7/30/2019 2. Incentives and Fringe Benefits

1/4

7/30/2019 2. Incentives and Fringe Benefits

2/4

2. Merricks Differential Piece Rate SystemThere are three piece rates under this scheme instead of two, and workers producing below the

standard output are not penalised by the low piece rate. Since the earnings increase with

increased efficiency, performance above the standard will be rewarded by more than one higher

differential piece rate. The basic features of this scheme are: (a) upto 83% of the standard outputworkers are paid at the ordinary piece rate (b) 83% to 100% at 110% of the ordinary piece rate,

and (c) above 100% at 120% of the ordinary piece rate.

3. Standard Hour Plans: Halsey PlanThis plan, originated by F A Halsey (an American engineer) recognises individual efficiency and

pays bonus on the basis of time saved.

If the job is completed in less than the standard time, the worker is paid a bonus of 50% (33 1/3

per cent under Halsey-Weir Plan) of time saved at time rate in addition to his normal time wages.

Total Earnings = Time taken Hourly Rate plus Bonus

Bonus = 50% of time saved

Bonus

A bonus is an incentive payment that is given to an employee beyond one's normal standard

wage. It is generally given at the end of the year and does not become part of base pay. It is said

that bonus is a share of the workers in the prosperity of an organization.

The Payment of Bonus Act, 1965

The Act applies in every factory or establishment in which 20 or more persons are employed in

an accounting year. An employee is entitled to bonus only when he has worked 30 days in a

particular year. The minimum bonus paid has been raised from 4% to 8.33% and is sought to be

linked to increase productivity in recent times, maximum payable is 20% under the act.

Profit Sharing

Profit sharing is a scheme whereby employers undertake to pay a particular portion of net profits

to their employees on compliance with certain service conditions and qualifications. The purpose

of introducing profit sharing schemes has been mainly to strengthen the loyalty of employees tothe firm by offering them an annual bonus (over and above normal wages) provided they are on

the service rolls of the firm for a definite period. The share of profit of the worker may be given

in cash or in the form of shares in the company. These shares are called bonus shares. In India,

the share of the worker is governed by the Payment of Bonus Act.

7/30/2019 2. Incentives and Fringe Benefits

3/4

Employees Stock Ownership Plans

Under employee stock option plan, the eligible employees are allotted companys shares below

the market price. The term stock option implies the right of an eligible employee to purchase a

certain amount of stock in future at an agreed price. The eligibility criteria may include length of

service, contribution to the department/division where the employee works, etc. The companymay even permit employees to pay the price of the stock allotted to them in installments or even

advance money to be recovered from their salary every month. The allotted shares are generally

held in trust and transferred to the name of the employee whenever he or she decides to exercise

the option. The stock option empowers the employee to participate in the growth of the company

as a part owner. It also helps the company to retain talented employees and make them more

committed to the job.

Employee stock options are welcomed everywhere due to their in-built motivating potential.

Some of the powerful benefits offered by ESOP may be catalogued thus:

i. Stock options are a tremendous motivator because they directly link performance tothe market place. The underlying rationale is to let employees add value to a company

and benefit from it on the same terms as any other provider of risk- capital.

ii. Employees remain loyal and committed to the company. To become part owners,everyone has to stay for a while, contribute their best and then share the resultant

gains according to an agreed criteria. Stock options motivate people to give their best

to the company because individual performances will translate into share price

increases only if it is part of a larger collective effort.

iii. By transforming your employee into a stockholder, stock options foster a long-termbond between the employee and the company. Employees begin to look at themselvesas real owners in place of just paid servants of a company.

7/30/2019 2. Incentives and Fringe Benefits

4/4