Incentive plans

Cost Management

1. INCENTIVE PLANS GOURAV NANDA MBA/45006/19 VANISHRI KORNU MBA/45016/19

2. WHAT ARE INCENTIVE PLANS? Incentive plans, which are known as performance incentive plans (PIPs), motivate employees to exceed expectations and grow the business. Such plans promote exceptional behavior during a specific period. In addition, they attract potential employees to an organization and encourage company loyalty.

3. BONUS INCENTIVES Granted after a particular task or project. Its is usually given as surprise. It is mostly provided at random or on the spot that the management of a firm decides. Backward looking. Payment is made may be made in cash or other items of value. A bonus cant serve as incentives. These are mentioned to the employee before he starts to work. Incentives have no surprise factor. It is guaranteed to the employee if they complete the task. Forward looking. They are any form of variable payment tied to performance. An incentive can be bonus .

4. HASLEY PREMIUM PLAN This plan was originated by FA Hasley recognises individual efficiency and pays on the basis of time saved. Main features of this plan are: Standard time of production is determined well in advance. Under this plan, it is optional for a workman to work on the premium plan or not. His day’s wage is assured to him whether he earns a premium or not, provided he is not so incompetent as to be useless. The bonus is based on the amount of time saved by the worker.

5. REMUNERATION= Time Taken x Hourly Rate + Time Saved x Hourly Rate% EFFECTIVE HOURLY RATE= Remuneration Actual time taken ..

6. ROWAN PREMIUM PLAN This plan was introduced by James Rowan . Under this method, the standard time and the standard rate of wage Payment are determined in the same manner as Halsey Plan. Main features of this plan are: Standard time of work is decided. Standard rate of wage is decided. Bonus is calculated in the ratio of time saved with standard time. This system also there is no provision of punishment for late completion of the work.

7. BONUS= Time Saved x Time Taken x Hourly Rate Time Allowed ….. TOTAL EARNINGS= Time Taken*Hourly Rate + Bonus

8. EMERSON PLAN This plan was introduced by Mr. Hemington Emerson. Main features of this plan are: Under this, the standard time for the completion of a task is fixed against which the actual performance of the workers is measured. In Emerson Plan, the worker is paid only the time rate for the efficiency up to 67%. At 100% efficiency, the worker is paid time wages , plus a bonus of 20% on the wages earned. The worker is paid one percent additional bonus for each additional one percent efficiency added after the standard.

9. BEDAUX PLAN This is an incentive scheme in which the standard time for the completion of a job is fixed and the rate per hour is defined. Main features of this plan are: Standard performance is expressed in terms of points. If the worker completes the job in more than standard hours, then he is paid according to the time-rate , i.e. time taken is multiplied by the hourly rate . The worker, who achieves more than 60 points in one hour, gets the bonus also. Even if the worker does not reach the standard, then he is paid according to the time-rate.

10. TAYLOR’S DIFFERENTIAL PIECE-RATE SYSTEM This was introduced by F.W. Taylor , who believed that the workers should be paid on the basis of their degree of efficiencies. Main features of this plan are: The workers, who complete their work in more time than the standard time, are paid the wages at lower rate. Two rates of wages are determined i.e., Higher rate and Lower rate. Standard time of the work is determined. The workers, who complete their work within standard time or before standard time, are paid the wages at high rate. On the other hand, the worker is paid a low rate if he fails to reach the level of output within the standard time .

11. MERRICK DIFFERENTIAL PIECE-RATE SYSTEM This is a modification of Taylor’s differential piece-rate system in which three piece-rates are used to distinguish between the beginners, the average workers, and the superior workers, against two piece-rates in Taylor’s system . Under this plan, three rates of wages are determined in place of two rates: (i) Up to 83% of standard performance - standard rate (ii) Up to standard performance - standard rate +10% (iii) Above standard performance - standard rate + 20%

12. EXAMPLE The following is an example of Angkor Publishers Pvt. Ltd, in which daily on an average 1500 books are printed. The following is the data provided of the standard and actual performance of three labours.   Standard Production by each worker 60 units per hour Working hours in a day 8 Normal rate per hour Rs. 50 Standard time per unit 1 Minute Output per day is as follows: Worker A 390units Worker B 450units Worker C 600units

13. Computation of Normal Wage Raw per unit Normal Rate per hour Rs.50 Standard Output per hour 60 Units Normal wage rate per hour(Rs.50/60Units) 0.83p   Efficiency Level Workers: A B C Actual Output per day (units) 390 450 600 Standard Output per day (units)480 480 480 Efficiency Level achieved: 390X100 450X100 600X100 480 480 480 =81.25% =93.75% =125%

14. STATEMENT OF EARNING OF WORKERS UNDER STRAIGHT PIECE RATE SYSTEM Worker A =390units X Rs.0.83 = Rs.323.7 Worker B =450units X Rs.0.83 = Rs.373.5 Worker C =600units X Rs.0.83 = Rs.498 STATEMENT OF EARNING OF WORKERS UNDER MERRICK’S MULTIPLE PIECE RATE SYSTEM Workers A B C Efficiency level 81.25% 93.75% 125% Applicable wage 0.83p 0.913p 0.996p Earnings(Rs.) 390X0.83p 450X0.913p 600X0.996p =Rs.323.7 =Rs.410.85 =Rs.597.6

15. REFERENCES https://businessjargons.com/merrick-differential-piece-rate-system.html http://www.preservearticles.com/cost-accounting/halsey-premium-plan-meaning-features-an-disadvantages-are-given-below/12318 https://businessjargons.com/emerson-plan.html http://www.economicsdiscussion.net/wages/wage-system/top-8-types-of-incentive-wage-system-labour-economics/29319

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