Incentive Schemes or Plans - PowerPoint Presentation

1. Incentive Schemes or Plans Presented byDr. B. N. ShindeAssistant ProfessorDepartment of CommerceDeogiri College, Aurangabad

2. Incentive Schemes or Plans I) Taylor’s Differential Piece Rate System Differential Piece Rate System was introduced by Taylor, the father of scientific management. The underlying principle of this system is to penalize a slow worker by paying him a low piece rate for low production and to reward an efficient worker by giving him a higher piece rate for a higher production. Taylor was of the view that an inefficient worker should have no place in the organization and he should be compelled to leave the organization by paying him a low piece rate for low production.

3. Continue…Taylor proceeded on the assumption that through time and motion study it is possible to fix a standard time for doing a particular task. To encourage the workers to complete the work within the standard time, Taylor advocated two piece rates, so that if a worker performs the work within or less than the standard time, he is paid a higher piece rate, and if he does not complete the work within the standard time, he is given a lower piece rate.

4. Continue…Taylor decided to give a large reward to those who would complete the work within or less than the standard time and much less wages to those who would not complete the job within the standard time. The system is very harsh to the inefficient workers because they earn much less wages on account of lower output and lower rate.

5. Continue…Moreover, minimum wages are not guaranteed under this method. Another drawback of the system is that if a worker just fails to complete the work within the standard time earns much less wages than a worker who just completes the job within the standard time. Therefore, the system is now almost out of use.

6. Continue…Under this system two widely differing wage rates are fixed. The lower rate is @83% of the normal piece rate and higher rate @125% of the normal piece rate and sometimes 50% of the wage rate is added in it. These percentages may vary concern to concern as per their convenience.As there are two different piece rates are used the system is called as differential piece rate system. For operating this system the efficiency of worker is measured either by using the formula. Standard Time Actual Output 100 Or 100 Actual Time Taken Standard Output

7. To Calculate the wages under this method following formula is used –Wages = Units produced Applicable Higher or lower rate per unit = U RFor Example: If piece rate is Rs. 2 per unit Standard production is 100 units per day of 8 hours. Worker x produced 75 units and worker Y produced 140 units. Then, the worker’s wages under Taylors differential piece rate system can be calculated as under:Normal Rate – Rs. 2 per unit. Lower Rate – 2 83% = 1.66 per unit for production less than 100 units.Higher Rate – 2 125% = 2.50 per unit for production more than 100 units. X’s Wages = 75 1.66 = Rs. 124.50Y’s Wages = 140 2.50 = Rs. 350.00

8. II)Halsey PlanUnder Halsey Plan, the standard time for the completion of a job is fixed and the rate per hour is then determined. If the time taken by a worker is more than the standard time, then he shall be paid according to the time rate, i.e. time taken multiplied by the rate per hour. In Halsey plan, the time wages are guaranteed even if the output of a worker is below the standard.

9. Continue…In case, the worker completes the works in less than the standard time, then he/she will be paid according to the actual time, i.e. time-rate plus the bonus calculated at a specified percentage of the saved time. Generally, the bonus percentage varies from 30-70 percent. The usual bonus share paid to the worker is 50% of the time saved multiplied by the rate per hour (time-rate).

10. To Calculate the wages under this method following formula is used-Wages = (Time Taken Rate per hour) + Standard Time – Time Taken Rate per hour 2 = TR + S – T Rate 2For Example : If, the standard time is fixed - 8 hours The time taken is - 6 hours The time rate is - Rs. 10 per hourThe wages under Halsey plan would be – Wages = TR + ( S – T ) Rate 2 = (6 10) + ( 8-6 ) 10 2 = 60 + 10 = 70

11. III) Rowan PlanUnder this method standard time is pre –fixed , like Halsey plan the day wages are guaranteed and the bonus is paid for time saved. The bonus is paid in proportion of the time wages as time saved bears to the standard time. Under this method the wages are calculated by using following formula –Wages = ( Time Taken Rate per hour ) + Standard time – Time taken Standard time Time taken Rate For example – If standard time is – 12 hours Rate per hour is Rs. 14 Time taken is 8 hours.Then, the wages under Rowan plan would be – Wages = ( Time Taken Rate per hour ) + Standard time – Time taken Standard time Time taken Rate (8 14 ) + 12 – 8 8 14 12 = 112 + 37.33 = 149.33

12. On the basis of the following information calculate the earning of Ganesh and Dinesh on the Straight Piece rate basis and Taylor’s differential piece rate system.Standard Time Rate 8 units per hourNormal Time Rate Rs. 4 per hourDifferential to be applied 80% of piece rate below standard120 % of piece rate at or above standardIn a 9 hour day, Ganesh produces 54 units and Dinesh produces 75 units.

13. Solution:Workings: Calculation of piece rate = 4 / 8 = 0.50Standard production= 8 units per hour * 9 hours (working day) = 72 unitsCalculation of rate lower and higher rate: Lower rate 0.50 * 80/100 = 0.40 per unitHigher rate = 0. 50 * 120 /100 = 0.60 per unit

14. Calculations of earnings: A) Under straight piece rate method:Ganesh = 54 *0.50 =Rs. 27Dinesh = 75 units * 0.50 piece rate= 37.50B) Under Taylor’s piece rate method:i) Ganesh= 54 * 0.40 =Rs.21.60ii) Dinesh = 75 * 0.60 = Rs. 45.00