m
 m


Contents
m Introduction & MDW System ± Prerna
Thakur(209)
m Payment by result ± Dhrubajyoti
Maitra(192)
m Group incentives ± Shweta Kotnala(120)
m Company wide incentives ± Shruti Negi(60)
m Behavioral and financial aspects ±
Aditya Choudhary(182)
m Practical Applications ± Ankita Dalal(185)
 m
  

K An
   is a formal scheme
used to promote or encourage specific
actions or behavior by a specific group of
people during a defined period of time. .
K It is an employee motivational program
designed to encourage commitment to
increase productivity.
 
  

Incentives schemes can be classified into ±
A) Individual incentives schemes:-
m Measured day work system.
m Payment by results system.
B) Group incentive system.
C) Plant wide /Company wide incentive
system.
D) Financial incentives.
 m   
  


m ºnder this system of individual incentives,

all or a portion of an individual pay is tied to
their performances.
m There is a direct link between individual
performance and remuneration.
 
m ºnder this system, an employee have to
maintain a target level of output in order to
secure a stable higher wage rate.
m If employee performance falls below target,
their wage rate will downgraded.
m It suits organizations where a high , steady
and predictable level of performance is
required rather than highest individual
performance.
 h 
m Mmployees who fulfills specified target level of
output will secure higher wage rate.
m Mmployee if not meeting target level for a period
1-First given warning and
2-If again the same is repeated the basic wage rate
is reduced.

m Two levels of wages:-

1-An agreed higher level of wages for a specific
higher level of consistent performance.
2-Basic wage for lower levels of performance.
 ` 

m It is the continuous relation between money and

results.

m It gives different results would different wages.

m The schemes are modified to accommodate the

modern day requirement that the woker are
guaranteed a minimum flat wage rate.
 h


  
m It is the level of output rate or productivity above
which the incentive starts.

m It is established jointly by management and labour.

m It is considered as µnormal¶ or µfair¶ and can be

expected from an unmotivated but other
conscientious and fit workers.
  `
  
m Management is more interested in MPL.
m It is maintained by day after day without any
harmful effect on the worker.
m A worker is now µfinancially motivated¶ here.
m It is function of human ability and of
management expectations about an average
workers productivity.
m MPL is used for establishing the APL(with the
concurrence of labour)
 `
   

m Depending upon the MPL and APL the

participation ratio can be established.
m MPL and APL are physiological ans
psychological norms employees bargain with
management.
m The presumed relationship is that MPL is one-
third more than APL(MPL=4/3APL).
   m   
` 

m Management to provide materials, machines

and reduce µwaiting time¶.
m µOutput at what cost¶?[increase material usage,
improper usage of machines].
m Other expenses[New wage, inventory policies
etc].
m Arise of wage, deployment changes from
section to section.

 

m Changes in methods and technology.

m Management loosing control over the output of
the employees leading to effect on production
control.
m Difficult integrate between incentive and non-
incentive employees.
m PBR scheme on fluctuating income for
worker[worker may not be there all the time,
worker may not be able to work a the same pace
all the time].
!
`` 

m Protection of Quality.

m Protection against Wastage.

m Indirect workers and Incentives.

 r!"`m
 m


u ºsed to increase social cohesiveness of staff,

foster cooperation and team effort

u Free-Riding Mffect

u Group incentives is restored to, where the

enhanced earnings of the group are distributed
amongst the members in an equitable manner
agreed upon earlier.

 
u Rewards employees for their
collective performance

u ºse has increased in industry

u 2 types
Team - based or small group
Gain sharing
 
 



     #

u Behavioral theory tells us that some of the needs

of human beings are the need for security and a
sense of belonging to a group.

u It has been observed that many workers limit

their own incentive earnings so that they do not
face alienation from other workers of their
working group.
Cont«

u As a group, they are expected to behave like an

individual when responding to the increased
earnings with increased output performance.

u Incentives requires a commanlity of interests within

that group.
u h  :

Difficult to identify individual contributions

Branch based activities (Savings
mobilization)
MFI wants to set common goals
Free Riding can be mitigated
  
u Better sharing and linking-up of work resulting in
increase in productivity.

u Better inter checking of quality of product

u Supervising, time-keeping and incentive

accounting are simplified.

u The problem of including indirect workers in an

incentive system are also taken care to an extent.
 Ô 

u There may be a leveling effect.

u Problems in distributing incentives in the group.

u least control of the management on the output.


   

u Many company likes to retain the principle
of motivation by financial incentives.

u ºltimate objective is to enhance the over all

productivity of the plant or company.

u This calls for working in an integrated

manner with cooperation from all the
departments of a company.
Cont«
u This cooperation is to be achieved through the
use of financial incentives.

u A suitable measure of productivity established

by agreement between the management and the
workers.

u This is used to distribute the labour cost

savings amongst all the workers of the
company.
Some of the companywide incentive plans are

   
u Type of gain sharing plan that pays a bonus to employees for incremental
improvements.

u The Scanlon plan was developed by Joseph N. Scanlon in the 1930s

u A typical Scanlon plan includes an employee suggestion program, a

committee system, and a formula-based bonus system.

u The simplest formula is: base ratio = HR payroll costs divided by net sales or
production value.

u A Scanlon organization is characterized by teamwork and employee

participation. A bonus is paid when the current ratio is better than that of the
base period.

u A Scanlon plan focuses attention on the variables over which the organization
and its employees have some control.
 
`
u a type of gain sharing program that is concerned with the value added by
labor.

u The Rucker plan was developed in the 1950s by Allen W. Rucker.

u A typical Rucker plan includes a suggestion program, a committee system,

and a bonus formula, based on value added.

u It assesses the relationship between the value added to goods as they pass
through the manufacturing process, and the total labor costs.

u Bonuses are earned when the current ratio is better than the base ratio
over a given time period.
u`
 

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†Presumes that every man is capitalist at heart.

†But money is often only a ³hygiene´ factor.

†So it deals with only one of the several motivating

factors.
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†Much space for labor-management bargaining.

†May perpetuate old technologies and practices.

†May be difficult for the employees to comprehend.

†Quality of output may become a judgmental issue.

†Problems in planning of production .

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W = R.T + (P/100) (S-T).R

where W: wage of worker, R : wage rate, T : actual

time taken to complete job, P : percentage of profit
shared with worker, S : std. time allowed.

† The worker is paid a % of time saved over the

standard rate per piece.
† Standard time is fixed for each job/operation
† If the labour completes at standard time or more
he is given the standard price.
  
W=R.T + ((S-T)/S).R.T

where W: wage of worker, R : wage rate,

T : actual time taken to complete job, S :
std. time allowed.

†The bonus hours are calculated as the

proportion of the time taken which the time
saved bears to the standard time allowed
ë
$  `"%
Standard outputs: 100 ºnits
Rate per ºnit: 10 paise
Differential to be applied:
120% of piece-rate at or above the standards
80% of piece-rate when below the standards
Case 1: Outputs = 120 units
Marnings = 120* 120 * 0.10 = Rs 14.40
100
Case 2: Outputs = 90 units
Marnings = 90* 80ù% &%'( )%
100

Ô    
*

†Has 3
categories for Mfficiency Price rate applicable

payment
ºp to 83% Normal rate

ºp to 100% 10% above Normal

rate

Above 100% 20% above Normal

rate

    
 m
  ` 

' Plan is clearly communicated

' Plan is understood
' Rewards are easy to calculate
' Mmployees participate in administering the plan
' Mmployees believe they are being treated fairly
' Mmployees believe they can trust the company and
that they have security
' Rewards are awarded as soon as possible after the
desired performance.
ëÚ%(
)#*