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Group incentive plans


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team compensation

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Group incentive plans

  1. 1. 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.
  2. 2. 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.
  3. 3. 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.
  4. 4. 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.
  5. 5. • 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.
  6. 6. 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.
  7. 7. 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
  8. 8. • 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.
  9. 9. 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.
  10. 10. 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 workforce dedicated to responsible decision
  11. 11. 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.
  12. 12. 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.
  13. 13. 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.
  14. 14. 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.
  15. 15. 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.
  16. 16. 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.