Various
Modes of Compensation
Various
modes of compensation are as follows-
a)
Wages and Salary- Wages
represent hourly rates of pay and salary refers to monthly rate of pay irrespective
of the number of hours worked. They are subject to annual increments. They
differ from employee to employee and depend upon the nature of jobs, seniority
and merit.
b)
Incentives- These
are also known as payment by results. These are paid in addition to wages and
salaries. Incentive depends upon productivity, sales, profit or cost reduction
efforts. Incentive scheme are of two types:
Individual incentive schemes.
Group incentive schemes.
c)
Fringe Benefits- These
are given to employees in the form of benefits such as provident fund, gratuity,
medical care, hospitalization, accident relief, health insurance, canteen,
uniform etc.
d)
Non- Monetary Benefits- They
include challenging job responsibilities, recognition of merit, growth
prospects, competent supervision, comfortable working condition, job sharing
and flexi time.
Incentives
Incentives are monetary benefits paid to workmen in
lieu of their outstanding performance. Incentives vary from individual to
individual and from period to period for the same individual. They are
universaland are paid in every sector. It works as motivational force to work
for their performance as incentive forms the part total remuneration.
Incentives when added to salary increase the earning thus increase the standard
of living. The advantage of incentive payment are reduced supervision, better
utilisation of equipment, reduced scrap, reduced lost time, reduced absenteeism
and turnover & increased output.
According
to Burack & Smith, ―An incentive scheme is a plan
or programme to motivate individual or group on performance. An
incentive programme is most frequently built on monitory rewards ( incentive
pay or monetary bonus ), but may also include a variety of non monetary rewards
or prizes.
Kinds
of Incentives
Incentives
can be classified under the following categories:
1.
Individual and Organizational Incentives
2.
Financial and Non-Financial Incentives
3.
Positive and Negative Incentives
1) Individual and Organizational
Incentives- According to L.G. Magginson, ―Individual
incentives are the extra compensation paid to an individual for all
production over a specified magnitude which stems from his exercise of more
than normal skill, effort or concentration when accomplished in a predetermined
way involving standard tools, facilities and materials.‖Individual performance
is measured to calculate incentive where as organizational or group incentive
involve cooperation among employees, management and union and purport to
accomplish broader objectives such as an organization-wide reduction in labour,
material and supply costs, strengthening of employee loyalty to company,
harmonious management and decreased turnover and absenteeism
I) Individual
Incentive System is of two types:
a)Time
based System- It includes Halsey Plan, Rowan Plan, Emerson Plan and Bedeaux
Plan
b)Production
based System- it includes Taylor‘sDifferential Piece Rate System, Gantt‘s Task
and Bonus Plan
II)Group
Incentive System is of following types
a)Scalon
Plan
b)
Priestman‘sPlan
c) Co-Partnership
Plan
d)
Profit Sharing
Some
important these plans of incentive wage payments are as follows:
Halsey Plan- Under
this plan a standard time is fixed in advance for completing a work. Bonus is
rewarded to the worker who perform his work in less than the standard time and
paid wages according to the time wage system for the saved time.
The
total earnings of the worker = wages for the actual time + bonus
Bonus = 33.5% of the time saved (standard
time set on past experience)
Or
50%
of the time saved (standard are scientifically set)
Example: Time required to complete job (S) =
20 hours
Actual Time taken (T) = 15 hours Hourly Rate of Pay
(R) = Rs 1.5
Calculate the wage of the worker.
Solution: T X R + (S-T ) X R
2
15 X 1.5 + (20-15 ) X 1.5 = 22.5
+ 3.75 = 26.25 Rs 2
In
this equation 3.75 Rs are the incentives for saving 5 hours.
Rowan
Plan –Under this method minimum wages are guaranteed given
to worker at the ordinary rate for the time taken to complete the work.
Bonus is that proportion of the wages of the time taken which the time saved
bears to the standard time allowed.
Incentive
= Wages for actual time for completing the work + Bonus where,
Bonus = S-T
X T X R
S
Emerson Plan –Under
this system, wages on the time basis are guaranteed even to those workers whose
output is below the standard. The workers who prove efficient are paid a bonus.
For the purpose of determining efficiency, either the standard output per unit
of time is fixed, or the standard time for a job is determined, and efficiency
is determined on the basis of a comparision of actual performance against the
standard.
Bedeaux Plan –It
provide comparable standards for all workers. The value of time saved is divided
both to the worker and his supervisor in the ratio of ¾ and ¼ respectively. A
supervisor also helps a worker in saving his time so he is also given some
benefit in this method. The standard time for each job is determined in terms
of minutes which are called Bedeaux points or B‘s. each B represents one minute
through time and motion study. A worker is paid time wages upto standard B‘sor
100% performance. Bonus is paid when actual performance exceeds standard
performance in terms of B‘s.
Taylor’sDifferential Piece Rate System -
F.W.
Taylor, founder of the scientific management evolved this system of wage
payment. Under this system, there is no guarantee of minimum wages. Standard
time and standard work is determined on the basis of time study. The main
characteristics of this system is that two rates of wage one lower and one
higher are fixed. Those who fail in attaining the standard, are paid at a lower
rate and those exceeding the standard or just attaining the standard get higher
rate. Under this system, a serve penalty is imposed on the inefficient workers
because they get the wages at lower rates. The basic idea underlying in this
scheme is to induce the worker at least to attain the standard but at the same
time if a worker is relatively less efficient, he will lose much. For example,
the standard is fixed at 40 units per day and the piece rate are 40 P. and 50
P. per unit. If a worker produces 40 units or more in a day, he will get the
wages at the rate of 50 P per unit and if he produces 39 units will get the
wages at 40 paise per unit for the total output.
Gantt’sTask and Bonus Plan - In
this, a minimum wage is guaranteed. Minimum wage is given to anybody,
who completes the job in standard time. If the job is completed in less time,
then there is a hike in wage-rate. This hike varies between 25% to 50% of the
standard rate.
Profit Sharing –It
is a method of remuneration under which an employer pay his employees a share
in form of percentage from the net profits of an enterprise, in addition to
regular wages at fixed intervals of time.
2) Financial
and Non-financial Incentives- Individual or group
performance can be measured in financial terms. It means that their
performance is rewarded in money or cash as it has a great impact on motivation
as a symbol of accomplishment. These incentives form visible and tangible
rewards provided in recognition of accomplishment. Financial incentives include
salary, premium, reward, dividend, income on investment etc. On the other hand,
non-financial incentives are that social and psychological attraction which
encourages people to do the work efficiently and effectively. Non-financial
incentive can be delegation of responsibility, lack of fear,
worker‘sparticipation, title or promotion, constructive attitude, security of
service, good leadership etc..
Positive and Negative Incentives- Positive
incentives are those agreeable factors related to work situation which
prompt an individual to attain or excel the standards or objectives set for
him, where as negative incentives are those disagreeable factors in a work
situation which an individual wants to avoid and strives to accomplish the
standards required on his or her part. Positive incentive may include expected
promotion, worker‘spreference, competition with fellow workers and own ‗srecord
etc. Negative incentives include fear of lay off, discharge, reduction of
salary, disapproval by employer etc.
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