Meaning of Incentive Wage System
The relative advantages of time and piece as base of wage payment suggest compromise between them which may combine the plus points of each Systems which attempt to do this are generally known as ‘Incentives Plans’. They are also called ‘Premium or Bonus Methods. Incentives are essential in inducing people to work efficiently. Today, the managers have the conviction that unless people are provided with incentives, the productivity cannot be increased. Under the incentive plans of wage payment, both the basic systems are blended together in such a manner that the workers are induced to increase their productivity and the employer happily parts with a part of his increased revenue. Under such systems both time and speed form the basis of an employee’s earnings.
Essentials of Incentive Wages System: (1) Establishment of standard output task or quota on which incentive earnings are based-Time and Motion Studies. (2) An hourly or base standard rate of compensation, eg 5 per hour, for similar jobs put on incentive Job evaluation technique. (3) Incentive or Bonus or Premium rate for extra output of higher efficiency. A firm map device its own incentive plan with base rate using four basic elements (1) Unit of output, (ii) Time saved, (iii) Time worked, and (iv) Standard Time.
Various Forms of Incentive Wage Payment Methods
The various forms of incentive wage payment methods are discussed below:
1. The Halsey Premium Plan: The Halsey plan is simple combination of the time-speed basis of payment. It was devised by F. A. Halsey, a mechanical engineer. The plan calls for the payment of time wages to workers and gives the option to work on a premium basis. Hence, workers are assured of the basic day wages. For the purpose of premium, a standard time is set for each job on the basis of average past performance. When a worker completes his job before the standard time, he is entitled to the premium under the scheme. The worker is paid the usual time rate for the actual time taken by him to complete the job in addition, the worker gets a percentage (usually 50%) of the wage payable.
The time saved is a premium, and he has the privilege to work in another job during this period. The following example will help in understanding this plan. If a workman who is on an hourly rate of 1 has a 10 hours task given, to him and completes it in 8 hours and the bonus is 50% of the saved time, his total earnings will be:
(Time x 1+1/2 × 2 × 1 =79
2. The Rowan Premium Plan : Rowan Premium Plan was devised by James Rowan, a Glasgow manufacturer and it is widely used in Great Britain. It is modified application of the Halsey Plan which originated in U.S.A. Like the Halsey, it adopts a standard time for the performance of each job, guarantees fixed wages, and allows premium calculation, and this differs from the Halsey Plan.
Algebraically, the bonus or premium can be computed as follows:
Time saved Time allowed Premium = x Time taken x Rate per hour i.e.,
S-T p=S
3. The Taylor Differential Piece Rate Plan : As part of his scheme of scientific management, this plan was desired by Frederick W. Taylor with a view to provide greater incentive to efficient workers. Under this plan a standard task is established by time and motion study and two piece rates are set for each job. A high piece rate is allowed to those who can produce equal or higher than the standard performance, and for others who cannot reach the standard a lower piece rate exists. For example, if the standard task conflict of 100 units and the lower piece rate is 5 p. per unit and higher rate 6 p. per unit a worker for any production below 100 units would get an amount equal. The number of units multiplied by 5 p. For the production of units from 100 towards, the remuneration would be given at the rate of 6 p. per unit.
4. The Merrick Multiple Piece Rate System: It is an improvement over the Taylor Plan with the difference that under this system three different pieces rate scales are fixed. When a worker’s efficiency is less-than 80 percent of the standard, their earnings are calculated from a base piece work rate. Beyond 80 to less than 100 percent, a slightly higher rate by 10% is payable to those who have not been able to reach up the standard. The highest rate of further 10% is payable to those reaching the 100% efficiency. The plan, therefore, divides the workers into three normal categories, namely, beginners, average workers and first-class man and pays accordingly.
5. The Gantt Task and Wage Plan: H.L.Gantt, an associate of Taylor, devised this scheme on the basis of Taylor’s Plan. Under this system, fixed time rates are guaranteed. Output standards and time standard are established for the performance of each job. Workers completing the standard job within the standard time or in less time receive wages for the standard time plus a bonus. Thus, bonus is a percentage, varying them 20% to 50% of the wage for the standard time. When a worker fails to still out the required quantity of products, he simply gets his time rate without any bonus. A peculiar feature of the Gantt System is the payment of bonus to the foreman in respect of every man under him who earns bonus. The foreman of each department is thus directly interested to see that the men under his charge bring up their work to the bonus standard.
6. The Emerson Efficiency Bonus Plan : In order to remove the defects and anomalies of Gantt Plan, this plan has been devised to give premiums to the workers who attain two-thirds of the standard task. Like the Gantt Plan, it sets up a time standard and task standard; it also guarantees a fixed day wage. A premium calculated on a sliding scale and rising up to 20% of the pay for the time worked is allowed under this method for any production over 66 2/3 percent of the standard task. Commencing from a small percentage, the premium amounts to 10% with 90% efficiency; and 20% with the standard performance and over. Above the standard, workers are benefited by the pay for work during time saved. It is a popular form of wage payment.
7. Bedeaux Point Premium Plan: Under this plan, a standard task is established for each job in terms of points. Each minute of the allotted time for a task is called a point, and the value of each point is equivalent to the wage per minute. That is both time and tasks are expressed through these points. As in other plans, it also guarantees basic hourly rate. Any production over 60 points calls for a premium. The premium is equal to the excess points produced within an hour over the marginal level of 60 points. For example, If a worker produces 90 points per hour, he would get the hourly rate plus a premium wage of 30 points which come to one-half of the hourly rate. Workers failing to reach the standard of 60 points per hour are shifted to other works. The plan is simple in design and has become very effective in its application.
