• Incentive plans predict a basic rate usually on time
basis applicable to all workers & incentive rates
payable to the more efficient among them as extra
compensation for their meritorious performance in
terms of time, costs & quality. The incentive rates
may take the form of bonus or premium.
Features of Incentive plans:
Minimum wages are guaranteed to all workers.
Incentives by way of Bonus, etc., are offered to
efficient workers for the time saved.
A standard time is fixed & the workers is expected
to perform the given work within the standard time.
The standard time is set after making time studies
for the performance of a specific job.
Objective of Incentive Plans
• Increase in productivity
• Reduction in labor costs
• Improvement in efficiency
• Rise in worker’s earnings
• Higher employee motivation & morale
• Greater contribution to organizational
• Encouraging employees to achieve specific
organizational goals, such as increasing
profits, improving product quality, etc.
• Cheating & maintain harmonious labor
Prerequisites for An Effective Incentive
• The Co-operation of workers in the implementation of an
• The scheme must be based on scientific work
• Indirect workers, such as supervisors, foremen, charge
hands, helpers, crane operators, canteen staff, store
keepers & clerical staff should also be covered by incentive
• There should be management commitment to the cost &
time necessary to administer incentive scheme.
• Greater need for planning incentive scheme.
Other Safeguards are:
• Appropriate to the type of work carried out & workers employed.
• The reward should be clearly & closely linked to the efforts of the
individual of group.
• Individual or groups should be able to calculate the reward they get at
each of the levels of output they are capable of achieving.
• Individuals or groups should have a reasonable amount of control
over their efforts & therefore their rewards.
• The scheme should operate by means of well-defined & easily
• The scheme should properly installed & maintained.
• Provisions should be made for controlling the amounts paid, to
ensure that they are proportionate to effort.
• Provisions should be made for amending rates in defined
• Create incentives for performance & disincentives for non-
• Set & review specific objectives for each employee periodically.
Scope of Incentive Schemes
• INCENTIVE SHEMES ARE DIFFICULT TO APPLY
Industries in which measurement of individual or
group output is rendered difficult or impossible
either by technical consideration or by psychological
circumstances which might be prejudicial to output;
Industries in which the control of quality is
necessary & is particularly difficult, or in the case of
certain classes of workers, where high quality &
accuracy of work is of prime importance &
Industries in which the work is dangerous & it is
particularly difficult to ensue the observance of
adequate safety precautions
Types of Incentive Schemes
• The International Labor Organization (ILO)
classifies it in four types:
Income vary in Proportion to Output
Income vary less Proportionately than Output
Income vary Proportionately more than Output
Income differ at different levels of Output.
Types of Incentive Schemes
in the same
proportion as output
Earnings vary less
more than output
Levels of output
Bedaux Plan Gantt Task
Straight Piece Work: It is a simplest & oldest method. Here, Rate
per unit of output is fixed & the total earnings of worker are arrived at by
multiplying the total output by the rate per unit.
E.g.: If the rate per unit is 10 paisa & the total output of an employee is
100 units, his or her earnings will be 100*0.10=Rs. 10.00
Also called “100 percent gains-sharing.” Standard time in terms of
hours is fixed for completion of a job. The rate per hour is then
E.g. Standard Time: 10hrs
Rate per hour= Rs. 1
Case (i) Time taken = 8hrs
Earnings = 10*1=Rs 10.00
Case (ii) Time taken = 12 hrs
Earnings = 12*1=Rs 12.00 (If time wages are guaranteed)
• Halsey Plan : Recognizes individual efficiency &
pays bonus on the basis of time saved. Main
Standard time is fixed for each job or operation.
Time rate is guaranteed & the worker receives the
guaranteed wages irrespective of whether he
completes the work in the time allowed or takes
more time to do the same.
If the job is completed in less than the standard
time, the worker is paid a bonus of 50% of time
saved at time rate in addition to his normal time
Total Earnings = Time Taken* Hourly Rate + Bonus
Bonus = 50% of time saved (1/2*Time Saved*Hourly Rate)
• Rowan Plan: Bonus paid to the employee is equal to the
proportion of the time saved to the standard time.
Total Earnings = Time Taken * Hourly Rate + Bonus
E.g. Std Time =10hrs
Rate per Hr = Rs1
Time Taken = 8hrs
Bonus = 2/10*8*1 =Rs 1.60
Earnings = 8*1+1.60 =Rs. 8
Time Taken Hourly Rate
• Barth Scheme : does not guarantee the time – rate. The
worker’s pay is determined by multiplying the standard hour
by the number of hours actually taken to do the job, taking
the square root of the product & multiplying it by the
worker’s hourly rate.
Wages = Standards Time* Time Taken *Hourly Rate
Std time = 10hrs
Rate per hour = Rs.1
Time Taken = 8 hrs
Earnings = 8*10
= 8.94 * 1 = Rs 8.94
• Bedaux Scheme: Standard time for the job is fixed. Each minute of
the standard time is called a point or B. Each job has a standard
number of Bs. The worker receives bonus which is equal to 75% of
the number of points earned, in excess of 60 per hour, multiplied by
one sixtieth of the worker’s hourly rate.
E.g. Std Time = 10 hrs
Rate per Hour = Rs.1
Actual time = 8 hrs
Earnings : Time Wage = 8*1 = Rs.8.00
Std Bs = 10*60 = 600
Actual Bs = 8*60 = 480
Bs Saved = 120
Bonus 75 120 1
100 60 = Rs. 1.50
Total Earnings = 8+ 1.50
= Rs. 9.50
• Earnings Varying Proportionately More than
Output: This category includes two methods
(i) High Piece Rate
(ii) High Standard Hour System
Earnings differing at Different Levels of Outputs:
• Taylor’s Differential Piece Rate System: There is low rate
for output below the standard, and a higher piece-rate for
output above the standard with a large bonus of 50% of the
time-rate when the standard output is attained.
To illustrate :
Standard Output = 100 units
Rate per Unit = 10 paise
Differentials to be applied:
120 percent of piece-rate at or above the standard
80 percent of piece-rate when below the standard
Output = 120 units
Earnings = 120*(120/100)*0.10= Rs.14.40
Output = 90 units
Earnings = 90*(80/100)*0.10=7.20
• Merrick Differential Piece–Rate System: It is a modification of
earlier system with three instead of two rates.
Std Output = 100 units
Piece Rate = 10 paise
Case (i) Output= 80units
Efficiency = 80/100*100=80%
Earnings: As the efficiency is less than 83%, only base piece-rate
Case (ii) Output = 90 units
Efficiency = 90/100*100=90%
Earnings: As the efficiency is more than 83% but less than 100%,
110% of the base piece-rate applies:
Case (ii) Output = 110 units
Efficiency = 110/100*100=110%
Earnings: As the efficiency exceeds 100%, 120% of the base piece-
• Gantt Task System: The worker is guaranteed his /her time-rate for output
below the standard. On reaching the std output or task, which is set at a
high level, the worker is entitled to a bonus of 20% of time wages. It
operates as follows:
Rate per hr = Rs 0.50
High piece-rate = Rs 0.10
Std Output = 80 units
Time Taken = 8hrs
Case (i) Output = 70 units
As the output is less than the standard only time wages are paid to the worker.
Earnings = 8*.50= Rs 4.00
Case (ii) Output = 80 Units
Earnings: As output is equal to the standard, the worker is entitled to time
wages plus 20% of time wages as bonus.
Time wages = 8*.50=4.00
Bonus = 20/100*4=Rs 0.80
Total Earnings = Rs.4.80
Case (iii) Output earnings= 110 Units
As the output is more than the standard, the worker is entitled to a high piece-
rate. 110*.10= Rs.11.00
• Emerson’s Plan: A standard is set for the job, & efficiency of each worker is determined
by dividing the time taken by the std time.
Std Output in 10 hrs = 100 units
Rate per hr = Rs 1
Output in 10 hrs = 50 units
Efficiency = 50%
As efficiency is below 67 % the worker is entitled to time wages only. 10*1=Rs 10.00
Output in 10 hrs = 100 units
Efficiency = 100%
The worker is entitled to time wages plus 20% of time wages as bonus.
Time Wages = 10*1 =Rs 10.00
Bonus = 20/100*10 =Rs 2.00
Earnings: = 10 + 2 =Rs12.00
Output in 10 hrs = 130 units
Efficiency = 130%
At the rate of 20% at 100% efficiency & one percent increase for every one percent increase
in efficiency, the worker is eligible for 50% of the time wage as bonus.
Time Wages = 10*1 =Rs 10.00
Bonus = 50/100*10 =Rs 5.00
Earnings: = 10 + 5 =Rs15.00
Better co-operation among workers
Reduced incidence of absenteeism
Reduced clerical work &
Shorter training time.
An efficient worker may be penalized for the inefficiency of
the other members.
The incentive may not be strong enough to serve its purpose
Rivalry among the members of the group defeats the very
purpose of team work & co-operation.
Incentive Schemes in Indian Industries
• Introduces in 1946
• Not identical within industries also.
• Modifications done as per the suitability.
• Still in infancy stages