Different Types of Pay Plans, Incentives and Commissions

Standard Hour plan: Halsey Plan

This plan originated by F A Halsey (an American engineer) recognizes individual efficiency and pays bonus on the basis of time saved. The main features of this plan are:

1)   Standard time is fixed for each job or operation.

2)   Time rate is guaranteed and the worker receives the guaranteed wages irrespective of whether he completes the work in the time allowed or takes more time to do the same.

3)   If the job is completed in less than the standard time, the worker is paid a bonus of 50% of time saved at time rate in addition to his normal time wages.

Total earnings = Time taken x Hourly Rate plus Bonus.

Bonus = 50% of time saved


1)   It is easy to follow and relatively simple to operate;

2)    It guarantees  minimum wage and thus  provides security to the employees

3)   It provides increasing benefit and incentive to efficient workmen;

4)   The benefit from time saved is shared equally between the employer and the workman;

5)   It emphasizes the saving of time rather than larger output. Hence the workers do not resist its adoption.

6)   The system is based on time saved and not on output thus preventing over production

7)   Saving time reduces both labour cost and overhead expenses.


1)         The workers may be encouraged to rush through work and thus neglect the quality of production to save more time and earn higher bonus;

2)          It does not provide adequate incentive to highly efficient workmen  as it involves sharing of the benefit with employers

3)         Fixation of standard is not easy.

4)         Earnings are reduced at high level of efficiency. Therefore, it does not act as a sufficient incentive.

Rowan plan:

This plan was introduced by D Rowan in 1901. As before, the bonus is paid on the basis of time saved. But unlike a fixed percentage in the case of Halsey plan, it takes into account a proportion as follows:

Time saved / Time allowed

Thus, under this plan bonus is the proportion of the wages of time taken which the time saved bears to the time allowed or standard time.

Bonus = Time saved / Standard time or time allowed x Time taken x Hourly rate

Total earnings = Time Taken x hourly rate + Bonus


1)   It assures minimum time wages. It is more liberal than the Halsey plan in that it provides incentive to work and earn remuneration.

2)   As the increase in effort is rewarded much less after a certain stage, an automatic check for limiting  production of inferior quality of goods is ensured.

3)   This automatic check enables the workers to earn fair wages because there is less chance of rate cutting by the employers as he is not paying extraordinary wages.


1)   The ordinary worker may find the bonus calculation a bit difficult.

2)   Like Halsey plan, this plan does not encourage extra ordinary efficiency, For example if the time  saved is more than half the total, earnings begin decreasing.

Gantt Task and Bonus plan:

This plan combines time, piece and bonus systems. The main features of this plan are:

1)   Day wages are guaranteed.

2)   Standard time for task  is fixed and both time wages as well as high rate per piece are determined.

3)   A worker who cannot finish the work within the standard time is paid on time basis.

4)   If a worker reaches the standard he will be paid time wage plus a bonus of a fixed percentage (20%) of normal time wage.

5)   If the worker exceeds the standards he is paid a higher piece rate.


1)   This plan is not as harsh as the Taylor’s differential  piece rate system. Hence it is more acceptable by the workers.

2)    Workers can easily understand its working

3)   It ensures guaranteed time wages to inefficient workers also.

4)   It makes distinction between efficient and inefficient workers because the system ensures time wages for inefficient workers and piece wages plus 20% bonus for efficient workers.

5)   Labour  cost per unit decreases with increase in production due to incentive for efficiency given under the plan.


1)   It classifies  workers into two competing categories (efficient and inefficient)  and this may bring disharmony among workers.

2)   When this method is used, labour cost will be high for low production.

3)   Extreme care is to be exercised in fixing the guaranteed time rate and determination of standard output. Any error due to lack of experience will lead to unfavourable consequences.

Bedeaux  Plan:

Under this plan, every operation or job is expressed in terms of so many  standard minutes, which are called Bedeaux points or B’s each B  representing one minute through time and motion study, Up to  100% performance. i.e. up to standard B’s a worker is paid time wages without any premium for efficiency. If the actual performance exceeds the standard performance in terms of B’s ten 75% of the wages of the time saved is paid to the worker as bonus and 25% is earned by the foreman. For example, if the standard  time is 10 bonus actual time taken is 8 hours and rate per hour Re 1 the worker wil get:

= 8 hours at Re 1 + 75% of 120 (points saved) x 1/60

= Rs 9.50.

Lump sum Merit pay

In this case, employees receive single lump sum payment at the time of their review – which in any case, is not added to their base pay. Such merit increases help the employer keep the wage bill under control as they do not   contribute to escalating base salary levels. Employees receiving the fat, lump sum merit payments are able to clearly identify the linkage between pay and performance.

Group or Team Based Incentive Plans:

Team based  incentive  plans reward all team members equally, based on overall performance of the team  members. Performance is evaluated using an objective standard. As in individual plans, payments to team members may be made in the form of cash bonus or in the form of non- cash rewards  such as  pleasure trips, time off or luxury items. Team based incentives  foster cohesiveness among team  members. They can motivate group members to behave and think as a unit rather than competing  individuals.   Also,  it is easy to measure the overall performance of the entire team (rather than contributions of each member of the team).

However, complaints of unfairness are inevitable in group situations where all team members may not contribute in equal measure. Imagine what would happen to a class where all students  get the same grade.

Competencies practices in India:

Companies like  Mastek, Godrej and Boyce have tried to link their rewards to learning based performance in recent times quite  successfully.

Team based rewards: Best practise

1)   Set quantifiable targets when evaluating tem performance for rewards

2)   Ensure that the top performers in each team earn the highest level of rewards.

3)    Link team performance closely to the company’s profit and overall financial health.

4)   Avoid subjectively when assessing both the team and its member’s performance.

5)   Offer uniform non-team based incentives to employees within each group.

Other companies like Pfiger, Siemens have been linking rewards to shop floor workers based on the worker’s ability to meet productivity as well as performance targets. In any case the emerging picture is quite clear especially in the post liberalization era in India. The start that needs entrepreneurial action from its employees will have to offer large doses of cash, goal linked incentive pay and possibly stock options to link compensation to profits. Mature companies, who focus on managing their earnings per share and protecting  market shares, will have to seek out managerial talent and reward it with  flexible tax friendly compensation  packages with benefits designed to improve the quality of work life.

Tying the performance of those who contribute little (free riders) and those who turn out exceptional performance to a common yardstick may itself become a bone of contention between team members. Problems could also   crop up when a person becomes  a member of more than one team, contributing  differently on various occasions depending on the level  of difficulty in each assignment. Where team members change frequently, rewarding in an equitable way may be difficult. Finally, intergroup competition my come in way of improving overall performance through cooperative efforts. A team, may become  so focused on maximizing its own performance that it ends up competing with other teams often with  negative consequences. Team based incentive plans as research evidence indicates, seem to work best when the following criterion are present:

1)   When employees are committed to their work and are intrinsically motivated.

2)   Where it is possible to separate organizational work into self-contained   independent groups.

3)   Where there are few levels in the hierarchy and teams of individuals at the same level are expected to complete most of their work with little dependence on supervisors or top management.

4)   Where work tasks are so interconnected that it is not easy to single out who did what.

Source: HRM

  • C S Ramesh Babu

    Good. Recap of the pay plans and bonus. Fresh look. I dont think the models are folowed. Incentives and bonus are derived according to the activity and are project based. Any new methods are theories?

  • Sisanda Sigonyela

    we are two sales ladies who just started work for a tombstone showroom, our boss hasn’t given us a contract or a specific job discription. we do sales, cleaning, office admin, sketching and advertising.
    are we entitled to a basic salary? because our boss says that we only work for commission on the sales of the stones only.