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Rewards & Incentives

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  1. Rewards & Incentives Dr. Anil Mehta

  2. Incentives are monetary benefits paid to the workman in recognition of their outstanding performance

  3. Importance • Motivates workers • Enhanced earnings • Reduction in cost • Increased production • Reduced supervision

  4. Pitfalls • Difficulty in introduction of new machines • Workers regard their higher earnings as normal • Workers disregard security legislation lead to increased number of accidents • Jealousies • Difficulties in setting of piece or bonus rate • Ethical dimensions • Other problems

  5. Prerequisites for an effective incentive system • The cooperation of workers in the implementation of the scheme • The scheme must be on scientific work measurement • Indirect workers must be covered under the scheme • Management commitment • Grater need for planning

  6. Types of incentive Schemes • (A ) Incentives Varying in Production of output • Straight Piece Work • Earnings of the worker will directly depend upon his/her performance • Standard Hour • Standard time in terms of hours is fixed for completion of job. The rate per hour is then determined

  7. Example Standard time =10 hrs Rate per hour =Rs 1 Case 1 Time taken =8 hrs Earnings =10X1 = Rs 10 Case (2) Time taken =12 hrs (a) Earnings if time wages are not guaranteed =10X1 = Rs 10 (b) Earnings if time wages are guaranteed =12X1 = Rs 12

  8. Earnings Varying Propositionally Less then Output Time is used as the measure of output and bonus is paid on the time saved • Halsey plan • Rowan Plan • Barth plan • Bedaux Plan

  9. Halsey Plan Standards time is fixed for the completion of a job and the rate per hour is also determined . If the worker takes the standard time or more to complete the job he/she gets paid at the time rate. Where the work is done in less then the standard time, he or she gets paid for actual time, at the same rate plus a bonus at a specified percentage of the saved time. The percentage varies from 30 to 70 per cent.

  10. Example Standard time =10 hrs Rate per hour =Rs 10 Case 1 Time taken = 10 hrs Earnings = 10X1= Rs 10 Case 2 Time taken = 12 hrs Earnings = 12X1 = Rs 12 Case 3 Time taken =8 hrs Earnings: Time wages = 8X1 =Rs 8 Bonus = 1/2X 2X1 = Rs 1 --------------- Rs 9

  11. Rowan Plan Standard time and rate per hour is fixed If the time taken to complete the job is equal or exceeds the standard time , the employee is paid for the time taken at the rate per hour . If the time taken is less than the standard time , the employee is entitled for bonus, in addition to the time wages . The bonus takes the form of percentage of the worker’s time rate The percentage is equal to the proportion of the saved time.

  12. Example Standard time = 10 hrs Rate per hour = Rs 1 Case 1 time taken = 10 hrs Earnings = 10X1 = Rs 10 Case 2 Time taken = 12 hrs Earnings = 12X1 = Rs 12 Case 3 Time taken = 8 hrs Earnings =8X1 =Rs 8 Bonus =2/10 X 8 =Rs 1.60 ------------------ Rs 9.60

  13. Barth Scheme It does not guarantee the time rate. The worker’s pay is ascertained by multiplying by the number of hours actually taken to do the job taking the square root of the product and multiplying it by the worker’s hourly rate

  14. Example Standard time =10 hrs Rate per hour =Rs 10 Case 1 Time taken 12 hrs Earnings =square root of 12X10 =10.95X1 =Rs 10.95 Case 2 Time taken =10 hrs Earnings = square root of 10X10 =10X1= Rs 10 Case 3 Time taken =8 hrs Earnings =square root of 8X10 =8.94X1 =8.94

  15. Bedaux Plan Each minute of the allowed time is called point or, B. Thus, there are 60 Bs in one hour. Each job has standard number of Bs .The rate per hour is also determined The worker receives , in addition to his hourly rate , a bonus which under the original plan is equal to 75% of the number of points earned, in excess of 60 per hour, multiplied by one-sixtieth of the worker’s hourly rate. If worker does not reach to his standard , he or she is paid at the time rate.

  16. Example Standard time =10 hrs Rate per hour = Rs 10 Case 1 Actual time =12 hrs Earnings =12X1 Rs 12 Case 2 Actual time =8 Hrs Earnings = 8X1 = Rs 8 Bonus Standard Bs 10X60= 600 Actual Bs 8X60 = 480 Bs earned =120 Bonus =75/100 X 120X1/60 Total earnings =8+1.50 =9.50

  17. B Earnings varying Proportionately More than Output This category include two method (1) the high piece rate (2) the high standard hour Under the former the earnings of the worker are in proportion to his output, as in straight piece-work, but the increase in earnings for each unit of output above the standard is greater. The higher rates start applying after the standards have been reached. Similar logic applies to the high standard hour system

  18. (C) Earnings Differing in Different Level of Output • This system can be best explained by describing how earnings vary from minimum to maximum at different levels of output. Earnings for one part of the range may vary proportionately less than the output and the another part proportionately more, or usually at the same proportion of output. • Taylor’s Differential Piece Rate • Merrick Differential Piece Rate System • Gant Task System • Emrsion’s Efficency

  19. Taylor’s Differential Piece–Rate System There is low rate for output below the standard, and a higher piece –rate for output for above the standard with a large bonus of 50 per cent of time- rate when the standard output is attained

  20. Example Standard output = 100 units Rate per unit = 10 paise Differentials to be applied 120 per cent of piece –rate at or above the standard 80 per cent of piece- rate when below the standard Case 1 Output =120 units Earnings =120 X1 20/100 X 0.10 = Rs 14.40 Case 2 Output =90 units Earnings =90 X90/100 X 0.10 = Rs 7.20

  21. Merrick Differential Piece Rate System Is a modification of the Taylor’s system. ,with three instead of two rates. One large step is broken into two so as to encourage new and average workers. Straight piece rates are paid upto 83 per cent of the standard output , at which a bonus of 10 per cent of the time-rate is payable with further 10 per cent bonus on reaching the standard output . For output above the standard , high piece rates are paid.

  22. Example Standard output =100 units Piece –rate =10 paise Case 1 Output = 80 units Efficiency =80 / 100 X 100 = 80% Earnings: As the efficiency rate is less then 80 %,only the base piece rate applies 80 X 0.10 =Rs 8.00 Case 2 Output = 90 units Efficiency = 90 /100 X100 = 90% Earnings:

  23. As the efficiency is more than 83 % but less than 100 % 110 % of the base piece rate applies : 90 X 110/100 XO.10 =Rs 9.90 Case 3 Output =110 units Efficiency = 110 /100 % 100 = 110 % As the efficiency exceeds 100 per cent ,120 per cent of the base -piece rate applies : 110 X 120 /100 X 0.10 = 13.20

  24. Gant Task System The worker is guaranteed his time-rate for output below standard .On reaching the standard output or task, which is set at a higher level , worker is entitled for a bonus of 20 % of time wages . For output above the task, the high piece rates are paid

  25. Example Rate per hour =Rs 0.50 High piece rare = Rs 0.10 Standard output = 80 units Time taken =8 hrs Case 1 Output = 70 units As the output is less than the standard only time wages are paid to the worker: Earnings = 8 X 0.5 = Rs 4

  26. Case B Output = 80 units Earnings As the output is equal to the standard ,the worker is entitled to time wages plus 20 %of time wages as bonus Time wages = 8X 0.5 =Rs 4 Bonus = 20/100 X4 =Rs 1.80 Total earnings = Rs 4.80 Case 3 Output = 110 units As the output is more than standard, the worker is entitled to a high piece rate = 110 X O.10 =Rs 11

  27. Emerson Plan A standard time is set for each job , and the efficiency of each worker is determined by dividing the time taken by the standard time. Up to 67 % of efficiency , the worker is paid by time rate. Thereafter, a guaranteed bonus , which amounts to a 20 % bonus at 100 % efficiency is paid to the worker. Thereafter, an additional bonus of 1 % is added for each additional one per cent efficiency.

  28. Example Standard output of 10 hours =100 units Rate per hour = Rs 1 Case 1 Output in hrs = 50 units Earnings Efficiency = 50 % As the efficiency is below 70 %,the worker is entitled to time wages only : 10 X1 =Rs 10

  29. Case 2 Output in 10 hours = 100 units Efficiency = 100% The worker is entitled to time wage plan plus 20 %of time wage as bonus : Time wages = 10X1 = Rs 10 Bonus =20/100X 10= Rs 2 Earnings =Rs 12

  30. Case 3 Output in 10 hours = 130 units Efficiency = 130 % As the rate of 20 per cent at 100 per cent efficiency and 1 per cent increase for every one per cent increase in efficiency , the worker is eligible for 50 per cent of the tine wage as bonus: Time wages = 10 X1 = Rs 10 Bonus = 50 /100 X 100 = Rs 5 = Rs 15

  31. Some other issues • Group incentive plans • Incentives for indirect workers • Incentive schemes in Indian industries • Installing an incentive scheme

  32. Thank you