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  Incentive Plans

Introduction to Incentive Plans

To eliminate the defects of both piece-wage and time wages systems, incentive plans are employed. Within these plans, the benefits of time and piece wage systems are joint and incentives are offered to workers to work hard. The features of these plans are as follows.

(i) Minimum wages are definite to all workers;

(ii) Incentives by way of bonus etc. are provided to proficient work workers for the time saved;

(iii) A standard time is set and the worker is to carry out the given work under the standard time. The standard time is fixed after making time studies for the performance of a particular job.

On the one hand the incentive plan is a compromise among the two extremities, if workers are paid as per to time, they achieve nothing if time is saved and, on the other hand, if they are paid on the essential of piece rate, employers obtain nothing if the time is saved. Within incentive plans, the employer and the workmen share the advantage of time saved, and both labour and overhead costs are get reduced.

Incentive and Bonus Plans are appropriate for the industries in which overhead charges are very much expert time and motion study can be undertaken. Though, these systems include complicated arithmetical calculations and scientific studies.

The incentive plan should be choose as per to the nature of work and other conditions. It should secure the goodwill of management and labour if not it cannot work effectively.

Factors to be considered

The following factors should be measured before introducing whichever incentive scheme for workers within an organisation:

1. The incentive scheme should be advantageous to the firm. Other words, the advantages accumulating to the firm should be greater than the cost of the scheme to the firm. It might be noticed that both non-monetary and monetary advantages of the scheme have to be referred. Non-monetary advantages example increase in employee's morale, job satisfaction etc., should also be provided due consideration.

2. The workers should be suitably educated regarding to the scheme to prevent any future confrontation because of misunderstanding.

3. The scheme should be able of being put into practice without much more complications. Other words the scheme should be easy to understand and simple to operate.

4. In every incentive scheme it is supposed that the organisation has sufficient requirement for the additional production it will be in a position to make because of grant of incentives to the workers. So it is essential that a market study for the organisation's product should be undertaken before adopting some incentive scheme.

5. Standard norms for wage and production rates will have to be determined.

6. Incentive schemes should be established for both indirect and direct workers. In case of direct workers, the quantity of performance does not include any problem. Though, in case of indirect workers viz. Supervisors, stores, internal transport workers, machine maintenance etc., there is no suitable method for their performance evaluation. Though, introduction of an incentive scheme in their case is a little bit hard. It is still essential for giving incentives to such type of workers also for raising their effectiveness and promoting team spirit. Monetary incentives to direct workers might be in the type of profit sharing or co-ownership or co-partnership scheme, when monetary incentives for indirect workers can be in the type of bonus to dissimilar types of indirect workers on a suitable basis like discussed later in the chapter.

Indirect non-monetary incentives for both indirect and direct workers can be in the type of free or subsidised education for employees' children, housing, canteen facilities, hospital, sports, etc.

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