Incentive Plans

Incentive plans envisage a basic rate usually on time basis applicable to all workers and incentive rates payable to the more efficient among them as extra compensation for their meritorious performance in terms of time, costs and quality. The incentive rates may take the form of bonus or premium. Bonus means payment to workers of the entire benefits accruing from savings in costs, time improvement in quality etc. Premium means the benefits accruing to the firm as a result of higher output or better quality will be shared equally or on some agreed basis between the management and the workers.
Features of incentive plans:
The characteristics of these plans are as follows:
1) Minimum wages are guaranteed to all workers
2) Incentives by way of bonus, etc are offered to efficient workers for the time saved.
3) A standard time is fixed and the worker is expected to perform the given work within the standard time. The standard time is set after making time studies for the performance of a specific job.
Essentials of sound Incentive Plan:
Guaranteed minimum wages:
1) It must guarantee minimum wages irrespective of the performance of the worker.
1) It must be simple to operate and easy to understand.
1) All workers get an equal opportunity to earn the incentive pay. Equal pay for equal work should be the rule .

1) The incentive plan should not be a costly affair. The benefits must exceed the costs.
1) It must be reasonably flexible so as to take care of changes in technology demand for and supply of skills, competitive rates in the industry etc.
1) The incentive plan should take workers and union into confidence. It should be implemented after consulting the workers and their union. Generally speaking it should be the outcome of mutual trust and understanding between the management and workers.
1) The incentive should be large enough to motivate the worker to superior performance. All the same time, there should be checks and balance to ensure that the worker does not exert himself to painful levels affecting the quality.
1) There should be very little time gap between performance and payment. As soon as the job is finished the worker should get his (incentive) earnings promptly.
Incentive plans incorporate all the advantages of piece rate wages but they resemble time wages so far as the payments are concerned .Under Incentive Plans, the employer as well as the employees share the benefit of time saved. The various incentive plans have benefited both workers and employers and they result in higher wages, lower labour turnover and better industrial relations and morale. The following are the more important incentive plans of wage payment.
Individual Incentives:
Individual incentive plans are the most widely used pay for performance plans in Industry. These pay plans attempt to relate individuals effort to pay. Popular approaches include piece work plans, (such as Taylor’s differential piece rate plan, Merrick’s differential piece rate plan etc) standard hour plans (such as Halsey plan, Bedeaux plan, Emerson’s plan etc) merit pay raises, lump sum merit payments sale incentives and commissions.
A piece rate: Taylor’s Differential Piece rate systems
F W Taylor the father of Scientific Management originated this system. The main features of this plan are:
1) There shall be two piece work rates one is lower and the other is higher.
2) The standard of efficiency is determined either in terms of time or output based on time and motion study.
3) If a worker finishes work within standard time (or produces more than standard output within time) he will be given high piece rate).
Source HRM Book