Introductory Note

The National Productivity Council, since 1958, has conducted a large number of training programmes in

the fields of Industrial Management, Industrial Relations, and Industrial Engineering. Its specialists have

also been .carrying out an increasing number of consultancy assignments in a wide variety of organisations

using different tools and techniques of productivity improvement. These experiences are being consolidated

in the form of Training Manuals, .as they would be of benefit not only to its own specialists, but also to the

Local Productivity Councils, and other training organisations in the country.

The Training Manuals are just an attempt at systematising and consolidating the course contents, which

would undergo progressive improvement from time to time. It is the experience of the Council that a good

Training Manual in the field of productivity should be essentially practice-oriented, illustrating the applied

aspects for effective communication to the trainees. It is hoped that the experience of the NPC specialists as

trainers-cum-consultants would make the Training Manuals useful to the needs of Indian industries .and

other organisations.

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I. Theory of Incentives

1. INTRODUCTION

1.1 Incentives are measures to stimulate human effort; people are encouraged to give out their best

by inducing them on to greater and more productive efforts.

1.2 Incentives may be positive or negative. A positive incentive rewards the employee for superior

performance, whereas a negative incentive consists of some form of penalty for poor performance. Though

the fear involved in negative incentives may be occasionally necessary for maintaining discipline, they are

not long lasting, and are hence unsuitable for increasing production.

2. TYPES OF INCENTIVES

2.1 Positive incentives can be broadly classified into (i) Non-financial, (iii) Semi financial, and (iii)

Financial Incentives. A strict classification is rather difficult, since some indirect monetary benefits may be

there in any scheme.

2.2 Non-financial incentive schemes are those where there is absolutely no monetary benefit. G'Jod

work is appreciated and praised. For example, many factories have the practice of publishing the names

and/or photographs of good workers in their House Journals, or of exhibiting their photographs in the

Reception Room, issuing certificates, etc. Non-financial incentives will be effective at the worker levels

only as a supplement to financial incentives. However, for supervisors and those above them, such

incentives serve as morale boosters, and spur them on to being more effective in their organisations.

2.3 Semi-financial schemes may be classified as those which have some monetary benefits, but not

directly linked with output and wages. Promotions, increments, and provision of training and welfare

facilities may be included in this.

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24 All direct financial incentive schemes, which are also known as Wage Incentives and

Payment by Results, may be classified under the financial schemes. Direct financial incentive

schemes are the most effective among the different types of schemes, and provide the

strongest motivation. 1 he discussions that follow relate mostly to Wage Incentives.

2.5 It should be remembered that incentive is only a means to an end. It is only one of

the forms of motivation, and one of the techniques of increasing productivity. It does not

automatically result in lower costs, and higher wages. It is not a panacea for all industrial

problems. not it is a substitute for good management or good industrial relations At best it

can only be a supplement to other management techniques, and we may regard it as one of

the effective tools available at present, since it attempts to link wages with performance.

2.6 Individual and team-spirit are both essential to achieve an organisations objectives,

and in this regard an industry may be compared to a game or sport. Individual incentives in

the form of recognition and extra pay for superior performance encourage competitive spirit

among workers, and result in the employees putting forth their maximum effort. Cooperation

is an equally important incentive in many situations. Sometimes cooperation may conflict

with competition, but in most of the cases they are complementary to each other. There are

many situations in industry where work will be interdependent and a group of workers may

have to work as a team for the completion of the job. Since the work is inter-related and each

worker will have to cooperate with the other, a group incentive is given, so that by a coopera-

tive effort better group performance is obtained.

3. WAGE PAYMENT

3.1 Wage incentive is a method of wage payment. The total wage for any job

Would consist of the following components.

(i) Basic Wage

(ii) Dearness Allowance

(iii) Other Allowances

(iv) Incentive.

The basic wage consists of a minimum wage and a job differential. Job differential is

an addition to the minimum wage, and will be different for different jobs depending upon

their relative worth which is determined by job evaluation.

3 2 some of the governing factors is determining the basic wage and allowance may

be:

(i) Statutory rules and regulations by the Government.

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(ii) Current wage levels in similar industries, area, etc.

(iii) Cost of living index.

(iv) Capacity of the company to pay.

(v) Demand and supply position with regard to labour.

(vi) Bargaining powers of the trade unions.

3.2.1. Thus the basic wage and the allowance are guided by the above factors and also

a systematic evaluation of jobs, taking into consideration the various characteristics of the

job like skil1, effort, responsibility, and working conditions. Wages are paid for certain

quantities of output by the workers, and these are generally stablished at mutually accepted

levels for the purpose of reckoning what is called 'a fair day's work'. The basis of fixation of

these levels of output may be one of a combination of the following.

(i) Output levels traditionally built up during the life of the organisations

called the 'conventional standards'.

(ii) Outputs obtained in similar or identical work situations in other

organisations.

(Hi) Output levels fixed by the application of Work Study techniques.

Though theoretically it may mean that the wage is paid for an acceptable level of per-

formance for the particular duration, in certain cases it does not work like that in practical

when the payment is relay made only for the attendance. To ensure maximum application

during the attendance time, some extra remuneration needs to be made to the worker, and

this is done through wage incentives.

4. PURPOSE OF INCENTIVES

4.1. The main purpose of incentives is to motivate the worker to give his best.

Incentives try to improve the efficiency of workers, by making them work more effectively

with less wastage of time, at a greater pace, and with better application to the job without

detriment to his health.

4.2. The philosophy of wage incentives may be expressed thus: leech and every

individual possesses latent abilities, both mental and physical, in far greater abundance than

he normalIy utilises. The dual rewards of individual recognition and material gain through

wage incentives provide powerful encouragement to the use of those latent abilities"

(Louden & Deegan).

4.3. Usually the objective of any incentive scheme is increased output consistent with

certain quality standards. But there are many other objectives which incentives could

achieve. These would vary depending on the conditions. Some of the objectives are:

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(i) Higher output

(ii) Improved Quality

(iii) Higher Workloads

(iv) Reduced Waste, higher recovery, improved material utilisation

(v) Higher Plant Utilisation

(vi) Less maintenance down time

(vii) Greater process efficiency

(viii) Better Housekeeping

(ix) Less accidents and greater safety

(x) Reduced Absenteeism

(xi) Economy in the use of service facilities.

5. ADVANTAGES & DISADVANTAGES OF INCENTIVES

5.1 All the objectives mentioned earlier may be counted as the advantages of incentives,

when the scheme is well designed, and meets the required objective. Briefly, the main·

advantages of an incentive scheme may be stated to be- (i) Increased output, (ii) Lower Cost of

Production, and (iii) Higher earnings for workers.

5.2 Incentives may have certain disadvantages as well.

(i) Quality of the products may deteriorate unless proper measures are instituted.

(ii) Introduction of improved methods, better tools and machines, etc., may

become difficult. Workers may resist such changes for fear that are-study of the job

may result in lower earnings.

(iii) Clerical work will increase due to the calculations involved in computing incentive

earings.

(iv) Workers may overlook safety precautions. and overwork for the sake of earning

incentive which may effect their health.

(v) Standards have to be fixed properly. Both too tight and to low rates will result in

difficulties.

(vi) In industries where there is a wide fluctuation in production, introduction of incentives

becomes a difficult task.

5.3 Most of these disadvantages and difficulties could be avoided if the incentives are

properly designed taking into consideration all the factors involved. Some of the characteristics of

a well-designed scheme are given below:

(i) The plan should be directly related to the factor or factors to be controlled.

(ii) The plan should provide extra pay consistent with extra effort.

(iii) The incentives should be adequate enough to stimulate the worker to put in extra effort

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(iv) The plan must be simple enough for the worker to understand, and be easily

calculable.

(v) The plan must be acceptable to the workers and the unions.

(vi) Adequate minimum wages must be guaranteed.

(vii Installation and maintenance of the scheme must be as easy and inexpensive as

possible.

(viii) Performance should be measured over as short a period as is possible under the

circumstances.

(ix) The payment period should be as short as possible.

(x) The plan should be based on fair and proper standards.

(xi) There must be adequate safeguards to maintain the desired quality standards.

(xii) Standards should not be altered unless changes occur which may alter the work under

question, in which case the plant should provide for modification of the standards.

(xiii) The plan should cover as many operations and workers as practicable.

(xiv) The plan should usually result in the reduction of unit labour costs.

(xiv) Definite instructions covering policy and methods should be provided.

(xvi) Adequate safeguards must be provided whenever there is a failure to meet the

standards due to reasons beyond the control of employees.

(xvii) As far as possible, there should be no restrictions no individual earnings.

6. INDIVIDUAL & GROUP INCENTIVES

6.1 Incentives could be broadly classified into (i) Individual, and (ii) Group Schemes.

Under the individual scheme each employee is rewarded based on his performance, while the

group incentive plan compensates a number of workers for their combined output.

6.2 An individual plan can be applied wherever the individual effort can be measured, and

normally one worker is responsible for th~ completion of an operation or a task. There are many

industrial situations where a group of workers have to work as a team for completing a job. In

such cases individual incentives may not be practical either because the individual contribution

cannot be measured or the work is so much inter-related that one worker's pace may be dependent

upon the speed of the previous worker, and so on. Group incentives will be more suitable under

such situations. To be effective, it is preferable to keep the groups as small as possible.

6.2.1 By and large, individual incentives have been found to be more effective.

However, group incentives have certain advantages, and have definite applications which are

discussed later.

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7. PREREQUISITES FOR INCENTIVES

7.1 Incentives should not be used to compensate workers against low wages for as

compensation towards rise in economic wage levels. The rate structure must be kept separate

from incentives. Incentives will be fair and reasonable when the industry has established an

equitable wage structure based on a systematic job evaluation. Thus, as far as practicable, Job

Evaluation should precede the introduction of incentives.

7.2 To achieve maximum results from incentives, the production processes and

methods should be first improved and standardised. Methods should be simplified, and

delays and interruptions minimised through the application of Method Study techniques

before an incentive is introduced. Safety precautions and working conditions must’ all be

improved and controlled. Workers would not like their performance and thereby their

incentive earning to be affected by unnecessary delays, interruptions, and breakdowns.

Besides, if standards are set without improving methods, workers themselves would try to

improve the methods and render the standards loose.

7.3 When the operations have been analysed and simplified, and the operators are

trained in new methods, standards should be established based on Work Measurement

techniques.

7:4 Above all, there must be sufficient amount of work available continuously to

justify the introduction of an incentive scheme.

8. TRADE UNIONS & INCENTIVES

8.1 Any wage incentive plan will be successful only if it has the acceptance of the

workers and their unions. Good labour relations are a prerequisite to successful operation of

an incentive plan. Workers are likely to resist anything which they do to know or do not

understand. It is advisable to take the workers into confidence, and explain fully all the

benefits and implications of the scheme.

8.2 The main objections to wage incentives expressed by the trade unions are:

(i) Working continuously at a high pace is injurious to the health of the worker.

(ii) Incentives may result ultimately in the reduction of the total labour strength.

8.3 Incentives based on standards fixed by work measurement techniques, are fair

and appropriate since all the factors affecting the job are taken into consideration. Adequate

minimum wages 'should be guaranteed. It may also be necessary to give a guarantee that

surplus labour, if any, would be absorbed on other jobs to allay the fear of unemployment.

8.4 Most of the difficulties can be overcome by providing for the participation of

union representatives in the introduction of the incentive scheme. This participation may be

in the timing of the job, in fixing standards, or in setting rates.

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8.5 Most of the trade unions have realised the value of incentive schemes, and in

many cases, welcome the introduction of incentives.

9. SCOPE OF APPLICATION

9.1 Though wage incentives could be applied with advantage in most of the cases,

there may be certain limitations rendering the introduction of incentives difficult in some

industries where:

(i) high quality and precision are of Paramount importance;

(ii) work is dangerous and adherence to safety precautions is essential; and

(iii) work is such that measurement of either individual or group effort is extremely

difficult.

10. DEVELOPING A COMPANY WAGE INCENTIVE PLAN

10.1 The broad procedure involved in developing an incentive plan for a company is

:

(i) Determining the objective of the Incentive Plan;

(ii) Method Study of all the production processes and activities to be included in the

plan;

(iii) Quantitative measurement of the achievement and setting up of standards;

(iv) Studying the company's operating conditions including the manner in which

work is assigned and effort applied;

(v) Selecting a suitable standard incentive plan or designing a special plan to suit the

company's needs;

(vi) Designing suitable paper work and information flow procedures;

(vii) Reviewing the scheme from all angles to ensure fairness to all concerned; and

(viii) Installation and maintenance of the scheme.

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II. Standard Financial Incentive Plans

1. INTRODUCTION

1.1 There are a number of incentive plans formulated by different persons from time to

time. The basic differences between these plans are in the incentive levels, and the rate of

payment. Some of the most commonly, used systems are discussed here. Though each .of

these plans has been designed to fit a particular set of conditions, each plan has certain special

features. It may be possible in many cases to select one of the standard plans for use or with

some modifications. However, familiarity with the following representative plans will be

helpful in designing a company incentive plan.*

2. THE STRAIGHT PIECE-WORK SYSTEM

2.1 The straight piece-work system compensates the worker directly in pro. portion to

the output. The worker gets paid at a specified rate per unit of output. (There is. however. one

modification to this system that the workers' time rate is guaranteed).

Example: Rate per piece = Re. 0.10

Total number of pieces produced = 100

Earnings = 100 x Re. 0.10

2.1.1 Direct labour coets per unit of output remains constant above the standard, but

the total unit costs decrease due to reduction in certain overhead costs.

3. THE STANDARD HOUR SYSTEM

3.1 Under this plan, the task standards are expressed in time. A definite

* Summary of the standard incentive plans and the corresponding charts have been taken from

Payments by Results. and reproduced by the kind permission of I.L.O., Geneva.

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hourly rate is paid for each task hour of work performed. The unit of payment is the task

time. The worker is paid full value for the time saved.

Example: If the standard is 20 units per hour, and the worker completes the work in 45

minutes, he gets the full hourly wage for 45 minutes of work.

4. THE HALSEY PREMIUM PLAN

4.1 A standard time is set for completing a job or a unit of work which is usually

based on past production records. The worker gets the guaranteed wage if he· completes the

job in the allowed time or more than the allowed time. If the job is completed in less than

the standard time, the worker is paid at his time rate for the actual time taken, and, in

addition, is rewarded at his time-rate for a definite percentage of the time saved. ~This

percentage varies from 30 to 70 per cent of the time saved, the most common percentage

being 50 per cent, and the other 50 per cent being the employer's share.

Example: Standard time = 8 hours

Worker's hourly rate = Re. 1

Actual time taken to complete the job = 6 hours Total

earnings = (6 hours x Re. 1) + (1 hour x Re. 1)

for 50 per cent of the time saved under 50:50

Sharing = Rs. 7 for 6 hours' work.

4.1. 1. Since there is a sharing and the bonus is modest, slight inaccuracies in time

standards would not be too serious. A portion of the employer's share may be given to

indirect workers and supervisors, thus encouraging overall performance. The plan is easy to

introduce. The Halsey System can also be applied to indirect workers, such as maintenance,

where the work can be estimated.

5. THE ROWAN SYSTEM

5.1 In this system also, a standard time is allowed for a job, and a bonus is paid if the

job is completed in less than the standard time. The time saved is calculated as percentage of

the standard time, and the same percentage of the workers' rate is credited as bonus for the

time saved. Guaranteed time-rate will be paid for standard and below standard

performances.

Example: worker’s hourly rate = Re. 1

Standard time for the job = 8 hours

Actual time taken to complete the job = 6 hours

Time saved = 2 hours

Time saved as a percentage of the standard = 25 %

Time

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Bonus per hour = 0.25%XRs. 1

= Rs. 0.25

= 6 hours (1X0.25)

= Rs. 1.50

6. THE BEDEAUX POINT SYSTEN

6.1 In the Bedeaux System, a standard time is allowed for a job based on work

measurement. Each minute of the allowed time is called a "point or a "B". Thus a standard

hour would consist of 60 Bs, or and a standard day of eight hours, 480 Bs. A standard number

of Bs, or points is allowed for each job. A bonus is paid for the number of Bs, saved, i.e., the

time saved. As per the original Bandeaux system, 75

Per cent of the number of points earned in excess of 60 per hour multiplied by one sixtieth of

the workers' hourly rate is paid as bonus. Guaranteed time rate is paid to workers not reaching

the standard.

6.2 This system may be convenient for application where workers are assigned

different types of work. Since the output can be expressed in terms of points or Bs, the

system would also be helpful for planning purposes.

7. THE TAYLOR DIFFERENTIAL PIECE-RATE SYSTEM

7.1 This system was developed by P.W. Taylor. There is a low piece-rate for output

below standard, and a higher rate for output above standard. As high as 50 per cent of the

time-rate is paid for standard output. Thus this system while rewarding handsomely the

above-standard workers, penalises the below standard workers.

8. THE MERRICK DIFFERENTIAL PIECE RATE SYSTEM

8.1 This is a modification of the Taylor System with three steps, instead of two.

Straight piece-rates are paid up to 83 per cent of standard output at which a bonus of 10 per

cent of the time-rate is payable. At standard an additional 10 per cent bonus is paid with high

piece-rates above standard.

9. THE GANTT TASK AND BONUS PLAN

9.1 At the standard performance, which is usually set at a high level, the worker is paid

a bonus of 20 per cent of his time wages. High piece-rates are paid for performance about

standard. Similar to Taylor and Merrick Systems, the Gantt

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Scheme also rewards workers for reaching the standard which is set at a high level. The

scheme provides for a guaranteed time rate for performance below standard.

10 THE EMERSON EFFICIENCY PLAN

10.1 Standard time are set for the jobs. The actual times taken to complete' the jobs

are recorded. - The individual efficiency is then calculated by dividing the standard time by

the actual time. Up to 67 per cent efficiency the worker is, paid at, his time-rate. Above this

and up to 100 per cent efficiency a bonus is paid. Theban is equal to certain specified

fraction of one per cent of the hourly rate for each addition I one per cent of efficiency. At

100 per cent efficiency a bonus of 20 per c7nt is payable. Thereafter an additional one per

cent bonus is paid for each additional one per cent efficiency.

11. IMPACT OF INCENTIVES ON PRODUCTlVITY

11.1 The National Productivity Council carried out a research project on “ Incentives

in Industries" during the year 1970. The research project highlights the impact of incentives

on productivity. It was found that except 5 companies which were severely hit by

recession, in all other companies both production and productivity went up after the

introduction of incentive schemes. The study with a coverage of 131 companies indicted an

average increase of 60% and 40.85% in the levels of output and productivity. The range of

increase in output and productivity falls between 1.7 to 265% and 1.0 to 158%

respectively.

11.2 The following two tables included in the NPC Research Publication on

Incentives in Indian Industries (Part III) exhibit the impact of incentives on productivity

both statewide and industry wise.

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EARNINGS AND DIRECT LABOUR COSTS

FOR DIFFERENT TYPES OF

INCENTIVE PLANS

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III. Work Measurement Techniques

1. INTRODUCTION

1.1 The establishment of proper and fair standards is a fundamental requirement for the

success of an incentive scheme. Though the incentive may be based on various factors

depending on the objectives, the most commonly used unit of performance is time. When the

unit of measurement is time, techniques of Work Measurement provide the best available

means for setting standards for incentive payment. More sophisticated techniques involving

mathematical and statistical analysis have also been developed of late. A very brief discussion

of the common types of Work Measurement techniques is attempted here.

1.2 "Work Measurement is defined as the application of techniques designed to

establish the work content of a specified task by determining the time required for carrying it

out at a defined standard of performance by a qualified worker". The principal techniques of

Work Measurement are

i. Time Study

ii. Standard data and predetermined motion time systems,

iii. Analytical Estimation, and

iv. Work Sampling.

1.3 Time Study is most extensively used for setting up standards. ,standard data,

predetermined motion time system, and analytical estimation are used where direct

measurement by Time Study is either difficult or time-consuming, Estimation being less

accurate is used only where other techniques are not applicable. The Work Sampling

technique for determining time standard, though possible, is rarely applied. But it is an

extremely useful tool for determining accurately the. present

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efficiency of workers and, equipment, which may be required in designing an incentive

system.

1.3.1 Prior to Work Measurement, a Method Study of all the jobs should be carried

out, and the best methods under the prevailing circumstances installed.

2. TIME STUDY

2.1 Time study is a technique for determining the time required to carry out a

specified job at a defined standard of performance. The work content of the job is expressed

in terms of standard minutes. A standard minute of work is the amount of work to be

expected in one minute from a normal worker, adequately qualified in all respect to do the

job, arid working at normal speed under normal conditions, a certain percentage of

relaxation allowance being included in that minute for personal needs and recovery from

fatigue. Standard minute provides a common unit for the measurement of different kinds of

human work.

2.1.1 In making a Time Study, the following steps are involved:

i. Collecting and recording all the information about the job;

ii. Breaking the job into elements;

iii. Observing and recording the time taken for each element;

iv. Rating the performance at which the work is being done, and computation of

normal time; and

v. Determining the allowances and computing the standard time for the job.

2.2 The first step in Time Study is to record all the relevant information regarding the

job 0 This includes information regarding the method of working, sequence. of operations,

tools and equipment, material and quality specifications, and working conditions. All this

information is essential because the time values bold good for a particular set of conditions,

and would have to be changed if there is any change ,in these conditions.

2.3 When all the data have been recorded, the next step is to break the job into

"elements". An element is a constituent part of the activity selected for convenience of

observation and timing. The main purposes of elemental breakdown are:

i. To separate productive and unproductive work;

ii. To facilitate accurate performance rating;

iii. To provide proper rest and other allowances;

iv. To build Up standard data; and

v. To check method changes and standards by detecting additions and omis-

sions of elements.

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2.3.1 Some of the pornts" to be considered" in the selection of elements are: (i) they

must be easily identified with definite beginning and ending; (ii) manual and machine time

should be separate; (iii) constant, variable, occasional, and foreign elements should be

separate; and (iv) the duration of an element in a repetitive job should be as short as to be able

to be measured conveniently, the minimum duration being not less than 0.05 mts. An

elemental time of about 0.15 to 0.20 minutes permits reasonably easy and correct assessment

of the performance.

2.4 The time required for performing each element of the job is measured with the help

of ,a' stop watch. The stop watch used for time study is a decimal minute type, one minute

'being divided into 100 equal divisions, with provision for stopping, starting and snapping

back the hands. The time study details are recorded on time study forms ..

2.4.1 There are two methods of timing-(i) continuous timing, and (ij) fly back timing.

In the continuous timing the watch runs continuously throughout the study; at the end of each

element the watch reading is recorded. The individual elemental times are obtained by

subtracting each reading by the successive ones. In the fly back method at the end of each

element, the reading is recorded and snapped back to zero Thus the individual elemental

times will be easily available.

2.4.2 Normally about 20 to 30 cycles would ce required to obtain a reasonable

representative average time' for an operation with a duration of about one minute. However,

the number of cycles to be observed would be governed by factors such as the, amount of

variation in the elemental time between cycles, degree of accuracy required, and the coverage

of occasional elements.

2.5 The time values' obtained from time study should be representative figures and

should be capable of being achieved by a great majority of the workers in a plant. The

majority of workers belong to the average group. Hence it is necessary to conduct time study

only on average workers. The performance of a person varies from time to time, and depends

upon varying factors like aptitude, training, physique, and mental attitude, and other external

factors like quality requirements" condition of tools and equipment, working conditions, and

a host of others. Thus it becomes impossible to find a worker who would give a consistently

average performance. Some methods would be required by which the observed time values

on any operator could be adjusted to a normal or an average performance. This is done by

'rating'.

2.5.1 Rating is the method of comparing the actual rate of working of an operator with

the concept of a normal performance. Normal performance is the average rate of working

which can be maintained consistently without undue fatigue. The normal would vary from

job to job based on various conditions.

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2.5.2 There are different scales of rating .. The scale that is extensively used in most of

our industries is the one in which the normal performance is represented by 100. The actual

rating is denoted by a figure either more or less than 100 in steps of five, depending on the

judgement of the time study observer, whether, the actual rate of working is more or less than

his concept of normal. Each element of the job is rated in each cycle, and the rating is

recorded simultaneously with the recording of the time.

2.5.3 The normal time is obtained by multiplying the observed time by the rating

factors.

Normal Time = Observed Time x Rating

100 (normal)

2.6 It is impossible for any person to work continuously without rest. A certain amount

of allowance would have to be made for attending to personal needs, and to recover from

fatigue. This is known as "relaxation allowance", Land is expressed as a percentage and

added to the normal time. The relaxation allowance will vary from job, to job, and depends

upon the various conditions of the job. Different scales of allowances have been involved.

But careful judgement based on experience is necessary to arrive at the proper percentage of

allowance.

2.6.1 In addition to the relaxation allowance, several other allowances like

contingency, interference and process allowances, may have to be added. Contingency

allowance is given to cover those portions of the work which are not included in the normal

time, but are a necessary part of the job. Interference allowance is given to an operator

working several machines which are subjected to cyclic and random stoppages which may

affect the earnings. Process allowances are added to compensate for enforced idleness on the

part of the operator due to the character of the process or operation. Sometimes additional

allowances to compensate for fluctuations in quality of raw materials may also be added.

2.7 The allowed time or the standard time for a job is the sum of the normal time and

the allowances.

Standard Time = Normal Time + allowances

3. STANDARD DATA

3.1 Standard data is a set of time standards built up from elemental times obtained

from various time studies over a period of time, covering a wide range of conditions and

specifications. Time formulae, curves, and charts are developed for elements which vary in

duration according to certain physical and technical characteristics, and also those controlled

by machines. Thus by dividing a job into convenient elements, and applying synthetic

elemental data it would be possible to determine the

time required to do the job.

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4. PREDETERMINED MOTION TIME SYSTEM

4.1 The fundamental concept that all manual work consists of various basic motions of

the human body has brought about the development of Predetermined Motion Time Standards

(PMTS). These are mainly based on elementary movements of the 'therblig' type. All the

basic motions involved in performing a job are recorded, and the assigned time values are

applied to get the total time. Among the various methods available, the most commonly used

are MTM (Methods time Measurement) and the work factory systems.

5. ANALYTICAL ESTIMATING

5.1 Analytical estimating is a technique adopted for setting time standards for non-repetitive type of

jobs in the area of maintenance, construction, etc. Time study may be either not possible or uneconomical

due to the non-repetitive nature of the jobs. The job to be estimated is broken down into elements. The

elements are normally of longer duration than in time study, The normal time for each element is

estimated. The estimation is done by persons who have adequate knowledge of the job and trained in work

study, and have a concept of normal performance. Wherever possible elemental times may be derived

from standard data and predetermined motion time systems. A blanket allowance is added finally to get

the allowed time for the job.

6. WORK SAMPLING

6.1 Work Sampling is a sampling technique based on statistical methods. An estimate of the true

situation is made on the basis of samples. The types of information that can be obtained from work

sampling from the point of view of work measurement are: (i)the proportion of idle or delay time for each

cause. Snap observations are made at random intervals of time noting the machines/men working, not

working, and the causes for the same. Each snap observation is a sample, and if a sufficiently large number

of readings are taken at random intervals the percentage of readings a machine/men working will tend to

equal the percentage time it is doing so. The per cent activity is given by :

Per cent activity = Number of readings observed of activity

Total number of observations

For example, if 100 snap observations are made on a machine, and 80 are recorded as working,

Then the working time of the machine=80=80%

100

26

EXAMPLE IN THE STUDY

Operation: Stay rod threading Disengage &

bring slide to Take out rod Element Pick up rod and Tighten chuck Start machine Chamfer starting point, Threading Check Threads Loosen chuck

Description load in chuck & turn outside adjust, and and keep aside dia engage

Cycle No. ET WR ET WR ET WR ET WR ET WR ET WR ET WR ET WR ET WR

1 18 18 IS 33 48 81 3 84 9 93 16 9 26 35 IS 50 9 59

2 17 76 13 89 60 49 7 56 10 66 II 77 23 0 16 16 10 26 3 16 42 12 54 53 7 6 13 12 25 14 39 13 52 IS 67 10 77 4 19 96 9 5 52 57 5 60 12 72 10 82 26 8 13 21 10 31 6 22 53 10 63 47 10 8 18 12 30 8 38 24 62 12 74 12 86 6 16 2 14 16 45 61 9 70 II 81 14 95 30 25 13 38 12 50 7 15 65 II 76 49 25 11 36 9 45 10 55 26 81 14 95 11 6 8 19 25 12 37 51 88 8 96 9 5 11 16 26 42 12 54 11 65 9 19 84 15 99 49 48 7 55 II 66 14 80 22 2 17 ]9 10 29

10 20 49 17 66 56 22 10 32 22 54 12 66 31 97 8 5 12 17

Total 144 102 394 55 68 96 203 127 107

Number of

Observation 8 8 8 7 6 8 8 9 10 Average 0.18 0.127 0.493 0.08 0.113 0.12 0.254 0.140 0.107 Rating 115 100 110 95 105 90 100 100 IIO

Normal time 0.2070 0.127 0.S423 0.076 0.1190 0.108 0.254 0.140 0.1187 Allowance II 12 13 12 12 14 12 12 II Std. Time 0.230 0.142 0.612 0.085 0.133 0.123 0.284 0.157 0.131

Std. Time/Piece 1.897/9 = 0.210 ET - Elapsed Time

No. of Pieces/hours. 60/0.21 = 285 WR - Watch Reading

Note: Figures In bold type are abnormal readings, either on account of wrong

reading or wrong clicking of the stop watch, and are not to be considered

for analysis. 27-A

6.2 The number of observations to be made depends upon the accuracy required, and

is given by the formula

6.3 Work Sampling can also be used to derive time standards by rating the activity at

the same time the snap observation is made. If the production during the period of the study

is known, the normal time for unit of output can be calculated which is given by :

Per cent efficiency x Rating factor

Normal time per unit of output Production during the study period

6.3.1 In cases where the work involves activities of a different nature, like lifting

weights, welding, hammering, lightening nuts, etc., which demand different levels of

relaxations of allowances, it is necessary to extend the observations to record what activity

the worker is enagaged in at the time of observation, so that the percentage of working time

spent on such activities could be known.

6.3.2. By adding appropriate allowances, standard time for the job can be obtained.

27

IV. Design of Incentive Schemes

1. PROCEDURE

The basic steps involved in designing an incentive scheme are:

(i) Selecting the objective of the Incentive Scheme and determining the factors that

facilitate quantitative measurement of the objective;

(ii) Measuring and developing performance standards for the selected factors;

(iii) Determining performance-reward relationship;

(iv) Determining payment period;

(v) Designing suitable paper work and information flow procedure;

(vi) Reviewing the scheme; and

(vii) Installation and maintenance of the scheme.

2. SELECTING THE OBJECTIVE AND THE UNIT OF MEASUREMENT

2.1 As mentioned earlier, Incentives are designed to serve many objectives The

objectives would obviously vary depending on the conditions, and the needs of the industry A

careful and correct selection of the objective is essential if the scheme is to be successful

2.2 Usually the incentive schemes are designed for increasing the output consistent with

certain quality standards. However, this may not be the case always. The objective in a

chemical/process industry may be to increase process efficiency, or achieve higher recovery.

In a maintenance organisation, the objective may be reduced maintenance down time, and

increased machine utilisation. The objectives in some cases may be reduced absenteeism, or

reduced accidents, etc.

2.3 Some of the considerations in selecting the objectives are: (i) should be of sufficient

interest and importance to management; (ii) should be possible to measure quantitatively; and

(Hi) Achievement should be within the control of the employees.

30

..

2.4 It would be necessary to select certain factors which are easily measurable, and

which denote the extent to which the objective has been achieved for the purposes of

incentives. In the case of output, physical units such as quantity, volume, or weight could be

selected e g. number of pieces, tons of castings, etc. Time, reject per cent, Yield per cent,

equipment utilisation, and labour utilisation are other factors.

25 The National Productivity Council formed a Committee to study the illustrative

models for sharing the gains of productivity on the basis of which certain guidelines and

illustrative models were evolved. These are summarised in Annexure 1.

3. MEASURING AND DEVELOPING PERFORMANCE STANDARDS

3.1 Accurate setting of standards is absolutely essential if the. Incentive scheme is to

operate satisfactorily. If the standards are too tight, workers will not be interested, whereas

loose standards will work out to be uneconomical for the management.

3.2 Wherever the standards are in terms 'of time, output, the work measurement

techniques provide a systematic basis for setting up standards. In the case of factors like

safety, waste reduction, rejection, etc., past records and statistical analysis would have to be

resorted to.

4. DETERMINING PERFORMANCE-REWARD RELATIONSHIP

4.1 When once the standard performance has been determined, the next step is to

determine the incentive amount to be paid' for higher performance, at various levels. The

incentive may start at level below the standard performance in many cases. The level at

which the incentive should start depends upon the present performance and the conditions

obtaining in the company and other factors,

4.2 The incentive rate is normally a certain percentage of the total wage in order that

the same job differential is maintained between the jobs.

4 3 There are basically three types of performance-reward relationships-(i) Straight

Proportional, (ii) Geared, and (iii) Variably Geared.

4.4 Some of 'the considerations to be borne in mind while determining the

"performance-payment relationships are:

(i) Payment should be in direct proportion to the increase in performance;

(ii) Incentive should be adequate and fair;

(iii) It should be simple to understand and calculate;

(iv) Incentive should be above the basic wage which should be guaranteed.

(v) As far as possible there should be no restriction on earnings unless special

considerations demand the same;

(vi) Unit labour cost should remain constant after the standard performance; and

(vii) Payment should be determined in such a way that it is profitable to both

management and employees.

31

5.1 The period over which the incentive earnings are calculated and payment made may

be a day. week or a month, or any suitable period or on the completion of the ' job. But if the

primp is too long the effect of incentive might diminish compared to a shorter period. The

period should not be too short either. This may not give dufficient time lag, for the worker's to

maintain a steady performance resulting in wide fluctuations

32

in earnings, and besides may not be convenient for administrative' and accounting purposes.

A week may be considered as a reasonably good incentive period for almost all the jobs.

Many Indian industries adopt a month as the incentive payment period for incentives.

6. PAPER WORK PROCEDURES

6.1 Good paper work procedures and information flow systems are necessary if the

incentive, scheme is to operate smoothly and efficiently. Informing workers of the standards,

recording actual performances, calculations and payment of incentives, preparation of cost

and other reports. handling of disputes and grievances with regard to standards, etc., require

the design of suitable procedures.

1. REVIEWING THE SCHEME

7.1 After designing the incentive scheme the normal procedure is to review it

thoroughly before implementation in' order to ensure whether it is properly designed, taking

all the factors into consideration. During the review it should be ensured that

(i) the scheme achieves the objectives,

(ii) the reward is fair and equitable commensurate with the effort,

(iii) the scheme is economical,

(iv) reduces unit cost,

(v) the scheme is beneficial to both management and employees, and

(vi) ensures the safety and health of workers.

8. INSTALLATION AND MAINTENANCE

8.1 It is only with the active cooperation of the trade union and workers that an

incentive scheme can be made to achieve its objective. The scheme is discussed thoroughly

with the union at various stage of its development, and before implementation. They are

taken into confidence from the very beginning.

8.2 Installation of the scheme is done on the basis of a union-management agreement.

The agreement normally provides for a trial period. Based on the experience gained during

the trial period, suitable modifications may be incorporated in the scheme. Incentive plans

may be introduced gradually department by department, and in stages.

8.3 When once introduced the incentive scheme is a continuous affair. Unless

carefully and properly maintained it may fail. It should be periodically reviewed and

evaluated to ensure proper functioning. Incentive schemes may need modification after

being in operation for some time.

33

SHARING THE GAINS OF PRODUCTIVITY

The models given below have been tried by various enterprises with considerable

benefit which has accrued to the concerned organisation and their employees. The models are

fairly representative of diverse industrial situations in our country. They may be used as a

basis for formulating incentive schemes and sharing of productivity gains.

Model No.

1

2

3

4

5

6

7

8

9

10

11

Description

Gains Linked to sales value of production.

Gains Linked to value added to production.

Gains Linked to production and productivity

indices.

Gains linked to monthly productivity index

and annual productivity bonus plans.

Gains linked to multi factors of production.

premium pay plan for measuring productivity

gains.

Productivity gains measured by saving in

standard time.

'Productivity gains measured by group and

plant performance indices.

.

Productivity gains measured by improvement

in performance index or saving in standard

time with extension or induction factor.

Productivity gains measured by overall

performance index of plant using fixed

and variable bonus payments.

Productivity gains linked to production and

quality standards.

For details please refer to "Sharing the Gains of Productivity" published by National

Productivity Council.

34

V. Incentive Schemes for Higher Output,

Utilisation, Workload, etc.

1. INTRODUCTION

1.1 A majority of the incentive schemes in operation are for higher output.

Wherever individual effort can be measured, these are designed as individual schemes. Work

measurement techniques are used to measure the work content of the job, and setting of

standards. The Standard Minute is the most common method of expressing the effort.

Performance Indices can be established for all types of jobs with the help of standard time.

2. PERFORMANCE INDICES

2.1 For the sake of convenience, performance indices are used to express the

performance of workers. When the unit is time the performance index is the ratio of standard

time to actual time.

2.2 Before proceeding with the actual design of incentive schemes one should be

familiar with the following terminology:

Standard Index: When the actual time taken to do the job is the same as the standard

or the allowed time, then the performance index becomes 100 and is called the standard

index. This is the performance of an average employee adequately qualified, mentally and

physically, to do the job, sufficiently experienced working at a normal pace without the

stimulus of an incentive scheme.

35

Reference Index: Normally it is found that the performance obtaining before the

introduction of incentives is below the standard. This is known as the Reference Index.

Base Index: This is the performance exceeding which the Incentive is Payable.

This may be the same as the reference index or an index between reference and standard

performance.

Incentive Index: This is the average performance which the employees would attain and

stabilise normally after being on incentive for some time. It is found by experience that

workers increase their performance by about 33 per cent above the standard under the

stimulus of an incentive scheme, the average incentive performance being 133.

Attendance time: Total time spent by an employee at the place of employment when

working or available for work for which payment is made,

Unoccupied time: The period during machine or controlled time, when a worker is

neither engaged on inside work not in taking authorised rest, the time for carrying out the

work being calculated at a defined performance.

Waiting time: Part of attendance time other than unoccupied time during which the

worker is available, but a prevented from working.

Unmeasured work: Work for which standards have not been determined directly or

indirectly by work measurement.

Diverted time: The part of attendance time

when a worker is engaged on other than productive or

ancillary work, e.g., committee work, accident, etc.

3. CHOICE QF INDEX

3.1 Each one of the above performance indices, viz., the operator performance and the

overall performance, is applicable under certain conditions, and the choice of the particular

index would have to be made accordingly.

3.2 The operator performance can be used only if the waiting time can be recorded or

calculated. In chemical process, indirect work, maintenance jobs, etc.,

36

it might be difficult or uneconomic to record or determine the waiting time. When the

amount of waiting time and unmeasured work is not known, the overall performance is

applied. It is obvious that the overall performance index does not give an indication of the

actual performance of the operators, since the actual time taken to do the job and the waiting

time is not known. The performance payment relationships based on overall performance are

designed in such a way as to compensate for the waiting and unoccupied time which are not

measured.

3.3 The schemes based on operator performance should be used only when the amount

of work available for each worker is reasonably high, and the number of workers on the job is

optimum.

4. DETERMINING THE BASE INDEX

4.1 In most of the Indian industries it is found that before the introduction of incentives

the average performance of workers is far below the standard of 100. Hence it becomes

necessary to design the incentive scheme in such a way that the workers are motivated

initially to reach the standard performance and then go beyond.

42 Thus the base index, invariably, is fixed at below 100. The actual figure would

depend upon the present performance (reference index), and would necessarily vary from

industry to industry.

4.3 There are many cases where the reference index or the performance before

,incentives is less than 50. In such cases it is preferable to raise the performance to at least

around 50-60 by methods improvements, better supervision, and labour control, and then

introduce the incentive Sharpe with the base index at 50-60. There have also been some

industries where the base index is the same as the standard, i.e. 100 for the incentives

scheme, though these are rather few in number.

Gearing: Since an incentive has to be provided for reaching the standard performance,

it is usual to have a gearing at 100 performances at which level the relationship may be

straight proportional or any other depending on the circumstances. A second gearing may

also be provided at a higher performance level, if necessary. The level at which the gearing is

applied and the type of performance-payment relationship depends upon certain conditions

such as -

(i) Non-availability of work beyond a certain limit,

(ii) Restrictions on increase in output.

(iii) Risk of Safety and health hazards beyond a certain performance, and

(iv) Restrictions on equipment utilisation and such other factors.

5. RATE AND AMOUNT OF INCENTIVE

5.1 1 he rate and amount of incentive should depend upon the savings accruing as a

result of the incentive scheme. Introduction of the incentive scheme results in (i) savings in

direct labour cost, and (ii) savings in overheads.

37

5.2 The above savings minuts the cost of installing and maintaining the scheme would

be the net savings. In practice the rate is normally decided after collective bargaining, and

based on the management and labour share in the savings. The incentive offered should also

be adequate and fair, if the scheme is to work satisfactorily.

3.5 However an incentive of 20 per cent to 30 per cent of wages at the standard

performance of 100, and 45 per cent of wages at the incentive performance of 133 may be

considered as reasonable. It is to be emphasised that this cannot be taken as standard, and

incentive rate is to be fixed taking all the factors into consideration; the primary consideration

being the scheme should be economically advantageous to the organisation.

EXERCISE

DESIGNING AN INCENTIVE SCHEME

Time Plan-Briefing

Design of the Scheme by participants

Review

Total

38

10 minutes

120 minutes

20 minutes

150 minutes

EXERCISE

DESIGNING AN INCENTIVE SCHEME

Part I

You are required to set up an Incentive Plan for a section of shop involving' Lathe and

Milling Machine Operators, the following standards having been set up for the four types of

products manufactured in the shop (see Annexures 1,2,3& 4).

From an Analysis of Records you can find that there are 5 similar lathes al).d 13

milling machines of similar types, each working &- hours a day. You can further find that

during the month of June there were only 25 working days, and that all the machines were

eommissioned during that period resulting in the following production

1. GEARS, 1800 2. SHAFTS 1800 3. BOLTS 675 4. NUTS 675

During the same period, the machines were idle due to unavoidable delays (not included in

Std.) for a total period of 40 hours in the case of lathes, and 110 hours in the case of Milling

Machines

Discussion with the Management resulted in the agreement of sharing the savings in

direct labour cost between labour and management in the Ratio of 1 : 9. No sharing was

agreed by Management after achieving standard performance, thereby enabling the

operatives for a cent per cent (l00 per cent participation.

Part II

Determine reference index and develop Bonus curves for Lathe and Milling Machine

Operators. The total existing wages of lathe operators vary from Rs. 110 to Rs 150 per

month with weighted average of Rs. 125, and that of Milling Machine Operators from Rs

150 to Rs. 200 with weighted average of Rs. 175. Prepare incentiveearning tables for the 2

types of operators with actual time varying from 1 to 8 hours with increment of 1 and

performance index increasing by 5 up to 150.

P.S. : In practice the performance should increase by 1 and actual time by 1/4 hours.

39

41

VI. Group incentives

I. INTRODUCTION

1.1 wage Incentive plans may be applied on an individual or group basis.

Normally an individual incentive plan has a stronger appeal since payment is directly related

to an individual's effort. However, there are many cases, where individual incentives are not

applicable either because the individual contribution cannot be· measured or the work is

interdependent. Some of the examples are assembly line operations, chemical processes, blast

furnace operation, etc. In such cases group incentive schemes are applied. The output of all

the workers comprising of the group is pooled, and the incentive earnings are computed and

distributed among the individuals, at a certain proportion. Group schemes are also applicable

to situation where the work and performance are not interdependent. The total achievement of

the group is taken for incentive purpose. It is to be mentioned that the group system applies

best when (i) there is a community of interest, and (ii) it is not possible to measure individual

contribution.

1.2 Any of the incentive plans already covered may be adopted for the group scheme

as well. The group output is computed and the group earning are worked out based on the

type of performance-payment relationship adopted. The earning is distributed among the

numbers of the group according to their contribution, in proportion to their wages, or

according to specified percentages, or in proportion to the number of hours worked by each

individual in the group.

1.3 Group incentive schemes are very popular, and widely employed because they

are easier and cheaper to work than individual schemes.

2. ADVANTAGES OF GROUP SCHEMES

(i) Better Cooperation: Normally in a group incentive scheme there is greater

cooperation compared to individual incentive. A team spirit is built up,

42

and each worker tries to help the other. Small delays and waiting times will be

reduced. A worker will attend to some odd job, or help another man in the group

during his enforced waiting time if any, and tendency to idling is less. An

operator will be more careful in performing his operation when he knows it will

help another man in the group. Difficult and more complicated tasks will be

shared by all. Also, discipline and responsibility for accomplishment is assumed

by all the members in the group.

(ii) Less Supervision: The working group leader assumes most of the direction and

control, and hence the supervisory effort required will be less. Besides, the

supervisor has to deal with groups than the individuals.

(iii) Lesser training time: The new workers are quickly trained by the group.

The quicker the workers learn their job, the better it is for the group. And hence

the group is interested in the new worker learning his job as quickly as possible.

The new man would also pick up the job sooner being in the group than

otherwise. Even the slow and Jazy workers improve being in the group.

(iv) Reduction in Absenteeism: Each worker becomes conscientious of his work and

realises that his absence will dislocate the work of the group, and consequently

the earnings.

(v) There may be certain other advantages like reduced clerical work and steady

earnings of workers compared to the individual schemes.

.

3. LIMITATIONS

1. An efficient and skilled worker may earn more when on. an individual scheme

than in a group system.

2. It may be difficult to keep check on slow and inefficient workers in a large

group.

3. When personal difficulties arise among the group members the functioning of

the group may be disrupted.

4. SIZE OF THE GROUP

4 1 The size of the group is one of the important factors in the success of a group

incentive plan. Generally smaller groups are better and more effective. However, the size of

the group would depend on the type of group task. On a line operation larger groups may be

equally effective since each worker is assigned a definite task. On certain jobs the group

strength may be only two, as in the case of a fitter or a welder, and his helper. Thus the

group strength depends upon the nature of jobs, area of work and similar factors.

43

5. DEPARTMENT AND PLANT-WIDE INCENTIVE SYSTEMS,

PRODUCTION BONUS SCHEMES, ETC.

5.1 Incentive schemes may be applied to departments and even to the complete factor

as a whole. These are extensions of the group systems where the strength of the group may

be as big as the whole factor. Departmental and plant-wide incentive schemes based on

certain easily determinable yardsticks are quite popular, and are common in Foundry, Heat

treatment, Plating, etc. In a majority of the "plant-wide schemes, incentive is related to

overall monthly production figures and are commonly known as production bonus schemes.

The incentive payment is also normally done on a monthly basis,- though in a few cases it

may quarterly or other convenient periods. Incentives based on factors such as rejection

percentage, recovery percentage, maintenance down time, etc., may also be designed. The

departments and employees are normally classified as direct, semi-direct, indirect, etc. A

ratio is evolved for sharing the total incentive earnings based on their overall contribution.

The bonuses are usually paid to the individual workers in proportion to their wages. Where

the total incentive earnings are split for different classifications as per agreed ratios, the

workers in each classification earn incentive in proportion to the hours put in by each worker.

5.2 In such overall incentive schemes development of accurate standards per each

operation will not be necessary. Schemes can be devised in such a way as to include both

direct and indirect workers. They are fairly easy to design and install.

5.3 But one of the difficulties with such systems is that the overall yardstick chosen

may not bear a close relationship to performance. For example, in a gray iron foundry if the

yardstick is tonnage of castings produced, the effort required to make a ton of intricate

castings will be very much different from that of making a ton of rough castings. Thus if the

product varies from period to period, the earnings may also vary. Secondly, when the group

is large the individual worker cannot relate his effort to his earnings.

6. PROFIT-SHARING

6: 1 The Profit-sharing Scheme is based on the same principle. as the group system

where incentive is related to the collective effort of the group. A certain percentage of the

total profits is paid to the employees at the end of the year. The payment is usually related to

the workers' monthly wages. The scheme has as its basis the recognition of' the importance of

employees' contribution, and continued interest in the success of the company.

6.2 The Profit-sharing Scheme is comparatively easy and less expensive to adopt,

while the profit-sharing plan has become successful in some cases resulting in increased

production at lower costs. There are many instances where they have not

44

made any significant contribution towards improving the overall efficiency of the company.

Some of the main disadvantages of the profit-sharing plan are:

(i) Employees see little connection between their efforts and the

profitableness of a company.

(ij) Group is too large, and the reward is too long deferred.

(iii) With the introduction of the Bonus Act, the scope of profit-

sharing plan as an incentive scheme may become limited.

(iv) Workers may mistrust the profits declared.

(v) Good and bad, and direct and indirect, workers share alike.

(vi) Profit does not depend only on output, but on many other factors

beyond the control of the worker or the management. Employees do

not realise the influence of these outside factors when the profits go

down, and consequently their earnings,

7. SCANLON PLAN

7.1 The scanlon Plan is a plantwide incentive scheme developed by Joe Scanlon in the

United States around 1938. The scheme is based on a creative concept of Union Management

relations

7.2 The objective of the plan is to devise a formula which will most adequately reflect

the productive efforts of workers and management as a whole. The Bonus formula is devised

to fit the particular operating conditions of the plant. One of the bonus formulas devised by

Scanlon for the Laponite Machine Tool Company is briefly discussed.

7.3 The following steps formed the basis for working out the bonus formula:

(a) Deciding on a normal labour cost and arriving at an acceptable ratio of labour cost

to production or sales value;

(b) Evaluating the performance in a given period and estimating the cost reduction,

with reference to the decided ratio; and

(c) Dividing the cost reduction benefit between the company and labour, and paying

the work-group at the earliest possible period.

7.4 The process by which the formula was arrived at consisted of the following:

Firstly, a mutually acceptable team from management and labour was formed. They freely

discussed the three aspects of the plan mentioned above, and arrived at constructive

conclusions. Initially, they arrived at the base ratio for performance measurement, i.e.-

Total adjusted payroll

Sales value of prodution

45

Exhibit 1 illustrates how this ratio is arrived at, based on the previous year's <table

performance. Here, the inventory changes include the work in process and finished stock, as

raw materials are not considered as part of production. Also, the vacation and holiday pay are

accounted to arrive at the total adjusted pay-roll.

However, the factors which should go into the making of the numerator and the

denominator are discussed, negotiated, and decided by the labour-management group

representatives. The final ratio in the example cited in Exhibit 1 comes to 38:2.

(2) Once this was arrived at, a 'memorandum of understanding' was prepared, wherein

the terms, conditions; applicability of the ratio, and method of payment were clearly stated.

This was signed by the management-labour representatives and notified to all the employees.

(b) The first performance evaluation is done in the month just after the notification of

the understanding. The labour and management representatives sit together, discuss the

business trends, inventory changes, sales figures, and the pay-roll. Then the sales value of

production is arrived at, and from the accepted ratio, the allowed pay-roll is calculated.

The difference between this allowed pay-roll. and the actual pay-roll is the "economic

gain". A reserve is kept out of these deficit months, and the rest is distributed to. labour and

management as per the clauses of the 'memorandum of under- standing’.

Exhibit 2 explains the calculations done. In the same company, the allowed pay-roll

was calculated by using the agreed ratio of 38.2 of the sales value of production.

The difference between this and the actual pay-roll represents the 'bonus pool'.

There was an agreement to set aside 25 per cent for deficit months, and distribute the rest at

75 per cent to the employees and 25 per cent to the management. The employees' share is

represented by a percentage of the total participating pay-roll. It was 10.5 per cent in the

given case. Here, too, the method of working, the decision on reserve, and the employee-

management share is subject to negotiation.

(c) The cost-reduction benefit is distributed to the employees within a month, so that

they are made aware that they get something for what they did. All, including the president of

the company, are eligible to this benefit.

Taking the company represented in Exhibit 2, the payment was calculated at 10.5 per

cent of the emoluments of individual worker, and paid along with the next month's earning.

The salient features at the Scanlon Plan are:

(i) It encourages group work.

46

(ii) There is high flexibility in the generation of decisions and the execution

of the plan.

(iii) It integrates the company's objectives with group activity.

(iv) From a psychological angle the purpose of the organisation fits with the

natural human tendency to collaborate when it is the sensible way to do

things; and it is a remedy to 'resistance to change', because it involves

people in the process of creating

. Changes, rather than imposing it on them.

(v) AII the improvements in the working of a factory are brought about

through suggestions received from personnel, and the percentage of

useful suggestions in companies where the Scanlon Plan is working is

usually about 90 per cent, while in other companies where suggestion

schemes are in operation without the plan, the percentage hardly goes

over 7 per cent.

(vi) Job evaluation is a necessary pre-requisite to avoid discontent regarding

the share allotment to individuals.

47

49

EXERCISE

GROUP INCENTIVE SCHEME

Time Plan-Briefing 20

minutes

Development of Plan by participants in groups 180 minutes

Review and Discussion 40 minutes

. Total 240 minutes

Key Points:

(i) The participants will work on this exercise in small groups.

(ii) With the data provided, each group will discuss, make any reasonable

assumptions that are necessary, and arrive at a suitable incentive plan.

(Hi) All the plans will be discussed and reviewed in the general session at the

end,

50

SYNDICA TE WORK GROUP INCENTIVE SCHEME

The management of a paper mill is interested in introducing an incentive scheme in their

factory. The objective is to improve the overall efficiency, and to reduce manufacturing costs.

The savings made as a result of increase in paper production as well as improvements in the

performance of each department will be shared between the management and the_ employees.

Being a process type industry, improved recovery of chemicals in the soda recovery

department, higher yield in the pulp department, reduction in the maintenance down time of

certain critical equipment and various other factories would result in considerable savings in the

manufacturing costs. It is also observed that the improvement in efficiency is dependent more

upon the supervisory and the managerial personae in the department rather than upon the

workers. It has been agreed that the standards would be fixed based on the past performance for

which fairly accurate records are available.

Paper Machine, Pulp Mill, Soda Recovery, Boiler House and Water Treatment

may be considered as direct departments. All the others are service departments.

All the data that may be required is given in Annexures 1 to 10. A suitable incentive

scheme is to be devised covering all the employees in the factory.

ANNEXURE 1

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57

CASE STUDIES

Design of a few incentive plans operating in different types of industries are given below

for illustration:

A.Malleable Foundry

The objective of the incentive scheme was to increase the production of malleable castings

maintaining certain quality standards. Since measurement of individual contribution was

difficult and time-consuming, a group plan was devised.

The base index for incentive purpose was to be fixed based on work study, and also past

data. The variation in production was between 30 and 60 tons, and the standard worked out to

45 tons. However, taking the furnace operation into consideration, an average production of 40

tons is fixed as the minimum for being eligible for incentive. In order to maintain quality and

safety, a ceiling is fixed at S5 tons above which no incentive is payable. The cost of production

per ton of Castings was Rs. 3,000 and the savings in labour and overhead costs worked out to

Rs. 1,000 per ton. It was agreed that this would be divided between the management and the:

workers in the ratio of 50:50.

The total labour strength in the foundry is 200. A flat rate of Rs. 2.50 for every extra ton of

castings produced above the minimum is payable as incentive to each worker. Supervisory staffs

(5 Nos.) are paid an incentive of Rs. 2 per every extra ton from the management's share of the

gains.

Incentives are payable only for the good castings after the finishing is completed.

B.Cast Iron Foundry-Hand-moulding section-Moulding of Head Stocks

For incentive purposes each head stocks allocated 30 work units. For the payment of

incentive, only good and acceptable castings duly passed by inspection are considered.

A team strength of one moulder and one helper is taken, and payment of the incentive will

be based on the total number of work units produced by this team.

There will be a minimum level of production of 150 units below which no' incentive will be

paid. For every 100 units produced in excess of ISO, a sum of Rs. 70 will be credited by the

company to an incentive pool. This will be distributed to the moulder and to any casual worker

engaged as a temporary replacement to this

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moulder, in proportion to the normal wages earned and the number of days worked by each

worker during the month. The helper will earn the same percentage of normal wages as

incentive as is earned by the moulder.

In order to encourage the workers to produce castings to good and acceptable quality

standard, an additional credit of 10% of the total units produced will be given in incentive

calculations.

C. A Chemical Plant Incentive bonus is paid depending on the performance Index of the group. Performance Index is calculated thus:

For each group a base Performance Index corresponding to the normal production

expected out of the group is fixed by time study. The performance of various groups is calculated

every month. Bonus is paid as a percentage of the average total wage depending on the increase of

the performance over the base index. In each group, the bonus is different for workers in different

categories, but is the same for workers in the same category. The incentive scheme is so designed

that at 100% Performance Index a worker gets 25% of his gross monthly wage as incentive.

Weighted average Performance Indices of all the groups are taken to calculate the incentive for

supervisors,

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D. A Paper Mill-Production Bonus Scheme

The workers in the mills have been classified into production, semi-production,

service, and non-production departments.

The percentage of bonus proposed for semi-production service and non-production

departments is 75, 50, and 25% respectively of the average percentage of the production

departments. The percentage of production bonus payable shall be the percentage of basic

pay wages. only exclusive of all allowances.

The bonus for a month is to be calculated on the average monthly production, based

on the production for that month and the preceding eleven months. Production bonus is

payable only after the papers produced have been finally finished and accounted for, for the

respective month.

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VII. Incentives for Indirect Workers,

Supervisors, and Clerical Personnel

1. SYSTEM FOR INDIRECT WORKERS

1.1. Workers who are not directly engag8d in production may by classified broadly as

indirect workers. Workers in departments such as maintenance, material handling,

inspection and office would fall into this category. Indirect workers may be further classified

depending upon the type of relationship their work has to output. For example, maintenance

is more closely related to production, compared to Administration.

1.2 Almost all types of indirect work is in some way or other connected with

production. It is with the combined efforts of direct and indirect workers that increased

outputs are obtained in any industry. With increasing mechanisation the ratio of such

indirect to direct workers is increasing, and it is important that all efforts be made to provide

incentives to indirect workers as well, to stimulate their effort.

1.3 Incentives for indirect workers, besides ensuring improved service to direct

workers, brings down indirect costs and also reduces the inequities in earnings between

direct and 'indirect workers.

1.4 There are various types of schemes for indirect workers. Some of the simple types

include 0) payment of a certain incentive based on the output or the performance of the

department or the factory, and (ii) a specified percentage of incentive earned by direct

workers. However, it is to be emphasised that the incentive payment must be related to some

essential factors within the control of the indirect workers. Wherever possible, the schemes

must be based on measurable factors which are easy to understand and calculate. Indirect

work is comparatively difficult to measure, and consequently the setting up of suitable and

accurate vardsticks is also

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difficult. Sometimes standards may have to be determined based on past records and

experience.

1.5 Some of the factors selected as bases for designing schemes for indirect workers

are-(i) volume of output expressed as units or standard time; (ii) departmental or factory

performance; (iii) ratio' of direct to indirect hours; (iv) costs; (v) waste and rejection; (vi)

shop cleanliness; (vii) accident rate, etc. Anyone or a combination of the above factors may

be used. When the incentive is based on multiple factors the number of factors should be

limited, and a suitable formula evolved for arriving at the incentive earnings.

2. INCENTIVES FOR MAINTENANCE WORK

2.1 Based on work measurement

Generally setting up incentive schemes for maintenance workers presents certain

problems. Some of these are;

(i) Measurement of maintenance work: Most of the work is of a non-repetitive nature,

and the elements of work may but recur very frequently. Thus the allowed times

may have to be made up by using previously built up standard data, if available. It

addition, analytical estimation may also have to be used.

(ii) Variation in work content of jobs: Maintenance jobs vary in their nature and work

content. The time taken for. the same task may very from time to time. There will

be a wide variety and type of jobs and standadisation in rather difficult. The

standard time for a particular job may not always be representative.

(iii) Difficulty in supervision: Maintenance workers may be working at different a

location which renders supervision difficult. Consequently there may be errors in

recording the work done and the time taken.

(iv) Quality of Work: Quality of work cannot be easily checked as in the case of

production operations. At the same time, quality is an important factor in

maintenance work. Expensive equipment may be involved, and poor workmanship

may result in damage to the safety of the equipment as well as the worker. Thus, it

may be necessary to impose certain restrictions on earning to ensure quality of

work.

Maintenance work can be broadly classified' into (i) Preventive Maintenance, and (ii)

Repair and Breakdown maintenance. Preventive maintenance involves regular inspection of

the various equipment and its critical parts and components, lubrication, checking and

replacement of certain components, and also making emergency

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J

repairs where necessary. The job follows a particular pattern, and is repetitive over a period

of time. Standard times for various tasks can be fixed using time study. In certain cases

standard data and analytical estimation may also be used.

In the case of repair and breakdown work, the type and nature of work may vary from

time to time, and there may be a wide variation in the work content of the jobs. However, it

may be possible to compute standard time for different jobs from standard data and

analytical estimation.

2.2 Performance-payment relationships

For certain types of maintenance work, where the work content does not vary for the

same job between different occasions, a straight proportional scheme could be used.

In most of the cases, however, the work content does not remain constant, and

presents the problems discussed above. Hence a geared relationship would be more suitable.

The following chart is an illustration of the geared relationship.

2.3 Based on other factors

As already mentioned accurate measurement of maintenance work is a difficult and a

time-consuming process. Building up standard data, for maintenance jobs

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will have to be done over a very long period, since all types of elements under various

conditions have to be covered. There are many companies who have not adopted preventive

maintenance procedures yet, and are continuing with breakdown maintenance. Even when

preventive maintenance is in vogue there will be a certain amount of repair and breakdown

work. Due to these and many other difficulties, many times maintenance incentives are

based on factors such as machine down time, production Joss, maintenance costs, etc. In

such cases standards may have to be fived based on past data and experience. More

comedown in Indian industries are the schemes where the incentives for maintenance

workers is a ratio or a percentage based on either the output of direct workers or the

incentive earned by them.

3. Inspection Work

Whether it is advisable to include inspection in an incentive scheme, has still

remained a controversial subject. There may be some cases like inspection of certain

aircraft components where incentive may definitely be not advisable. On the other hand,

there are some cases where inspection incentives with suitable safeguards are easy to

design and operate. Finishers and checkers in a paper mill is one of the examples. Incentive

schemes for inspection work should aim at achieving a balance between quantity of work

turned ont and quality of inspection. It may be possible to ensure quality of work by

incorporating suitable penalties in the scheme.

4. CLERICAL WORK

Many clerical operations lend themselves to the application of direct incentives.

There are many jobs which are repetitive, and which could be measured by the techniques

of time study and standard data. Typing, filing, time-keeping, kardex work in the store,

punch card operation, duplicating, and similar jobs could be easily measured. In all these

cases, any of the schemes already discussed may be employed either on an individual or a

group basis. However, there are many more office jobs which are difficult to measure

accurately. Besides, a clerk may be attending to various types of jobs in a day. In such

cases the incentive for office personnel mi\Y be a group system related to the output of

direct workers or their incentive earnings.

5. SUPERVISORY INCENTIVES

Incentives for supervisors and foremen are meant to motivate them to take maximum

initiative and interest, to control costs, reduce wastage, increase production' and various

other objectives. The aim is to measure the efficiency of supervision, and reward

accordingly. The schemes may be based on only one factor or a com. bination of several

factors. The following are some of the methods which could be adopted for defining

incentives for supervisors and foreman :

(i) Based on the output of the department, in units or in value.

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(ii) Based on the standard hours of work done or hours saved or the overall de

partmental performance expressed in terms of actual 'and standard hours,

(iii) Based on reduction in waste or rejects, reduction in costs, increase in yield or

recovery.

(iv) Fulfilment of delivery promises.

(v) Based on reduction in machine down time for maintenance supervisors

(vi) Reduction in shop overtime hours.

(vii) House-keeping and accident rate.

(viii) Combination of the above factors.

Some of the above factors can be measured, whereas others can only be assessed.

Schemes based on measurable factors are more acceptable. In all cases the reward must be

related to factors over which the supervisor has control.

6. EXECUTIVE PLANS

The objectives of an executive incentive plan are the same as those for other

employees, i.e. improved performance. Rewards in the form of increments, promotions, free

transport, accommodation, and other fringe benefits are more common and appealing at the

higher levels. The schemes for middle management may be similar to supervisory plans

based on similar factors discussed earlier. Incentives may be based on the profits earned by

the company for top executives.

7. INCENTIVE SCHEMES FOR PROJECT WORKERS

7.1 As compared to production workers, design of incentive schemes for project workers is a

difficult task. While production involves routine and repetitive jobs, project involves a one

time effect. Under the heading of a project, activities like civil engineering jobs. Construction

of bridges, dams, buildings, factories, installations and commissioning of plant and

equipment etc, can be included. Since the jobs are not repetitive and there is bound to be

considerable variability and uncertainty during the execution of the various activities it is not

possible to set accurate time standards against which the actual performance can be measured

However, time is an important factor in the execution of any project. The losses incurred or

benefits lost due to the late commissioning of the projects can be phenomenal. In fact the

management would be interested in commissioning the projects ahead of schedule.

7.2 When the project work is awarded on contract every agreement has a penalty clause

normally to penalise the contractor for the delays. Sometimes bonus clauses also are included

to reward the contractor for ahead of schedule achievements. The contractor or the company,

whoever is executing the job would have to compute some suitab1e incentive method for

motivating the workers to complete the

65

Project early or on schedule. In order to be able to do this, there will have to be a proper

planning of the whole project. Network techniques like PERT and CPM provide a very

good basis for project planning. Through the network, schedules can be set for various

activities. Critical activities can be identified. A workable schedule can be prepared for the

project taking into consideration the costs and resources. With this schedule as the basis the

loss or gain as a result of any ahead or behind schedule situation can be worked out. The

gains whether financial or non-financial in nature may be shared with the project workers in

terms of incentives. While completion of non-critical activities will not be helpful, any

savings in time, achieved in the critical activities, will result in compressing the project

durations

7.3 Like a production unit, a project will also have various functions like stores and

purchasing, Accounts, personnel and execution. There has to be a proper co-ordination

between all these functions. Resources have to be made available for the execution to

proceed according to schedule. Delays can be caused due to non-availability of various

resources, managerial shortcomings and other factors. A well designed incentive scheme

should cover all the supporting functions so that there is a coordinated effort to complete

the project on time.

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CASE STUDIES

A. INCENTIVE SCHEME FOR GROUP LEADERS

The group leaders are essentially working supervisors with six to ten direct labour

operators. and a get-up man under their immediate direction. The group leaders have the

same responsibilities as first-line supervision with regard to product, equipment, methods,

and job training.

The objectives of the incentive scheme were to (i) encourage more activity in thinking

and leadership fields by using money as a stimulus; (ii) pay incentive bonus relative

effectiveness; and (iv) maintain equitable pay relationship between incentive operators and

the group leader.

B. INCENTIVE PLAN FOR SETTERS IN CAPSTAN GROUP

The overall efficiency of setters has a direct bearing on the final output of the

department and the machining operations performed by the operators engaged on the

machines served by these setters.

Therefore, incentive is based on the monthly production as well as the incentive and

daily wages earned by the operators engaged on various machines. For the purpose of

incentive, unit values as following are allocated for the various items of production.

Component I

Component II

3 units/component

1 unit/component

There will be a minimum level of production of 125 units/month below which no

incentive is payable, and for each unit produced in excess a sum of Rs. 6 will be

67

credited to the incentive poll. In addition, the total wages of all operators in the capstan group will be reckoned, and a sum of Rs. 30 for every thousand rupees earned as total wages by capstan operators during the month will be created to the pool. The pool amount is distributed to the setters in proportion to the number of hours worked by each setter during the month.

C. INCENTIVES FOR RECEIVING AND SHIPPING DEPARTMENT

Standard mandays have been fixed by the Industrial Engineering Department for different groups in the department. The groups whose Performance Index exceeds . 50 per cent will be awarded incentive. A maximum of 40 per cent bonus is awarded for 100 per cent performance. Performance Index is calculated as follows:

Performance Index = Standard mandays x 100

Actual mandays

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VIII. Incentive and Quality

One of the criticisms leveled against the incentive scheme is that it results in a deterioration of quality standards. This may happen if proper controls are not established over quality, wastage, rejections, and material utilisation factors It is important that quality aspects are fully considered in the development of incentive plans, and necessary safeguards are incorporated. There are many different approaches to this problem of controlling quality and waste. Some of these are listed below

(i) Supervision and inspection: Supervision is made to concentrate more on quality than on quantity, and inspection is tightened to see that the required quality specifications are maintained. Control through supervision and inspection is commonly adopted in the operation of almost in the incentive schemes.

(ii) Payment of incentives for good production: This is one of the most common type of controls incorporated in all the schemes. Incentives would be payable only on those parts which meet the required quality standards. Only time rates will be applicable for the rejected products. This type of control is suitable where the material costs are low or material shortage is unlikly

Where it is possible to rework or salvage the rejected or spoiled materials then it is stipulated that the rework would be done by the worker. There work time is either paid at time rates, or added on to the production time of the concerned component, and the total time is taken for incentive calculation.

(iii) Incentive Plans with Penalty for not meeting quality: A certain standard of quality is specified in the incentive plan. If there is a reduction in quality below this level, a corresponding deduction will be made in the production Incentive earned. For example, the rejection percentage may be fixed as

69

5 per cent for earning full production incentive. If the rejections go up, say to 7 per

cent, a specified amount will be deducted from the incentive earnings.

(iv) Incentive for improved quality or reduced waste : When the sole objective of the

incentive plan is improvement in quality or improved material utilisation, such type

of plans will be useful. However, even in schemes where the main purpose is

increased output, control over quality can be obtained by providing an additional

incentive based on quality factors. A certain allowable level of quality, material u

tilisation or wastage may be specified, and any improvement over it may be

rewarded as an addition to the production incentive earned. The amount of additional

incentive would depend upon the savings expected from improved quality. This is a

useful control when material costs are high. and the maintenance of quality depends

on the skill of the worker.

(v) Incentives to supervisors based on quality: In certain types of process and chemical

industries the control of quality depends more on the supervisory staff than on the

workers. There are also other cases where supervisors have to exercise careful control

in order to check sub-standard production. A suitable incentive plan to supervisory

staff based on quality would help in maintaining the prescribed quality level.

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CASE STUDIES

A. INCENTIVE PLAN FOR SUPERVISORS FOR BETTER QUALITY

In a tea estate, each supervisor controls a gang of 20 to 30 pluckers. The pluckers are

covered by an incentive scheme based on the quantity of leaf plucked. The pluckers are

allowed to sort out the coarse leaf. The payment is made only for the good leaf. Since most of

the coarse half goes as waste in the manufacture of tea, it is necessary to control the coarse

leaf content in order to see that the coarse leaf content is maintained at an acceptable level of

performance, an incentive plan is introduced for the supervisors.' The acceptable level of

coarse leaf content is 20 per cent. If this level is maintained, each supervisor is paid an

incentive of Rs. 5 per month, and for everyone per cent reduction an additional incentive of

Re 1 per month is given.

B. GROUP SCHEME WITH OUTPUT AND QUALITY FACTORS

In order to minimise the scrap and rejection, and at the same time increase production,

a group scheme is introduced in the moulding section of a foundry. A

taem size of 12 workers is reckoned, and the payment of incentive is made at the rate of 8.5

paise per box of 6 castings produced per day worker.

To maintain the level of quality and reduce rejection and scrap, a proportionate increase

or decrease is made in the incentive earnings depending upon the decrease or increase in scrap

percentage as given below:

A scrap level of 10 per cent is specified as acceptable. For every 1 per cent reduction in

scrap, an additional payment of 1 per cent of the incentive earned is paid as an incentive. In

the event of scrap being greater than 10 per cent, for every 1 per cent increase in scrap, I per

cent of the incentive earned would be deducted. Hence rewards are well as a penalty is

incorporated in the scheme.

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IX. Installation and Maintenance of

Incentive Schemes

1. REPORT

Once the incentive schemes to be adopted are finalised, it is important that the details

of the scheme are properly documented, and all the terms and conditions are clearly specified.

This is normally done through a report. The report should essentially contain the following

information:

(i) Details of the incentive scheme giving (a) the jobs covered, (b) performance

standards, (c) employees involved with number, categories, and names if

necessary, (d) basis of payment, (e) date of application, and (f) calculation of

earnings and the terms and conditions of the scheme. Normally a specimen

calculation is also given for an easy understanding of the scheme. Certain other

information, such as calculation of savings and the expected savings at various

levels of performance, should also be included.

(ii) Work specification including (a) description of work, (b) "method or procedure,

(c) machinery and equipment, (d) product specification and (e) working

conditions.

2. PAPER WORK

The operation of an incentive scheme involves flow of information between various

departments, like production shops planning, accounts, and industrial engineering. In order

that the requisite data is obtained at the right time, a system or a routine paper work

procedure is to be devised. It should be a simple, but an accurate system. Some of the

common forms and paper work used in the operation of an Incentive scheme are:

1. Time Dockets

2. Operational job cards

3. Time record sheet

4. Incentive Bonus hours statement

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Illustrated formats of job Card and Incentive payment Statements are

shown in Exhibits 1 and 2.

3. INSTALLATION

Incentive schemes are usually installed through· labour-management agreements.

The proposed scheme is first discussed with the supervisory staff and the trade union

representatives, who, in turn, would acquaint the workers with the necessary details. It is

important that all the workers have adequate information before the introduction of the

scheme. It is preferable to install the shelled on a trial period initially, at the end of which it

may be reviewed and necessary modifications incorporated.

4. REVIEW AND MAINTENANCE

An incentive scheme is dynamic. and needs constant review and follow-up.

One of the main problems in maintenance is changes in the work, content of the job. The

standards would have been set based on a specified method of working. Hence, whenever

there is a methods change, the original standards would no longer be applicable. Such

changes may be due to changes in methods of working, tools and equipment; working

conditions, and other factors. The standard must be examined periodically, and kept up-to-

date. All incentive agreements provide a clause regarding revaluation and changes in

standards in case of methods changes. Method study of all the jobs before setting standards

and proper documentation of the specified method for the purpose of the incentive scheme

becomes very important in this context:

In practice, however, re-measurement of jobs is done only when there are appreciable

changes in methods. Frequent alterations in values would not be liked by the workers.

Whenever. there is an upward revision in the work content of the job, due to certain

extraneous factors beamed the, control of the operator, some companies pay average

incentive earnings, particularly where these changes, are temporary.

Regular reporting procedures covering all aspects of the scheme should also be

evolved to facilitate the management to 6etan overall, picture of the working of the scheme.

These may include performance report, labour cost report, and excess and waiting time

reports.

5. SOME PROBLEMS OF INCENTIVE ADMINISTRATION

Many practical problems arise in the administration of an incentive scheme.

Solutions and safeguards to these problems vary from company to company, depending on

the conditions obtaining. However, general policies with regard to these should be clearly

laid down. Some of the common problems are briefly discussed below:

(i) Transfer of a worker from an incentive to a non-incentive job, and consequent loss

in incentive earnings. Such transfers are kept to a minimum,

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and some companies pay an ad hoc bonus or allowance to the affected employees.

(ii) Difference in earnings between a non-incentive supervisor and a skilled worker on incentive,

may be very less. Thus it may become necessary to include supervisors in the incentive

scheme.

(iii) Problem of new employee: All new employees should be fully trained before . they are engaged

on incentive operations especially when they have to work with a group. A learning period

may be specified depending upon the type of jobs, at the end of which only he would be

eligible for incentive. Some companies have separate learner incentive schemes, based on

learning

curves.

(iv) Absenteeism: In the case of group schemes, making incentive adjustments or providing relief

becomes a problems. Introduction of attendance bonus may help to a certain extent.

(v) Incentive during overtime work: There are different views on this problem. (i) Some

organisation reckon production during overtime only on time rates, i.e., the incentive plan

will not be applicable for work performed during overtime; (ii) Some companies pay

incentives at single, i.e. normal rates for production during overtime; and (iii) Some

organisations pay at double rates, i.e., overtime rates.

It is to emphasised that with the introduction of incentives, overtime should be brought down to the

minimum. An incentive at normal rates for oyertime work is more common.

(vi) Bringing new jobs on incentives-the delay between the start of production of new item/job and

the setting up of standards should be minimum. If the new job is being done by a worker who

had been an incentive earner, then the average of his past incentive earnings may have to be

ensured to him, till standards are set and corresponding production figures are achieved.

6. GRIEVANCE PROCEDURE

Many disputes, clarifications, discrepancies, and grievances crop up in the operation of

incentives.

In an agreed grievance procedure for handling of disputes concerning standards, rates and

other matters should be provided.

Normally an incentive committee with representative from Industrial Engineering personnel

and shop-floor is constituted for processing all major disputes regarding incentive schemes.

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REFERENCES

1. Armstrong, J. : Incentive and Quality, Chapman & Hall Ltd., London, 1950.

2. Currie, R.M. : Financial Incentives, British Institute of Management, 1963; Work

Study, Pitman & Sons Ltd., 1961.

3. Gilmour, Robert W. : Industrial Wage and Salary Control, John Wiley & Sons, 1956.

4. Lesieur, F.G. : Scanlon Plan, John Wiley & Sons, New York, 1958.

5. Lintern, D.G; & Curtis, R.J S. : Work Measurement and Incentives, Pitman &

Sons Ltd., 1958.

6. Louden, J.K. & Deegan, J. Wayne York, 1950. Wage Incentives, John Wiley &

Sons, New

7. Lytle, Charles Walter: Job evaluation Methods & Wage Incentive Methods,

Ronald Press, New York 1954 and 1942.

8. Maynard, H.B. (Ed.): Industrial Engineering Handbook, McGraw Hill, New

York, 1956.

9. Singh, Duleep : Planning of Incentive schemes, National Productivity Council,

New Delhi, 1967.

10. Employee Remuneration and Incentives, Institute of Cost and Work Accountants.

11. Report of the Indian Productivity Team on Incentives in Industry in West

Germany, USA, and Japan, National Productivity Council, 1962.

12. Incentive Schemes in Indian Industries, Maharashtra State IPY Committee,

Bombay, 1969.

13. Introduction to Work Study Geneva, 1959.Payment by Results, International

Lab our Office,

14. Sharing the gains of Productivity, National Productivity Council, New Delhi,

1972.

15. Incentives in Indian Industries Vol. I, II and III, National Productivity Council,

New Delhi, 1972

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