is evaluated with
respect to the set standards.
 Maturity Curves
Maturity curve incentive plan considers the
experience and performance of an employee
for giving out the incentives. It is practiced in
all the industries. Experience is always given
a weight-age as experienced people can
produce better quality results.
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 INCENTIVE PLANS
 Gain Sharing
Gain sharing incentive plans undertake those
employees who give outstanding performances
and provide for cost saving measures.
Organizations believe in sharing the profits with
the employees who are responsible for producing
those results.
 Profit Sharing
Profit sharing incentive plans are practiced in retail
and FMCG sectors. Other sectors too implement
the plan based on organizational policies. It refers
to giving out the share of profits the organization
earned to all the employees. Indirectly all the
organizations follow the plan by giving out the
dividends. 14
EMPLOYEE STOCK PLANS
 Stock Option Plan

 A plan that gives employees the right to purchase a

fixed number of shares of company stock at a
specified price for a limited period of time.

 Employee Stock Ownership Plan (ESOP)

 A plan whereby employees gain significant stock

ownership in the organization for which they work.

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 ORGANIZATION WIDE
INCENTIVE PLANS
 Employee Stock Ownership Plan (ESOP)

 A firm annually contributes its own stock—or cash (with a

limit of 15% of compensation) to be used to purchase the
stock—to a trust established for the employees.

 The trust holds the stock in individual employee accounts

and distributes it to employees upon separation from the
firm if the employee has worked long enough to earn
ownership of the stock.

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EMPLOYEE STOCK OWNERSHIP
PLANS (ESOP)
Advantages of ESOP

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 VARIOUS INDIVIDUAL AND
GROUP INCENTIVE PLANS
Incentive Plans

Individual Incentive Plans Group Incentive Plans

Time- based Plans Output-based Plans 1. Priestman’s Plan

2. Scanlon's Plan

1. Halsey's Plan 1. Taylor's Differential Piece

2. Rowan's Plan Rate Plan
3. Emerson's Plan 2. Merrick's Multiple Piece
4. Bedeaux's Plan Rate Plan
3. Gantt's Task Plan
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 HALSEY'S PLAN

 Bonus = 50% (Time Saved x Time Rate)

 Total
Earnings = Time Rate x Time Taken +
Bonus

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 ROWAN'S PLAN

 Bonus = % of Time saved/ Standard

Time x Time Wage

 Total
Earnings of the worker = Time
Wage + Bonus

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 EMERSON'S EFFICIENCY
PLAN
 UnderEmerson's plan too minimum wage is
guaranteed to all workers.

 Payment of bonus, however, is related to the

efficiency of the workers.

 Efficiencyis determined by the ratio of time

taken to standard time.

 Usually,a worker is given bonus only when his

level of efficiency, in terms of percentage, is
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above 66.67%.
 BEDEAUX'S PLAN
 Under this plan, the standard time and time
taken for each job is reduced to minutes,

 Each minute is referred to as "B", i.e., one hour

is the same as 60 B's.

 The bonus and total earnings of the worker,

under the plan, are calculated as follows:

 Bonus = 75% (Standard Time - Time Taken) x Time Rate

 Total Earnings = Time Wage + Bonus

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 TAYLOR'S DIFFERENTIAL
PIECE RATE PLAN
 A lower rate for those workers who
are not able to attain the standard
output within the standard time; and

 A higher rate for those who are in a

position to produce the standard
output within or less than the
standard time.
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 MERRICK'S MULTIPLE PIECE
RATE PLAN
1) Workers producing less than 83% of the
standard output are paid at a basic rate.

2) Workers producing between 83 % and

100% of the standard output will be paid
110% of the basic piece rate.

3) Those producing more than the standard

output will be paid at 120% of the basic
piece rate.
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 GANTT'S TASK PLAN
 Its special feature is that it combines
time rate, piece rate and bonus.

 A worker who is unable to produce the

standard output receives only the time
wage. He becomes eligible for bonus
only when he attains or exceeds the
standard output within the standard
time.

 The rate of bonus varies between 20%

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to 50% of his wages.
 SCANLON PLAN
 Scanlon's philosophy was that if the
company would foster and use employee
ideas and suggestions and, in turn, reward
employees for their constructive efforts,
the company would improve profitability
and workers would gain through steady
employment and increased pay.

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 SCANLON PLAN
 TheProduction Committee
Formed in each major department and is used to
tap into the imagination and ingenuity of the
workers.

 The Screening Committee

 Consists of top members of the plant management and
workers representatives, usually eight to twelve
members.
 It reviews the monthly bonus, discusses current
production problems, and considers all suggestions for
organizational improvement.

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 SCANLON PLAN
 The Basic Elements of the Scanlon Plan are:
 The Ratio

Total labor cost / sales value

of production.

 The Bonus
Depends on the reduction in costs
below the preset ratio.

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Benefits of Incentives
WHY VARIABLE PAY PLANS
FAIL

Plan doesn’t
Plan incentives are
reward doing a
not seen as
good job
desirable

Employees’
View of Variable
Pay Plan
Plan rewards
teams/groups Plan doesn’t
rather than motivate
individuals

Plan doesn’t
increase base
pay
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