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INCENTIVES
Basic Concept
Burak and Smith have defined incentive as, " An incentive scheme is a plan
or program to motivate individuals for good performance. An incentive is
most frequently built on monetary rewards (incentive pay or a monetary
bonus), but also may include a variety of non-monetary rewards or prizes".
According to Venkata Ratnam and Srivastava, "A wage incentive scheme
is a method of payment for work of an acceptable quality produced over and
above a specified quantity or standard".
OBJECTIVES
1. Profitable for both workers and management
2. help to increase the production
3. reduce cost
4. high up morale by rewarding workers in proportion to their output
5. recognize the worker for his good performance
6. improve utilization of equipment, materials and sevvice
7. should furnish a basis for cost control and labour control.
8. reduce labour turnover and absenteeism
9. aim at improve relations between workers and management.
LIMITATIONS
1. There is a possibility of reducing the quality of products since
incentives are ususlly based on output.
2. workers paid by results disregard security regulation in order to aceive
output. It will increase the danger of accidents
3. some workers may work day and night, it would affect their health.
4. jealousy and conflict may arise among employees, because some
employees will earn more .
5. workers may oppose introduction of new machines, methods as they
fear that new methods or machines will decrease their earnigs.
6. when production is disrupted due to management fault, the workers
will insist to get compensation.
As the employees have other needs like respect and self centered needs
, they can be motivated with the help of following non-financial
incentives.
• Job satisfaction
• Job security
• Respect and recognition
• Training and other employee improvement programs
• Housing/medical/educational facilities
• Opportunities for growth.
• Suggestion scheme, praise, employee-superiors relationship etc
Individual incentives
Individual incentive are the extra compensation paid to an individual for all
production over a specified quantity.
Advantages
1. Administration of individual incentives is simple because incentives
can be given after the assessment of individual’s work
2. each and everybody gets the return in accordance with work. This
makes the person more dedicated towards the work.
3. persons who do the work with less efficiency are not entitled to
incentives.
Limitations
1. the employees inclination is more on quantity as compared to quality
2. rigidity of rates
3. this incentive system is inappropriate where delays are frequent and
beyond the individual’s control as well as where the work is
automated.
4. adverse effect on speeding production upon the health of the
employee.
5. there is a problem of restriction of output in view of group pressures
from the fellow employees.
Group Incentives
Group incentives system involve co-operation among employees ,
management and the union for reduction in labor, material and supply
costs, strengthening of employee loyalty to the company.
Advantages
1. Reduces absenteeism and production
2. reduces conflict and confusion among group members
3. group incentives lead to lesser control.
WAGE INCENTIVE
The following different wage incentive plans for Direct workers will be
discussed here.
1. straight piece rate
2. Halsey Premium plan
3. Rowan Premium plan
4. Bedaux Point Plan
5. Gnat Task & bonus plan
6. Emerson efficiency plan
7. Taylors differential plan
Under this plan, employees are paid on the basis of results. The chief
incentive plans included in this category are discussed in seriatim.
Advantages
• It is simple to understand. And guarantees time wages to employees
• The wages of time saved are shared by both employers and
workers, so it is helpful in reducing labor cost
• It makes distinction between efficient and inefficient workers.and
gives increasing incentive to efficient workers
Disadvantages
• Quality of the work suffers because workers are in a hurry to save
more and more time to get more and more incentive
• Workers criticize this method on the ground that the employer gets
a share of wages of time saved.
Illustration
Rate per hour = Rs 15/hour
Time allowed for job = 20 hours
Time taken = 15 hours
Calculate the total earnings of the worker under the Halsey plan
S (standard time) = 20 hours
T(time taken) = 15 hours
R(rate) = Rs 15 per hour.
Total earnings = TXR+50%(S-T)XR
= 15X15+50/100(20-15)X15
= 225+2.5X15
Total wages for 15 hrs = 262.5
Find the effective rate of earnings = 262.5/15= Rs17.5
Under this method , the worker is again guaranteed wages at the ordinary
rate for time taken by him to complete the job. The difference between
Rowan and Halsey Premium plans are in the calculation of bonus.
Under Halsey plan, bonus is fixed percentage of the wages of time saved
where as under Rowan plan, bonus is that proportion of the wages of the
time taken which the time saved to the standard time allowed.
T x R + S-T x T x R
S
Where T= time taken(actual time), S= Standard time (time allowed),
R = Rate per hour
For example, standard time required for a job is 20 hours ie 1200 Bs in terms
of minutes (20x60) where as a worker has taken 16 hours ie 960 Bs instead
of 1200 Bs . The worker has saved 240 Bs or 4 hours (4x60). Suppose the
time rate is Rs 20/- per hour , the time saved will be equal to Rs 80 ( 4x20)
the worker will get 75% of Rs 80/- . So his total earnings will be as follows
Time wages for 16 hours-actual time taken@ Rs 20 per hour = 320
Bonus 75% of 4hrs wages (75/100x4x20) = 60
Total earnings = 380
Illustration
Standard output/day of 8 hrs is 16 units. Actual output of a worker for 8 hrs is
20 units. Rate per hour is Rs 2.5. calculate wage as per Emmerson’s
efficiency plan
Level of performance actual output/standard outputx 100
20/16x100=125%
bonus payable is 45% as follows
At 100% efficiency 20%of time wages
For next 25% @1% for each 25%of time wages
Total bonus 45%
Time wages for 8 hours 8x2.5=20
Add 45% bonus 45/100x20 9
Total wages payable Rs 29/-
This plan is devised by H.L. Gantt. This plan combines time, piece
wage and bonus.
Disadvantages
1. it divides the workers into two categories, one who earns the bonus
and the other who does not.
ILLUSTRATION
Taylor was of the view that that an inefficient worker had no place in an
organization and he should be penalised by paying low piece rate for low
production. To encourage the worker to complete the work in standard time ,
he is given a lower piece rate. Thus if standard production has been fixed at 8
units/day of 8 hours , the higher piece rate for 8 units or beyond may be Re
1/= per unit and lower rate for an output if less than 8 units per day, may be
80 paise
Per unit.
Hence Taylor decided to give a large reward to those who would complete
the work within or less than the standard time. The system is very harsh to
inefficient workers on account of low rate and low output.
ILLUSTRATION
Calculate the earnings of workers A and B under straight piece rate system
and Taylor’s differential piece rate system
Norma rate/hour = Rs 1.80
Std time/unit = 20 seconds
Differential to be applied = 80% below std and 120% above std
Worker A produces 1300 units per day and worker B produces 15000
units/day
Solution
Standard production per 20 seconds =1unit
Therefore per minute=60/20=3units, per hour 3x60=180 units, per day of 8
hours will be 180x8=1440 units
Normal rate/hour= Rs 1.80
Normal piece rate 180/180 units = 1 paise
Low piece rate below standard production 1P X80/100=8Paise
High piece rate at or above standard = 1PX120/100=1.2 Paise
FOR A
Under straight piece rate system 1300 units@1P – 1300X1/100=Rs 13
Under Taylors Differential plan 1300 units@ 0.8P=1300X8/10X1/100= Rs
10.40
FOR B
Under Straight piece rate = 1500@IP = 1500X1/100 = Rs 15
Under Taylors Differential plan = 1500@1.2=1500X12/10 X 1/100=Rs18
Group Incentive Schemes
The incentive schemes discussed earlier can be applied on a group basis also.
Group incentive schemes are appropriate where jobs are interdependent. It is
difficult to meaningfully measure individual performance and group
pressures affect the performance of the members of the group. The chief
group incentive schemes are discussed here.
Search for oil by Pak Stanvac, an Esso/Mobil joint venture in 1957, led to
the discovery of Mari gas field situated near Daharki -- a small town in
upper Sindh province. Esso was the first to study this development in detail
and propose the establishment of a urea plant in that area.
The proposal was approved by the government in 1964, which led to a
fertilizer plant agreement signed in December that year. Subsequently in
1965, the Esso Pakistan Fertilizer Company Limited was incorporated, with
75% of the shares owned by Esso and 25% by the general public. The
construction of a urea plant commenced at Daharki the following year with
the annual capacity of 173,000 tons and production commenced in 1968. At
US $ 43 million, it was the single largest foreign investment by an MNC in
the country.
Vision
To be the premier Pakistani enterprise with a global
reach, passionately pursuing value creation for all
stakeholders.
ENGRO Businesses
Expansion plans include a new urea plant of 1.3 million tons annual
capacity, also at Daharki. The US$ 1 billion project is well underway and on
track for commercial production in mid 2010. This addition will increase
Engro’s urea market share to 35% from 19% at present.
Engro Foods Limited (EFL)
Engro Foods, a wholly owned subsidiary had its first full year of operations
in 2007. The Company continued expanding with additions to brand
portfolio, milk production and distribution capacities.
The portfolio now includes four impressive brands; Olper's milk, Olper’s
cream, Olwell and Tarang. Olper’s market share peaked at 17% during 2007.
EFL operates two dairy processing factories located in Sukkur, and Sahiwal.
The company’s milk collection network now boasts over 700 village milk
collectors and 400 milk collection centers. Covering 2400 villages across
Pakistan, the activities of the Company touch the lives of almost 51,000
farmers.
Financial incentives
In Engro there is some financial incentive but it is only on some high level
like managerial level. According to gift policy and salary policy they give
financial incentive on best working abilities. There are 2700 employees
working in Engro and Engro providing them the best they have. Every year
Engro gave bonus to there employees twice therefore the level of employees
loyalty level is very high in Engro.
Job satisfaction
At Engro, they strive to uphold the tradition of excellence and become the
employer of choice. There is a workplace where the employees feel
confident, valued, and most importantly, inspired.
Engro given the importance of family and appreciate that the employees
need to balance their professional and personal responsibilities. It is engro
intent to make it easier for there employees to manage their work/life
balance more effectively. Engro also encourage there employees to take part
in numerous programs aimed at strengthening their overall wellbeing.
Engro constant pursuit towards the welfare of there employees has led to the
formulation of many unique policies, to create a more positive work
environment, promote greater gender diversity, provide opportunities for
training and development and build career opportunities. Such policies
include ethics policy, gift policy, non-discrimination and anti-harassment
policy, maternity leave policy, part time work policy and off track policy.
Women network
Housing facilities
Engro Township
Engro providing proper accommodation near to there plant in Darki. The
Engro Township is one of a complete housing scheme where they provide
every comfort of life. Darki is one of a remote area in interior Sind and it is
really difficult for engineers and technical staff to live there but Engro
provides exact level of urban style in such ruler area.
Infrastructure Schemes
Through drainage and brick-paving schemes, Engro contributed towards
improving basic infrastructure in the labor communities. While drainage
schemes are aimed at improving hygiene and health conditions of labor
residents, the brick paving schemes are geared to reduce possible
injuries to pedestrians from walking on unpaved streets, especially after
sunset and rainfall. Jung has benefited from the drainage scheme in 2008
while Bago Bhutto was a beneficiary of the brick paving scheme in the same
year.
Medical facilities
Dar ul Shifa Clinic
Since 2002, the Dar-ul Shifa Clinic, an evening clinic in a dedicated room at
Sahara Welfare Society, provides free medical consultation services to
patients (mostly women and children). The clinic has treated over 43,000
patients and provided medicines worth over Rs. 1.8 million since its
establishment.
In 2008, 5,039 patients availed this facility and received free or highly
subsidized medicines worth over Rs. 372,000. The most commonly treated
medical ailments were respiratory tract infections
(over 50% of total patients treated), skin diseases (approximately 25% of
total patients treated), and gastro-intestinal tract infections (over 8% of total
patients treated). The highest number of patients
treated by the clinic in 2008 were children (2,665 or nearly 53% of total
patients), followed by women (1,977 or around 39% of total patients) and
men (397 or 8% of total patients).
Educational facilities
Primary Data
BOOKS
5th Edition
Chapter# 7
Page # 179,183,187
Web site
www.karmayog.org
www.wikipedia.org
www.corporatewatch.org.uk
Secondary Data
Organization
Web site
http://www.engro.com/
http://www.csrpakistan.pk/
SWOT Analysis
Strengths Weaknesses
Opportunities Threats
Conclusion:
Recommendations:
References
BOOKS
5th Edition
Chapter# 7
Page # 179,183,187
Web site
www.karmayog.org
www.wikipedia.org
www.corporatewatch.org.uk
http://www.engro.com/
http://www.csrpakistan.pk/
http://books.google.com.pk/
http://dictionary.reference.com/browse/incentive