3. DIRECT
• WAGES- remuneration to workers doing manual
work.
• (Basic wage + Dearness Allowance)
• Dearness Allowance is the allowance paid to
employees in order to enable them to face the
increasing dearness of essential commodities.
• SALARY- remuneration to office, managerial,
technical and professional staff.
4. DIRECT FINANCIAL COMPENSATION
VARIABLE PAY (INCENTIVES):
Such programmes are designed to pay
employees on the basis of their performance
and not on the basis their hierarchy. These plans
motivate individuals to perform effectively.
These are paid at three different levels:
1.The Individual level
2.The Group Level
3.The organizational level
5. VARIABLE PAY
INDIVIDUAL GROUP ORGANIZATION
INCENTIVES INCENTIVES WIDE INCENTIVES
-TAYLOR’S DIFFERENTIAL -PRIESTMAN’S PRODUCTION BONUS -PROFIT SHARING
PIECE RATE SYSTEM -RUCKER PLAN -GAIN SHARING
-MERRICK’S DIFFERENTIAL -SCANLON PLAN -ESOP’S
PIECE RATE SYSTEM -TOWNE PLAN
-HALSEY PLAN - CO-PARTNERSHIP
-ROWAN PLAN
-GANTT TASK AND BONUS PLAN
-BEDEAUX PLAN
-EMERSON’S EFFICIENCY PLAN
-BONUSES
-LUMPSUM MERIT PAY
- COMMISSIONS FOR SALES PERSONNEL
6. INDIVIDUAL INCENTIVES
(1) TAYLOR’S DIFFERENTIAL PIECE RATE SYSTEM:
The originator of this method was F.W.TAYLOR .A low piece rate for output
below the standard and a higher piece rate for output above the
standard are provided.
- 80% of piece rate when below standard
- 120% of piece rate at or above standard
Q. Find the earnings of workers X and Y when:
Standard time allowed= 20 units/hr
Normal time rate= Rs. 10/hr
Differentials: 80% of P.R below std. & 120% of P.R above std.
In a day of 8 hrs, X produces 100 units and
Y produces 180 units
7. • With the help of the following information, ascertain the
wages paid to workers A, B, C and D under piece rate system
and Taylor’s differential piece rate system.
Standard time allowed 40 units per hour
Normal time rate Rs. 4 per hour
Differential to be applied :
75 % of piece rate when below standard.
125 % of piece rate when at or above standard.
In a day of 8 hours, the workers have produced as follows :
A - 300 units
B - 310 units
C - 320 units
D - 330 units.
8. (2)MERRICK’S DIFFERENTIAL PIECE RATE SYSTEM:
This system uses three rates instead of two in Taylor system.
The rates are: Output % standard (efficiency) Payment
upto 83% ordinary piece rate
83% to 100% 110% of ordinary piece rate
over 100% 120% of ordinary piece rate
This plan is useful as an incentive to employees who are potentially high producers
Q. Standard Output = 100 units/hr
Piece rate = 10 paise/ unit
Find earnings where output is 80 units, 90 units &
110 units.
Where : Efficiency= (actual output/std. output)*100
9. (2)
Calculate the earnings of the workers under following
i) Taylor’s Plan ii) Merrick’s Plan.
Time rate Rs. 3 per hour, standard output per hour 6 units.
Differential rates are :
1) Low piece rate at 80% of normal piece rate.
2) High piece rate at 120% of normal piece rate.
In a day of 8 hours, A produced 39 units, B 45 units, C 48 units
and D 50 units.
10. (3) Halsey Plan
This plan was originated by F.A.Halsey,an American Engineer,
in1891.
-Time rate is guaranteed
-If more than allotted time then gets his time rate
-Bonus is paid for the time saved
-% varies from 30-70% of time saved
Q.In a week workman A produces 200 units.
where 1 week = 44 hrs
Time rate = Rs.1.5/hr
Time allowed to produce 1 unit = 18 minutes
Find gross wages under halsey plan.
where, Bonus =50% of Time saved
11. (4) Rowan Plan
This was introduced in 1898 by lames Rowan in 1898.
Under this plan
Earnings ={Hours worked* Rate/hr} + {(Time saved/Time
allowed)* hours worked *Rate/hr}
Q. To a workman X
Time allowed= 60 hrs
Time Taken = 44 hrs
Rate /hr = Rs. 1.5
Calculate total wages under Rowan Plan.
12. (5)Gantt Task and Bonus Plan
Under this plan:
OUTPUT WAGE
IF LESS THAN STANDARD TIME WAGES
IF EQUAL TO STANDARD TIME WAGES+(BONUS i.e
20% OF TIME WAGE)
IF MORE THAN STANDARD HIGH PIECE RATE
Q. R/Hr = Rs. 0.5
HIGH PIECE RATE = Rs. .10
Standard Output = 80 UNITS
Time Taken = 8 hrs
Find earnings when output is 70 units,80 units,110 units.
13. (6) BEDEAUX PLAN
Under this plan
-every job is expressed in terms of so many standard
minutes known as ‘Bedeaux points’ or ‘B’ which represents one minute by
time & motion study.
- If Time Taken = Standard time then , Normal time rate
- If Time Take < Standard time then, 75% of time saved is given
to the worker and 25% is
earned by the foreman
Q. Standard time = 10 hrs
Actual time taken = 7hrs,
r/hr= Re.1
Find wages.
14. (7) Emerson’s efficiency Plan
-Bonus is paid as per the efficiency of a worker.
Efficiency% = (Time allowed/ Time taken)*100
OR
(Actual Production/Standard production)* 100
EFFICIENCY UPTO BONUS
(i) Upto 66 2/3% NIL
(ii) 66 2/3% - 100% 20% OF TIME WAGE TILL 100%
EFFICIENCY
(iii) 100% & above 20% till 100% efficiency
& 1% for additional 1% efficiency
15. Q. Time Rate = Rs 5/ Hr.
Standard production per week of 40
hours = 600 units
Bonus Rates are:
Efficiency % Bonus %
67-75 1
76-85 4
86-95 10
96-100 20
Calculate earnings as per Emerson’s plan when
outputs are 400 units, 480 units, 550 units, & 600 units.
16. (8) BONUSES
It is an annual incentive plan. It is based on the annual
performance of a company. The Factors determining
the quantity of bonus are the company’s profits and
performance of the employees.
The Payment Of Bonus Act,1965:
The minimum bonus to be paid is 8.33% of the
available surplus.
17. LUMPSUM MERIT PAY
Under it the employees receive a single lump
sum payment at the time of their
performance review. It is an good example of
linkage between pay and performance
18. COMMISSIONS FOR SALES
PERSONNEL
Commissions are paid as a percentage of the
value of the sales made by the sales
representative. High performing sales people
get high sales commissions.
19. GROUP /TEAM INCENTIVES
-Such plans reward all the team
members equally based on
overall performance of the team
members.
-Team based incentives enhances
Cohesiveness among team
members.
-Such incentives works best in the
following situations:
-when employees are motivated
-where the organizational work can be
divided into separate groups.
-where the work is so interconnected
that it is not easy to single out who
did what.
GROUP
INCENTIVES
-PRIESTMAN’S
PRODUCTION BONUS
-RUCKER PLAN
-SCANLON PLAN
-TOWNE PLAN
- CO-PARTNERSHIP
20. (1)Priestman’s Production bonus:
A standard output or time is fixed. If actual
output exceeds the standard the workers will
receive bonus in proportion to increase.
(2)Rucker Plan:
Workers get a constant /fixed proportion of the
‘added value’.The term added value means the
change in market value from an alteration in the
form, location or availability of a product.
21. (3)SCANLON PLAN:
Under this plan
Bonus%= (average salaries paid/average annual
sales revenue )
A part of the bonus is set aside to bonus
equalization reserve fund for future use when
workers do not get bonus under the scheme.
22. (4) TOWNE PLAN
The main objective of this plan is to bring about cost
reduction by foremen and workers. This group
bonus system was introduced in 1886 by
Mr.H.R.Towne in U.S.A.The bonus is calculated on
the basis of some pre-determined standard.
The supervisory staff receives a part of this
bonus and thus cost reduction is encouraged. 50% of
the saving in labor cost is distributed among
workers and foremen in proportion to their wages.
23. CO-PARTNERSHIP
Under this system, the worker gets his usual
wages, a share in the profits of the company
and management as well as the employee is
viewed as partner in the business.
