This document discusses group incentive plans. It provides an introduction and covers suitability, features, advantages, and disadvantages of group incentives. It also discusses key aspects like types of group incentive plans and best practices. Some example group incentive plans discussed include cost efficiency bonus plans, Priestman's production bonus plan, Rucker plan, Scanlon plan, and co-partnership plan.

1. P r e s e n t e d B y
P r a j w a l
S a n i
P r a j a k t a
C h a y a
K a n c h a n

2.  Introduction
 Suitability
 Features
 Advantages & Disadvantages
 Key to Effective Group Incentives Programs
 Types
 Best Practices

3. 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/her
remuneration by raising the level of output.
Some circumstances when individual performance may not be measurable. ‘There may
be a number of persons 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.’

4. ~ 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.
4. The aim is to provide incentive to indirect workers rather than direct workers.
5. The number or persons constituting a group is not large.

5. • 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 output 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.

6. • Group incentive is suitable for employees who perform interdependent and interrelated tasks.
• Group incentive enhances group work so that the jobs can be performed effectively.
• Group incentive helps to enhance team spirit at work.
• Group incentive encourages a sense of cooperation and responsibility.
• Group incentive facilitates on-the-job training as the group members have interest in getting new
people trained as quickly as possible.
• Group incentive encourages employee participation in the group, job satisfaction and quality of
work life at organization’s environment

7. • No reward is solely on individual’s own effort.
• Due to group/team focus, individual job performance will not be improved.
• A group incentive plan may be less effective as compared to an individual incentive plan
because, under it, the individual does not see his/her effort leading to the award.
• Since overall performance depends on team effort the conflict and disagreement may be
seen in the workplace among teammates.
• The problem of self-deception can occur.
• Usually, group members expect greater than average rewards, which lead to internal
conflict within the team.

8. • Design Features
• Measurable Performance
• Specified Performance Period
• Threshold for Payments
• Payout Formulas
• Employee Participation
• Agency Commitment

9. • Cost Efficiency Bonus Plan
• Preist man’s Production Bonus Plan
• Rucker Plan
• Scanlon Plan
• Co-partnership Plan

10. • Determines standard cost for the various elements of cost.
• Actual cost incurred by group.
• Compare Incurred Cost and Standard Cost.
• Finally, pre-determined percentage of the savings is distributed in the form of bonus to the employees
Eg:
Then: Standard cost = 3,00,000
Incurred cost = 2,70,000
Savings = 3,00,000-2,70,000 = 30,000
Bonus for Team = (60/100) X 30,000 = 18,000
Individual Bonus = 18,000/10 = 1,800

11. • Determines standard performance in terms of units or points.
• Actual performance in units is measured.
• Compare standard performance and Actual performance.
a) actual performance exceeds standard performance, bonus is given based on excess production achieved and predetermined percentage
of bonus.
b) actual performance below standard performance, no bonus given
Eg:
Then: Standard production = 12,000 units
Actual Production = 15,000 units
Efficiency achieved = 15,000-12,000 = 3,000 units
Increase in efficiency = (3,000/12,000) X 100 = 25%
Bonus for Team = 75% of 25 = 18.75%
Individual Bonus = 18.75/10 = 1.875%

12. • Assumption: Pay portion of Value Added remains near constant share unless drastic change in policy or
organization mismanagement.
• Calculate value added for given data in defined time period.
• Calculate ratio of labor cost to value added.
• Calculate value-added of subsequent years and ratio of labor cost to value added.
• Now, if reduction in ratio then certain amount of value added given as bonus.
Eg:

13. Then : For Past 5 Years ;
Value Added = Labor Cost + All Cost included + PBT
= 2,00,000 + 1,40,000 + 60,000
= 4,00,000
Ratio = (Labor Cost/Value Added) X 100
= (2,00,000/4,00,000) X 100
=50%
For Subsequent 5 Years ;
Value Added = Labor Cost + All Cost included + PBT
= 2,20,000 + 1,50,000 + 80,000
= 4,50,000
Ratio = (Labor Cost/Value Added) X 100
= (2,20,000/4,50,000) X 100
= 48.9%
Now, since ratio is reduced so bonus payable = 1% of 4,50,000
= 4,500
Individual Bonus = 4,500/10
= 450

14. • Constant proportion of the added value of output is paid to the workers who are responsible for the addition
of the value.
• Ratio of labor cost to sales value of production.
• Calculate current year sales and actual labor cost.
• Compare current year sales and current year actual labor cost .
• Calculate ratio of fixing bonus.
• Finally Standard Labor Cost is computed using ratio. 5) Compare standard labor cost to actual labor cost for bonus payable.
Eg:

15. Then : Ratio = (Current Year Sales – Actual labour Cost) X 100
Average Annual Sales
= 1,40,000 – 30,000 X 100
4,40,000
=25%
Standard Labor Cost = (Current Year Sales X Ratio) / 100
= (1,40,000 X 25) / 100
= 35,000
Actual labor Cost = 30,000
So, Bonus Payable = (Standard labor Cost – Actual labor Cost)
= 35,000 – 30,000
= 5,000
Individual Bonus = 5000 / 10
= 500

16. • Worker gets his usual wages.
• Employees share the capital as well as profits.
• Improved over all other systems of wage payment.
• Offers recognition of the claim of the dignity of labor.

17. • Set quantifiable targets when evaluating team performance for rewards.
• Ensure top performers earn highest rewards
• Link team performance to company’s profits
• Offer uniform non team based incentives to employees within each grade.