incentive programmes

8/22/2019 Incentive Programmes

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Performance management is a means of getting betterresults

from the organization, teams, and individuals by managing

performance in line with organizational strategy. It requires: Knowing what priorities managers and their employees should be

focusing on; Having clear targets and goals that focus on priorities;

Measuring actual performance against agreed targets and goals; and

Identifying and remedying performance problems.

Performance management may be defined as a planned andsystematic approach to managing the performance of

individual

ensuring their personal development and contributiontowards

organizational goals.


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Establishingperformance standards

Communicatingstandards and

expectationsMeasuring the actual

performance

Comparing withstandards

Discussing results(providing feedback)

Decision making(taking corrective

actions)


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The standard by which managers tiecompensation to employee effort andperformance. Refers to a wide range ofcompensation options, including merit-basedpay, bonuses, salary commissions, job andpay banding, team/ group incentivesprograms.

It is any type of financial reward that isprovided only when certain specifiedperformance results occur.


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Performance motivating for employeesbehavior.

Developing an ownership interest

Improving employee retention Facilitating a greater role for employees in

pay determination

Individuals benefit from enhanced reward

Organizations benefit from the cumulativeboost in performance and productivity


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Increase the commitment

Reducing the labour cost

Reducing the time and cost of supervision

Discriminate equitably between employeesbased on performance.


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Setting objectives for incentive programmes Determining the nature of reward and mode

of payment

Sharing goals with the employees Evaluating the actual performance of the

employees

Application of incentive plans

feedback


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Transparency Objectivity

Measurability

Attainability Flexibility

Comprehensiveness

Cost effectiveness

Instant feedback


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Straight piece rate

Differential piece rate

Task and time bonuses

Merit ranking


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The production of a worker is not taken into considerationin fixing the wages; he is paid at settled rate as soon asthe time contracted for is spent.

Merits: Simple for calculation No time limit for the execution of a job. Jealousy among them are avoided. No rough handling of machinery Regular and stable income Less administration attention

Demerits: Different abilities would be ignored. Curse for Efficiency.

Systematic evasion of work by workmen. Assessment of Expenditure on Wages for a period is difficult. No record of an individual workers output is maintained.


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Workers are paid according to the amount ofwork done or no. of units completed.

The rate of each unit being settled inadvance.

This system is adopted in jobs of repetitivenature where task can be measured.

A workers earnings (WE) = N x R

N is no. of units produced R is rate per piece.


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Merits: A workers efficiency is rewarded.

Less supervision required.

Optimum utilization of resources.

Direct labor Cost per unit of Production is Fixed. Total unit cost of Production is reduced.

Demerits: Piece Wage Rate is fixed by rule of thumb.

High Cost of production & lower Profit. Trade Unions are often opposed to this system.


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It is a combination of time & piece rate The worker is guaranteed an hourly or daily

wage rate with an alternative piece rate.

Calculation of wages is done by both time &piece rate method & he is paid using themethod through which he earns more.


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Individual

Group

Organizational


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Taylors differential piece rate plan Merrick multiple piece rate plan

Emerson efficiency plan

Gnatt task and bonus system Bedeaux system

Barth variable incentive plan

Halsey premium plan

Rowan incentive plan Haynes incentive plan


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Earning= actual output* piece rate Efficiency level= actual output/normal output

*100

Piece rate applicable output80% of the normal piece rate The actual output is less

than the standard

120% of the normal piecerate

The actual output is equal toor more than standardoutput.


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Example: weekly working hours= 48; hourlywage rate=7.50; piece rate per unit=3;normal time taken per piece=24 minutes

Normal output per week=120 pieces; actualoutput for the week=150 pieces.


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Piece rate applicable outputNormal piece rate The actual output is less than 83%

of the standard output

110%of normal piece rate The actual output is between 83%

and 100%

120% of normal piece rate The actual output is above 100%


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Standard output=120 units Piece rate=.20

Case (1) output=100 units

Case (2) output=150 units Case (3) output=75 units


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Hourly rate outputOnly the hourly rate (guaranteedday wage) is paid

Below 66 2/3% efficiency

The hourly rate and step bonus

rate (20 % of basic wage) are paid

From 66 2/3 to 100 %efficiency

The hourly rate and step bonusrate(20 % of the basic wage )arepaid along with an additionalbonus rate of 1% of the hourly ratefor every 1% increase in efficiencyabove 100%

Above 100% efficiency


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Standard output=120 units Daily wage rate=Rs 80

Case (1): output=70 units

Case (2) output=120 units Case (3) output=140 units


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Remuneration payable outputMinimum guaranteed time rate The actual output is below the

standard output (100%)

Time rate (100%) and bonus at the

rate of 20% of the time rate

The actual output is equal to the

standard output

Higher piece rate (120%of thepiece rate)

The actual output is more than thestandard output


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In a factory, a standard time allowed forcompleting a task ( 50 units) is 8 hours. Theguaranteed time wage is Rs 20 per hour. If atask is completed in less than the standard

time, a high rate of Rs 4 per unit is payable.We shall now compute the wages of theemployees and the rate of earning per hour ifthe task is completed by employee A in 8

hours and by employee B in 6 hours.


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First step : determination of the standard timeof various jobs.

Standard time fixed in the bedeaux system is

usually expressed in terms of minutes known asbedeaux points ( B points).

Earning = actual time taken * time rate+(75/100)

*(b points saved/60)*hourly rate


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Example: the standard time for completingjob X is 4 hours, which should be expressedas 240 B points (minutes). Now, employee Acompletes the job X in 3 hours and 30

minutes, which is equivalent to 210 B points.Employees A saves 30 B points by completingjob X within the standard time. now, the Bpoints are converted back into hours bydividing these B points by 60. As per thebedeaux system, 75 % of the earning fromthe time saved.


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Rise in the employee earning need not beproportionate to the output.

This scheme is better for trainees.

Formula:

earning= rate per hour*(SH*AH)


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The standard time allowed for a job is 8hours and the hourly rate is Rs 10. employeeA took 6 hours to complete the job whileemployee B took 10 hours. Calculate the

incentive ??????


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In a factory, the ST allowed for producing 70pieces of a product is 7 hours. Employee Aproduced 70 piece in 7 hours and employee Bproduced 70 piece of it in 5 hours. The

hourly rate is Rs 4.


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Merit is that it guarantees the time rate for allthe employees .

Earning= ?????


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ST is expressed in terms of man-minutecalled MANT.

DEPENDING UPON THE NATURE OF WORKabout divide the earning.


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Cost efficiency bonus plan Priestman bonus plan

Rucker incentive plan

Townes incentive plan Scanlon

Incentive plan

improshare


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A factory has 400 employees in its metalwork dividion. The standard production fixedfor a normal month is 12,000 points and theactual production during the month is 15000

points. The compensation policy of thecompany permit the transfer of 75% of theincrease in the efficiency to the employees inthe metal division as a bonus.


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The Rucker Plan :The share of production plan, normallycovered just production workers but may beexpanded to cover all employees.

The financial incentive of the Rucker Plan isbased on the historic relationship betweenthe total earnings of hourly employees and

the production value that employees create.The bonus is based on any improvement inthis relationship that employees are able torealize


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Ability to develop collective interest amongthe group members in cost reductioninitiatives.

Limitation:-

absence of individual initiatives in goalaccomplishment.


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The Scanlon Plan :The philosophy behind the Scanlon plan is thatemployees should offer ideas and suggestions toimprove productivity and in turn, be rewarded for

their constructive efforts.Financial incentives under the Scanlon plan areordinarily offered to all employees (a significantfeature of the plan) on the basis of an established

formula.A bonus incentive plan using employee andmanagement committees to gain cost-reductionimprovements


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Improshare :Improved productivity through sharing isanother gain sharing program.A gain sharing program under which bonuses

are based on the overall productivity of thework team.Improshare output is measured by thenumber of finished products that a work team

produces in a given period.Both production (direct) employees andnonproduction (indirect) employees areincluded in the determination of the bonus.


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Profit sharing plan The employee stock ownership plan (ESOP)

Stock option plan


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Profit-sharing Plans: In this plan theemployees receive or earn a share of thecompanys profit, which is calculated as a %of the total profit.

Distributive Plan: Annual or quarterly cash bonus ispaid according to a pre-determined formula. Based oncompany profits.

Deferred Plan: Employees earn profit-sharing creditsinstead of cash payment, which is distributed when theemployee parts with the organization.

Combination Plan: Combination of distributive &deferred Plan.


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Employee Stock Ownership Plan :Employees are granted the right to purchasethe companys stock at a pre determinedprice, which can be exercised in future. Under

this scheme employees are given a part ofownership at a price lower than market price.

Research shows that when employeeownership is combined with

management style that encouragesemployees to share ideas andinformation, companies grows 6% to 11%faster per year.


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Fringe benefits are those monetary and nonmonetary benefits that are given toemployees during and post employmentperiod.

It covers bonus, social security measures,retirement benefits like PF, gratuity, pension,compensation, housing and so on


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Retain people in the organization To stimulate them to greater efforts & higher

performance Indirect Compensation to Employee

Better known as Fringe Benefits, WelfareExpenses, Extra Wages, Hidden Payroll.

Not Directly related to performance ofemployee.

Monetary & Non-Monetary Benefits.


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A worker enjoys in addition to the wages orsalary he receives. Not given for any specific job but to stimulate

their interest in their work. A fringe is never a direct reward .offered not on

the basis of hard work but on the basis of lengthof service. It is a fringe benefit when it enjoys by all the

employees. A fringe must constitute a positive cost to the

employer and should be incurred to financeemployee benefit.


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Employee Demands Trade union Demands

Employers Preference

As a social security

To improve human relations

Companys ability to pay


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Attracting the best talents Tax free for the employees

Improving employee morale

Improving industrial relations

Concern for employee well being

Reducing hr cost

ypes oFringe


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Fringe

Benefits

For Employment

Security

Unemployment

Insurance

Overtime Salary

Bonus

For Health Protection

Health Life and

Accident Insurance

Sick Leave

Medical Care

For Old Age and

Retirement

Pension

Gratuity

Provident Fund

Medical Benefits for

Retired Employees

For Personnel

Identification,

Participation and

Stimulation

Birthday Awards

Attendance Bonus

Canteen

Education Facilities

Housing


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Payment for Time not Worked. Hours of Work Paid Holidays Shift Premium Holiday Pay Paid Vacation

Employee Security Retrenchment Compensation Layoff Compensation Redundancy

Outplacement


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Safety and Health Workmens Compensation Act (1923) Sickness Benefit Medical Benefits Dependents Benefit Group Insurance Policy

Welfare Facilities Employee Security Canteen Consumer societies Housing Credit Societies Employee Counseling Education Facilities Transportation


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Old age and Retirement Provident Fund

Pension

Gratuity

Medical Benefits


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Lack of Employee Participation. Same pension granted to all workers. Younger Employees see pension as irrelevant. Older Female Workers feel that Maternity benefits are not

needed. Managers too have little interest in Benefits Programs,

even not aware of the companys policy towards benefitsand their contribution.

Employee have little choice in their benefit package. Lack of knowledge in employees about their needs. Excessive Expenditure.


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Control Benefit Costs and Evaluation

Communicate Benefit Information

Access Competitiveness

Assess Environmental Factors

Establish Benefit Objectives


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Services related to type of work performed Subsidy for purchase and upkeep of work clothing & uniform Eating Facilities

Canteen, Cafeteria, Company restaurant, fully & Partial Subsidy Food

Transportation Parking Lots, Bus Services etc

Child care facilities

Nurses and Day Care Centers for Children. Financial and Legal Services

Loan Funds, Credit Union, Insurance Plan

Purchasing Services Discount on Company products and Services

Social and Cultural Programssocial clubs ,reading room and libraries


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Employees in general are more educated andmore demanding of remuneration includingfringe benefits. So employers are required todevise newer benefit plans to attract and

retain competent personnel and keeping awatch on the benefit costs


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F.B should be looked as a worthwhile corporate instrument Any meaningful package of benefits must reflect some future

planning Device new ways to involve workers Poor internal communication hurts the programme in these

ways:

more money spent on officers welfareexcess money spent on corporate imagepriority to officers children in admission to school

Therefore make the internal communication system effective


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incentive programmes

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