INCENTIVE SYSTEM OF WAGES PAYMENT

There are different methods of wage payment under incentive plans. They are as
follows:

Taylor's differential piece rate system: This system was introduced by Taylor,
the father of scientific management. This system introduced to penalize a slow
worker by paying him a low piece rate for low production and to reward an
efficient worker by giving him a higher piece rate for a higher production.

Thus if a worker completes the work within or less than the standard time, he is
paid a higher piece rate and if he does not complete the work within the standard
time, he is given a lower piece rate.

Merricks multiple piece rate: Under this method, three piece rates are applied for
workers with different levels of performance. Wages are paid at ordinary piece rate
to those workers whose performance is less than 83% of the standard out put.
110% piece rate is given to workers whose performance is between 83% and 100%
of standard. 120% of ordinary piece rate is given to those workers who produce
more than 100% of the standard output.

Gants's task and bonus plan: This plan is based on careful time and motion
study. A standard time is fixed for doing a particular job, worker's actual
performance is compared with the standard time and his efficiency is determined.
If a worker takes more time then the standard time to complete the job (Below
100%) he is given wages for the time taken by him and if a worker takes the
standard time to perform job (100% efficiency), he is given wages for the standard
time and bonus of 20% of wages earned. If the worker take less time than the
standard time his efficiency is more than 100% and he is given wages for the actual
time and bonus at the rate of 20%.

Halsey premium plan: Under this method standard time is fixed for the job and
worker is given wages for the actual time taken to complete the job at the agreed
rate per hour plus a bonus to one half on the wages of the time saved.

Total wages = T x R + % (S - T) R
Where, T = actual time, R = Rate per hour, S = Standard time, % = 50% otherwise
mentioned in the question.

Rowan premium plan: Under this method, hours is a fixed percentages of wages
of time saved and worker is given a guaranteed wage rate for the time taken to
finish the job.

Incentive system for workers:

An incentive can be defined as the stimulation for effort and effectiveness by

offering monetary inducement or enhancement facilities. It may be monetary in the
form of a bonus or non-monetary tending to improved living and working
conditions. It may be provided individually or collectively.

In the first case, the employee gets the reward for his efforts directly and in the
second, a group of employees share the reward arising out of their combined effort
in equitable production.

The main factors that should be taken into account before introducing a scheme of
incentives are stated below:-

1. The need for producing high quality or those having very good workmanship
or finish and the manner this can be ensured. Only if a system of quality control
can be relied upon to maintain the quality of goods of the standard required, an
incentive scheme should be introduced; otherwise workers should be paid on a
time basis.

2. The need to maximize production- thus required incentives to be given to

workers. But sometimes the workmanship is more important than the quantity of
output; in such cases, incentive schemes of wage payment are not suitable.
3. Where the quantity of work done cannot be measured precisely, incentive
schemes cannot be offered.

4. The role of management and workers in achieving greater efficiency, if it is

unnecessary for the management to constantly plan work. This plan determines the
choice of a particular plan system.

5. Whether the quantity of output is within the control of the worker, and if so to
what extent. Sometimes, as in the case of chain assembly work the output is not
dependent on the effort that is put in by the workers; incentive schemes in such
cases are not suitable

6. The exactitude with which the standards of performance can be laid down.
Fixation of standard is necessary for the introduction of a scheme of incentives.
When this requires heavy expenditure, incentive schemes may rather be costly.

7. The system of wage payment prevailing in areas and industries or similar

occupations. If possible there should be uniformity.

8. The attitude of labor and trade unions towards incentive schemes. Workers
usually like to have a certain guaranteed time basis wage but also like to earn extra
through an incentive scheme.

On the whole, the system of wage payment should be such as would increase
production without lowering the quality. This will increase the surplus and will
enable the employer to pay higher wages which in turn will lead to higher output.