Incentive Plans

Wage Incentive Plans: Wage as monetary reward is paid to an employee for the services rendered by him. One of the important components of any wage plan is the incentive bonus paid to the operative personnel. Here are a good number of incentive plans that have been devised.

All the incentive plans are based on the fundamental factors such as the standard time, time actually worked, time saved and the output level attained. Some of the wage incentive plans have been discussed below. They are:

1) Halsey Premium Wage Plan
2) The Roman Plan
3) Straight Piecework Plan
4) Taylor Differential Piecework Plan
5) D’Gant Incentive Plan
6) Emerson Premium Plan
7) 100 percent Time Premium Plan
8) The Bedaux Plan

The standard notations used throughout this are:

r = rate per unit
T = actual time worked
S = Standard time
= T x Number of units produced /Production standard
N = total number of units produced
P = premium percentage
E= total employee earnings

Halsey Plan: It takes into account the total time saved by the employee, and is a useful method for computing the incentive, when accurate performance standards have not been established. The value of time saved by the employee is computed and the earning is shared by the employee and the organization. The total earnings of the worker is computed by the formula given below:

E = rT + P ( S – T ) r

Suppose, a worker should produce 50 units in 8 hours and he is paid at the rate of Rs 3 per hour. If he produces 100 units in 8 hours his total earnings for the day would be –

E = 3 x T + 1 / 2 (16 – 8) x 3

= 24 + ½ x 8 x 3

= 24 + 12 = Rs 36

Where r = Rs 3

T = 8 hours

P = 50%

S = 8 x 100 / 50 = 16 hours

E = Total earnings the worker

Rowan Plan: It was devised in Glasgow, Scotland. In this plan the bonus is calculated on the basis of the time worked. Thus the premium paid to the worker is a percentage of the time worked. If we consider our previous example, then the total earnings of the worker under the Rowan Plan would be:

E = rT + S – T / S x rT

= 3 x 8 + 16 – 8 / 16 x 3x 8

= 24 + 8 / 16 x 24

= 24 + 12 = Rs 36.

Thus the total earnings of the employee would be Rs 36/-

It is worth noting that this plan is not easy to understand by the operative personnel and it also involves more clerical work.

Straight Piecework Plan: This is a common system and is easily understandable. The rate per unit, at which the worker should be paid for the number of units produced, is determined by past records.

If we consider our previous example again, the total earnings would be:

E =rN

Here r is the price rate and is equal to 48 paise

Therefore, E = 0.48 x 100 = Rs 48

Taylor’s Differential Piece Rate Plan: Taylor’s piece rate plan can be applied when the job is clearly defined and when the conditions are such that it would be possible for the average worker to attain the performance target. The important features of Taylor’s plan are:

1) It does not guarantee a day rate;
2) It calls for two piece rates;

A high one when the worker attains or exceeds the standard and a low one when he fails to attain the standard. It means a worker would be paid high for achieving the standard and would receive a low pay in case he fails to achieve the standard. The one advantage of Taylor’s incentive plan is that it motivates the worker to exceed or at least maintain the standard. At the same time it also places a heavy responsibility on management to establish the work standard carefully so that the worker would not feel that he is unjustly penalized. The formula for computing his earnings under this system is same as the straight piece rate system, the only difference is that it provides for two rates, namely —

E = rN when the worker fails to attain the standard

E = r1 N when the worker exceeds or attains the work standard.

D’Gant Incentive Plan: This incentive plan was given by Henry L Gant and it is the only incentive plan that pays an incentive (bonus) percentage multiplied by the value of standard plan. Just like Taylor’s Differential Piece Rate plan it also provides for a substantial differential between standard and substandard work. However, it does guarantee a day rate to the workers. The Gant’s system allows various premium percentage for bonus payments, however, Gant often used 33 1/3 %. The Gant system allows the worker to draw more than what he would receive under straight piece work plan or 100% premium plan. The formula used for the computation of the total earnings under the Gant plan is given by –

E= r. S + p. rS

Using the original problem the total earnings of the worker in this case would be equal to,

E = 3 x 16 + 1/3 x 3 x 16

= 4 + 16

= 64

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