Individual incentive plans are the most widely used pay for performance plans in industry. These pay plans attempt to relate individual effort to pay. Popular approaches include piece work plans, (such as Tayor's differential piece rate plan, Merrick's differential piece rate plan, etc.), standard hour plans, (such as Halsey plan, Bedeaux plan, Emerson’s plan etc.) merit pay raises, lumpsum merit payments, sales incentives and commissions.
Piece Rate: Taylor’s Differential Piece Rate System
F W Taylor, the father of Scientific Management, originated this system. The main features of this plan are:
i. There shall be two piece work rates, one is lower and the other is higher.
ii. The standard of efficiency is determined either in terms of time or output based on
time and motion study.
iii. If a worker finishes work within standard time (or produces more than standard output within time) he will be given high piece rate. This system penalises the slow worker by paying low rate because of low production, rewards an efficient worker by giving him high rate because of higher production. Indirectly, this system gives no place to inefficient work. In other words, if the output of a worker is less than the standard output, he is paid a low rate and vice versa.
Merrick’s Differential Piece Rate System
We have seen that in Taylor’s Method, the effect on the wages is quite severe in the marginal cases. To remove this defect, Merrick came out with a Multiple Piece Rate System. There 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 output workers 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.
Standard Hour Plans: Halsey Plan
This plan, originated by F A Halsey (an American engineer) recognises individual efficiency and pays bonus on the basis of time saved. The main features of this plan are:
1. Standard time is fixed for each job or operation.
2. Time rate is guaranteed and the worker receives the guaranteed wages irrespective
of whether he completes the work in the time allowed or takes more time to do the same.
3. 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
1. It is easy to follow and relatively simple to operate;
2. It guarantees minimum wage and thus provides security to the employees;
3. It provides increasing benefit and incentive to efficient workmen;
4. The benefit from time saved is shared equally between the employer and the
5. It emphasises the saving of time rather than larger output, hence the workers do
not resist its adoption.
6. The system is based on time saved and not on output, thus preventing over production.
7. Saving in time reduces both labour cost and overhead expenses.

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