Merits of Group system

Commonality of Interests and Group Size:

Behavioral theory tells us that some of the needs of human beings are the need for security and a sense of belonging to a group. In places where the individual incentive scheme (PBR) is on, it has been observed that many workers limit their own incentive earnings so that they do not face alienation from other workers of their working group. Thus, the idea underlying the group system is to have a financial incentive system which does not pose a threat to the workers’ group solidarity and their social satisfaction; in fact, it purports to increase such satisfactions. And, as a group, they are expected to behave like an individual when responding to the increased earnings with increased output performance.

There is no doubt that situations like the assembly line or maintenance crew or construction work crew call for a group system of incentives as against individual incentives, if incentives are to be used in an organization. Installation of the group system of incentives requires a commonality of interests within that group.

As a corollary to the last point, it follows that in the design of a group Size is important. There cannot be any numerical guidelines on the best or optimal group size. Optimal group size is the one that considers the commodity of interest, promotes cooperation, and enhances the ultimate performance. The nature of the tasks involved, the inter linkages, the production system in operation, the physical layout, etc, are some of the factors to be taken into consideration in forming a group.

The advantages of a group system, where employees function ‘as a group’ are:

1. There may be better camaraderie and better sharing and linking up of work resulting in overall increase in productivity.
2. Perhaps there is better inter-checking of quality of product in a group working situation, and therefore quality of product performance may show improvement.
3. Supervising, time keeping and incentive accounting are simplified.
4. The problems of including indirect workers in an incentive system are also taken care of to an extent.

Demerits: A Group System may have certain disadvantages, too.

1. There may be a leveling effect that is every one works at about average performance level of the group; an excellent worker and a not-so-good a worker both may work at the same performance level.
2. If in a group the workers perform different tasks, then the question arises as to how and whether to distribute the group’s incentive pool according to the individual contributions (that is, the first two points in Demerits question the socialistic pattern of the Group System in contributing to enhanced productivity).
3. The group makes its own decisions about group output and therefore the management would have very little control over the output leading to difficulties in planning of various production and related activities.

Company wide Bonus Schemes:

Many companies like to retain the principle of motivation by financial incentives but at the same time like to do away with the number of problems which a PBR or a Group System pose. More importantly, the underlying thought is that the ultimate objective is to enhance the overall productivity of the plant or company. This calls for working in an integrated manner with cooperation from all the departments/sections of the company. Yet, this integration and cooperation is to be achieved through the use of financial incentives. A suitable measure of productivity is established, by agreement between the management and the worker, and this is used to distribute the labor-cost savings amongst all the workers of the company.

Choice of a Relevant Productivity Measure:

The success of this scheme depends, amongst other things, on the relevance of this productivity measure to the work of the employees. The more the productivity measure depends on the work done by the employees (and less on other externalities) the more is the expected motivation and application by the workers. This is because, there could be a number of factors over which the workers have no control, such as the selling price and product-mix which could affect the productivity as measured by the chosen measure.