Contingent pay- Incentives and rewards

Individual Piece work: Uniform price per unit of production or pay is directly proportional to result

Most piece rate schemes have minimum rate set at 70-80% of average earnings. Some companies set it at as low as 30 % and others set at minimum time rate.

Companies may provide guaranteed payments for down time due to Machine Failure, waiting for materials etc.

Easy to operate, Simple to understand

Employers can estimate and control employee cost

Employee can predict earning and regulate pace of work for the targeted earning.

•Employers lose control over level of production•Quality can suffer•Negotiation for piece work for new workDifficult to predict when work content fluctuate

•May increase stress and accidents among work force.

•Piece work is inappropriate incentive when technology changes work content

Work Measured schemes

This involves working out standard values or time for a complete task, which is timed and incentive is related to performance above the standard time allowed for the job

Incentive pay depends on difference between the actual time taken to perform the task and the standard time allowed.

If task is done in less than the standard time , there is a time saving and increase in out put.

Work measurement involves standard values for a complete task while allocating time for relaxation, fatigue, personal needs, machine adjustments etc.

Performance scales:Based on standard values performance scales are developedBSI( British standards Institute) Scale or 100/133 where 100 represents 100 for an average operator without financial motivation and 133 represents same workers performance with financial motivation.Other scales are BSI 75/100 and 60/80 scalePerformance of motivated worker would be set at one third more than without incentive.

Payment Scales

Payments are made when payments exceed the standard

Proportional Payment:

Incentive may be 1 Percent of the basic pay for every point above BSI 100

Regressive Payment:

( Helsey/or Rowen Schemes)

Incentive payment increases proportionately less than out put

A performance of BSI 110 may produce a payment of 8% of base pay while payment for BSI 120 may result in a payment of 14%

Proportionate Method is equitable and regressive method has advantage for employers of making mistakes in rate fixing less costly and reducing unit cost for output above standard.

A ceiling on incentive amount is required to be put ( Normally around 133BSI Avoid costs due to loose rates and degeneration

Degeneration due to wage or earnings drift:

Special allowances:

All schemes have allowance for unmeasured work or waiting time. Allowances can be manipulated by booking in waiting time rather on booking on more difficult job which earn less than average incentive.

Erosion of standards:

Type of work and work mix may change over a period of time due to change of methods, technology and workers learning short cuts to increase earning with less effort.

Cross booking:

Cross book from difficult tasks on which it is hard to earn a good incentive to easier ones.

Team Incentive schemes

Payment of bonus equally or Proportional to individuals with in a team

Incentive is related to output achieved by group in relation to defined targets or time saved on jobs

These develop team working, encourages team to monitor its performance, breaks down demarcation lines and disciplines itself to achieve targets. It important for inter dependent jobs.

This is effective where targets and standards are agreed. Other alternatives are: Performance related Pay, Productivity based Pay

Selecting a scheme

Define Objectives and assumptions

Analyze existing situation

Evaluate alternative systems

Objectives:

Obtain consistency in performance

Reduce labour cost

Improve product quality

Reduce waste and lower level of rejects

Eliminate wage drift

Reduce level of inventory, work in progress

Improve equipment utilization

Expand skill base……

Existing Situation:

Batch, Mass production or process

Technology

To what level multi skiling is important

…

Evaluate alternatives:

Time rates

Individual

Team incentives

Gain Sharing

Aims

Features

Formula

Benefits

Ingredient for success

Why to introduce?

Conclusions

Scanlon Plan:

Measures employment cost as a proportion of total sales. A standard ratio say 50 percent is determined and if labor cost falls below this proportion the savings are distributed between employees and the company on the basis of a pre established formula

Rucker Plan:

Is also based on Employment cost but calculated as a proportion of sales less the cost of material and supplies (Value Added).

Pay proportion of the value added remains a near constant unless organization suffers a drastic change. Ruccar plan determines a constant share of what ever added value is created by the joint effort of management and employees.

Improshare:

Is a proprietary plan which is based on an established standard which defines the expected hours required to produce an acceptable level of out put. The standard is derived from work study. Any savings from increase in output in fewer than expected hours are shared as per pre established formula

Value added

is calculated by deducting the expenditure on material and other purchased services from the income derived from sales of the product. It is wealth created by the people in the business.

Profit Sharing