Group Incentives/Team

based Compensation
Under individual incentive system workers are paid on
the basis of their personal performance. Their wages will be
directly linked to their efforts. A worker may improve his
remuneration by raising the level of output.

There may be circumstances when individual performance

may not be measurable. A number of persons may be
associated in completing a task. The work of one person
may be influenced by the work of the other. Under such
conditions, incentives may be offered for raising group
performance.
Group incentive schemes are suitable under
the following situations:

1. When individual performance cannot be measured

precisely.

2. The workers comprising a group possess the same type

of skill or ability.

3. The completion of the task is linked with the collective

efforts of the group.
 Features
• Group based or team-based incentives plans reward all
team members equally based on overall performance of
the team member.
• Under group based incentive plan, individual out put can’t
be measured.
• So team performance is evaluated on the basis of time
taken rather than output produced, if team complete their
target in well advanced to standard time the team member
are eligible for incentives.
• Payment to team members may be made in the form of
cash bonus or in the form of non-cash reward such as
pleasure trip, times off or luxury items.
• Team based incentives foster cohesiveness among tem
members.
 Type of Group Incentive
Plans
1. Priest man’s plan:

This system of wage payment was first used by Priestman's of

Hull in 1917.

• A standard production is fixed for the whole enterprise

under this plan. If productivity exceeds the standard then
bonus is paid in accordance with the increase.
• In case production does not reach the standard then
workers get minimum wages only.
• For example, a standard production of 200, 000 units is
fixed for the year. Actual production during the year is
240,000 units since production has gone up by 20%
workers will get 20% higher wages as bonus.
• It is applied to workers who work in groups. It
provides for payment of group bonus in addition
to the ordinary time rate to the individual
workers.
• Thus if during a year, an enterprise is able to
reach the predetermined standard output or
exceed the previous year's output, workers are
paid increased wages in the same ratio in which
output has increased.
 Advantages and
Disadvantages
An advantage of the system is that it brings about team-spirit
among the workers of a group. If the group as a whole works
well, this is bound to add to overall output of the enterprise
and in that case all the workers would stand to benefit.

But its disadvantage is that it may be insufficient to motivate

individual workers, particularly these who possess greater
skills and experience.
 Rucker Plan/Cost saving
plan
• The Rucker plan was developed in the 1930s by
the economist Allan W. Rucker.
• Bonus incentive plan based on the historic
relationship between the total earnings of hourly
employees and the production value created by
the employees
• The share-of-production plan (SOP), or Rucker
Plan, normally covers just production workers but
may be expanded to cover all employees.
• Go for Value addition
• based on value added, the increased value of
goods at each stage of production, and
calculated by comparing labor costs with sales
minus the cost of goods sold.
• These plans are used in manufacturing where
costs are relatively stable over time and where
the business wants to reduce other costs in
addition to labor, such as the cost of energy and
production waste materials.
 Scanlon Plan

• First used in the 1930s, it relies on department-level

employee/management committees to develop cost-
savings activities.
• Scanlon Plans focus on the cost of labor and encourage
cooperation among employees.
• Savings are calculated by comparing the sales value of
production with employee costs.
• They are often used in service industries where customer
service focus is essential to success.
The plan is characterized by two basic
features:
• First, both employees and managers can
participate in the plan by submitting their
suggestions for cost-cutting methods.
• Second, increase in efficiency on account of
cost-cutting is shared by the employees of the
unit.

The philosophy behind the Scanlon Plan is that

employees should offer ideas and suggestions to
improve productivity and, in turn, be rewarded for
their constructive efforts. The plan requires good
management, leadership, trust and respect
between employees and managers, and a
 Advantages

• The Scanlon plan, has been successful to encourage a

sense of partnership among employees, improved
employee-employer management relations, and increased
motivation to work.

• Scanlon Plan can result in improved efficiency and

profitability for the organization and steady employment
and high compensation for employees.
 Disadvantages

Under the plan, workers are not paid the entire amount of
bonus earned by them in any month. One half of the first
15% of such bonus is set apart for the creation of a
reserve fund. This fund is used to neutralise the effects of
any fluctuations in labour costs.
 Gain Sharing Plan aka
Profit sharing plan
• When shareholders share profits for contributing
towards capital then workers should also get a
part of profits for contributing their labor.
• Profit sharing is a method of remuneration under
which an employer undertakes to pay his
employees a share in the net profits of an
enterprise, in addition to regular wages.
• Both the percentage of profit to be shared by
employees and mechanism for its distribution
are determined in advance and also made
known to the employees.
 Purpose

The purpose:
• To strengthen the loyalty of employees to the firm
by offering them an annual bonus.
• The share of profit of the worker may be given in
cash or in the form of shares in the company.
• In India, the share of the worker is governed by
the Payment of Bonus act.
 Advantages
• It inspires the management and the worker to
be sincere, devoted and loyal to the firm.
• It helps in supplementing the remuneration of
workers and enables them to lead a rich life.
• It is likely to induce motivation in the workers
and other staff for quicker and better work.
• Workers do not require close supervision as
they are self-motivated to put in extra labor for
the prosperity of the firm.
• It attracts talented people to join the ranks of a
firm with a view to share the profits.
 Disadvantages

• Workers may get nothing if the business does

not succeed.
• Management may dress up profit figures and
deprive the workers of their legitimate share in
the profits.
• Workers tend to develop loyalty towards firms
discounting their loyalty towards trade unions,
thus, impairing the unity of trade unions.