Incentives and Employee Benefits

1. Incentives
and
Employee Benefits
Course: MBA SEM 2
Subject: Human Resource Management
Unit: 3

2. Introduction
The incentives and benefits programme—especially in the 21st century—is
not an act of merciful giving or whimsical actions and most employees
‘expect’ the package to be unique, attractive and motivating. (Milkovitch and
Newman 2005; Suri et al 2003)
Incentives and
Employee Benefits

3. Characteristics of a Desirable Wage Plan
 Simple
 Beneficial
 Equitable
 Guaranteed minimum wage
 Balanced
 Incentive-oriented
 Quality output
 Certainty
 Cost-effective
 Flexible

4. Pay for Performance Systems
There are four pay for performance approaches that are currently being
put to use, namely:
 Merit Pay
 Variable Pay
 Skill-based Pay
 Competency-based Pay

5. Methods of Wage Payment
There are two basic methods of wage payment.
 One method relates to the hours the employee is at work, regardless
of his output (time rate system).
 The other method is related to the production or output, regardless of
the time taken for production (piece rate system).

6. Time Wage System
 In this system, the worker is paid on the basis of time spent on the
work irrespective of the amount of work done.
 The basis of this time may be hour, day, week or month.

7. Guaranteed Time Rates
 In this system, the payment is at the time rates, but adjusted to the
cost of living.
 Merit awards for personal qualities, skill, ability, punctuality, etc., are
also considered.

8. Piece Rate System
 Under Piece rate system, the workers are paid at a stipulated rate
per piece or unit of output.
 In this system, the rate is fixed per piece of work and the worker is
paid according to the number of pieces completed or the volume of
work done by him.

9. Types of Piece Rate System
The Piece Rate System can be classified infield into three categories:
1. Straight Piece Rate
2. Piece Rates with guaranteed time rate
3. Differential Piece Rate

10. Incentive Plans
Types of Incentive Plans
 Individual Incentives
 Group Incentives
 Organisation wide Incentives

11. Essentials of a Sound Incentive Plan
 Guaranteed minimum wages
 Simple
 Equitable
 Economical
 Flexible
 Support
 Motivating
 Prompt

12. Features of Incentive Plans
The characteristics of these plans are as follows:
1. Minimum wages are guaranteed to all workers.
2. Incentives by way of bonus, etc., are offered to efficient workers for the
time saved.
3. A standard time is fixed and the worker is expected to perform the
given work within the standard time.

13. Individual Incentives
Individual incentive plans are the most widely used pay for performance
plans in industry.
1. Piece rate work plans
2. Standard hour plans
3. Merit pay raises
4. Lump sum merit payments
5. Sales incentives and commissions.

14. Successes and Failures of Incentive Plans
 One important advantage of incentive plans is that they motivate
employees to show superior performance.
 Many PFP systems have failed because the performance measure
that was rewarded was not related to the performance objectives of
the entire organisation as a whole and to those aspects of
performance that were most important to the organisation.

15. Group or Team-based Incentive Plans
Team based incentive plans reward all team members equally based on
overall performance of the team members.
Some of the important team-based incentive plans may be listed thus:
1. Preistman’s production bonus
2. Rucker plan- “Added Value”
3. Scanlon plan- Changes in market value ( ratio of wages to sales value)
4. Towne plan- Bonus upon reduction in labour cost, std labor cost per
unit
5. Co-partnership-Bonus shares/ shares in profits/share in management

16. Organisation Wide Incentive Plans
Organisation wide incentive plans reward employees on
the basis of the success of the organisation over a
specified time period. There are three basic types of
organisation-wide incentive plans:
 Profit-sharing- known as bonus shares
 Gain-sharing-Increase in productivity & decrease in
labour cost
 Employees Stock Ownership Plan

17. Incentive Schemes for Indirect Workers
1. Repairs and maintenance staff
2. Store staff
3. Office staff
4. Material handling staff
5. Executives

18. Cont….
Fringe Benefits-415 17.2
The term ‘fringe benefits’ refers to the extra benefits provided to employees
in addition to the normal compensation paid in the form of wage or salary.
Need for Fringe Benefits
1. Employee demands
2. Trade union demands
3. Employer’s preference
4. As a social security
5. To improve human relations
Types of Fringe Benefits
1. Payment for time not worked
2. Employee security
3. Safety and health
4. Workmen’s compensation
5. Health benefits
6. Voluntary arrangements
7. Welfare and recreational facilities
8. Old age and retirement benefits

19. Objectives of Fringe Benefits
 To create and improve sound industrial relations.
 To motivate the employees by identifying and satisfying their
unsatisfied needs.
 To provide security to the employees against social risks like old age
benefits and maternity benefits.
 To promote employees’ welfare.
 To meet the requirements of various legislations relating to fringe
benefits.

20. Bibliography
• http://www.whatishumanresource.com
• http://www.mbaofficial.com
• Human Resource and Personnel
Management- K. Aswathappa, Tata
McGraw Hill