The incentive payments have a universal appeal and their application is confined to certain important industries. Stated differently, payment by results schemes are difficult to apply in:
1. Industries in which measurement of individual or group output is rendered difficult or impossible either by technical consideration or by psychological circumstances which might be prejudicial to output.
2. Industries in which the control of quality is necessary and is particularly difficult, or in the case of certain classes of workers, where high quality and precision of work is of prime importance; and
3. Industries in which the work is especially dangerous and is particularly to ensure the observance of adequate safety precautions.
Barring the above three categories, incentive schemes can be applied to all industries. Specifically, they are being successfully employed in the textile and metallurgical industries, the metal trades, mining and many branches of clothing, leather and rubber industries. Incentive schemes have also been successfully applied in certain countries and in certain circumstances in the building industry and in chemical and other industries.
Generally speaking, systems of payment by results can be most successfully employed in the large companies which can afford to employ the administrative and engineering staff needed to ensure the efficient organization of production, quality and measurement of work. However, such systems frequently yield appreciable results in smaller undertakings which may, in case of need, take recourse to the services of experts for the design of incentive schemes.
Incentives schemes are many and varied. The International Labor Organization (ILO) classifies all the schemes of payment by results into four categories. They are:-
1. Incentives schemes where the workersâ€™ earnings vary in the same proportion as output.
2. Schemes where earnings vary proportionately less than output.
3. Schemes where earnings vary proportionately more than output.
4. Schemes where earnings differ at different levels of output.
As a rule, incentives must not be introduced in a newly set-up unit. Workers must be content with time-rated earnings, at least, during the first four to five years. The time period is necessary for the unit to carve a niche for itself in the market. This being achieved, it would be easy for the unit to sell increased output brought in by incentives. Furthermore, as was noted earlier, incentives are likely to affect the quality of output. Any defect in quality would seriously affect fortunes of the newly set up unit, particularly in its formative years.