2 IntroductionReward all team members equally based on overall performance of the teamPerformance is evaluated using an objective standardFosters cohesiveness among the team membersMotivate to think as a unitEasy to measure the overall performance of the team
3 The objectives are:-Creation of the collective interest and team sprit among the workers.Creation of interest among the superiors to improve performance.Reduction of wastage in materials and elimination of idle-time.
4 Conditions Under Which Team-Based Plans Are Most Likely to Succeed When work tasks are so intertwined that it is difficult to single out who did what.When the firm’s structure and systems facilitate the implementation of team-based incentives.When the objective is to foster entrepreneurship in self-managed work groups.A group of persons of different skills is required for the execution of the work due to its nature.
6 Priestman’s production bonus A standard is fixed in terms of units or pointsWhen actual output > Standard output, workers will receive bonus in proportion to the increaseCan operate for mass production of a standard product
7 Rucker planEmployees receive a constant proportion of the added value (which is defined as sales minus raw materials and services)The ascertainment of the ratio of earnings & added value is done.The rationale behind using this formula is that effects not controllable by employees, such as inflation and market factors, are not included in the formula.Rucker plan is known as share of production plan.
8 Rucker plan It works in this manner: a firm has costs for producing it's service or product.If a firm is able to keep those costs under control, it's profitability will increase.Employee input into how to better decrease costs/improve efficiency is actively encouraged.Resultant costs savings from employee input that increase profitability are shared with employees in some form of bonus.
9 Scanlon plan This is similar to Rucker plan Instead of the ratio between earnings & added value as considered in case of Rucker plan, the ratio between earnings & selling price of production is taken as the basis in case of Scanlon plan.This is a Cost saving productivity-incentive plan in which any saving (computed per unit of output) compared with an agreed upon standard labor cost is shared equally between the workers and the firm.
10 Scanlon plan A simple piece of logic at the heart of the Scanlon plan: If all employees have a personal and tangible financial stake in the success of a corporation, they will contribute more actively to its success.In such a system, employees are made part of the process of allocating labor and capital resources within the company.Employees then collectively share a portion of any cost savings that they are able to generate through systematic improvements or more dedicated and productive labor.
11 Difference between Scanlon plan and Rucker plan There are two major differences between the Scanlon and Rucker plans:(a)Rucker plans tie incentives to a wide variety of savings, not just the labor savings focused on in Scanlon plans.Due to this greater flexibility Rucker plans are more amenable to linkages with individual incentive plans(b)In Scanlon plan, rewards come from employee participation in improving productivity and reducing cost.In Rucker plan, the rewards come from the difference between the labour cost and sales value of production.
12 Towne plan Standard cost of labour is set under this plan. In addition to the wages earned, the workers become qualified to receive bonus for any reduction in the labour cost as compared to the standard labour cost.50% of the savings in labour cost is distributed among workers and supervisors in proportion to their wages.
13 Allocation Methods Equal incentive payments Differential payments based on contribution to goalsDifferential payments according to base pay
14 Example of Group Incentive Plan - 3-M Base pay fixed at 80% of marketEmployees have a set of objectives to meet for pay to move to 100% of marketAdditionally, there is a modest profit sharing component
15 Advantages Disadvantages Team spirit developmentincreased outputWastage minimizationBetter quality of workAutomatic trainingThe bonus is shared by all, irrespective of the comparative efficiency of the workers in a group.competition between groups.successful groups can resist change.Free-riding effectIt can take time for members of a group to work well with each other.
17 IntroductionReward employees on the basis of the success of the organization over a specified time periodPromote a culture of ownershipDevelop a sense of belongingness, cooperation and team workProfit sharing, gain sharing and ESOP
18 Profit sharingA scheme whereby employers undertake to pay a particular potion of net profits to their employees on compliance with certain service conditions and qualification.The purpose is mainly to strengthen the loyalty of employees to the firm by offering them an annual bonus.The share of profit of the worker may be given in cash or in the form of shares in the company. These shares are called bonus shares.In India, the share of the worker is governed by the Payment of Bonus act.
19 Merits:Demerits:Inspires the management and the worker to be sincere, devoted and loyal to the firmIt enables the workers to lead a rich lifeLikely to induce motivation in the workers and other staff for quicker and better workWorkers do not require close supervision.It attracts talented peopleProfit sharing is, in practice a fair weather plan. Management may dress up profit figures and deprive the workers of their legitimate share in the profits.Workers tend to impair the solidarity of trade unions.Fixation of worker’s share in the profits of firm may prove to be a bone of contention in the long run.
20 Gain sharingwhen employees make a suggestion that improves the organization, a percentage of the organization’s gain from the suggestion is shared with the employees who made the suggestionExample:Employees make suggestionsManagement reviews the submitted suggestions, determines the improvement (gain) from each suggestion, and decides which suggestions to implementA percentage of the gain from a suggestion is shared with the employees who made the suggestion
21 Gain sharingA gain sharing plan aims at increasing productivity or decreasing labour costs and sharing the resultant gains (usually a lump sum payment) with employees.It is based on mathematical formula that compares a baseline of performance with actual productivity during a given period.Gain sharing is built around the idea that the involved employees will improve productivity through more effective use of organizational resources.Three major types of gain sharing plans are currently in use. Scanlon Plan, Rucker Plan and Improshare.Improshare stands for improved productivity through savings. This plan is similar to a piece rate except that it rewards all employees in an organization.Input is measured in hours and output in physical units.A standard is calculated and bonuses are paid based on the extent to which the standard is exceeded.The employees and the organization each receive payment for 50 per cent of the improvements.
22 Gain sharingUnlike profit sharing plans which have deferred payments, gain sharing plans are current distribution plans.They are directly related to individual behaviour and are distributed on a monthly or quarterly basis.Gain sharing plans tend to increase the level of cooperation across workers and teams by giving them a common goal.Managers are not required to base their calculations on complex mathematical formulae, nor are they required to closely look into the specific contributions of individuals or independent teams. It is easier for both to formulate bonus calculations and to achieve employees’ acceptance of those plans.Gain sharing plans may fail due to reasons such as:poorly deigned bonus formulaelack of management support for employee participationpoor communicationlack of trust or an apathy on the part of employees
23 Employee Stock Plans Stock Option Plan A plan that gives employees the right to purchase a fixed number of shares of company stock at a specified price for a limited period of time.If market price of the stock is above the specified option price, employees can purchase the stock and sell it for a profit.If the market price of the stock is below the specified option price, the stock option is “underwater” and is worthless to employees.
24 Employee Stock Plans Methods of distributing stock to employees: Employee Stock Ownership Plan (ESOP): the company facilitates employees owning stock in the companyMethods of distributing stock to employees:As a bonus directly to employeesExample: for every 2 shares an employee buys, the company gives the employee 1 shareExample: employees can buy shares for 85% of the current stock market priceInto a trustCompany contributes shares of stock into the trustShares in the trust are allocated to individual employee accountsEmployees become vested over timeWhen an employee leaves the company (e.g., retirement), they receive the current market value of their vested shares in the trust
25 Employee Stock Ownership Plan (ESOP) AdvantagesFavorable tax treatment for ESOP earningsEmployees motivated by their ownership stake in the firmDisadvantagesRetirement benefit is tied to the firm’s future performanceRisk for employeesLimited effect on productivityLong-run financial difficulties
26 Conditions favoring corporate-wide plans Firm sizeInterdependence of different parts of the businessMarket conditionsThe presence of other incentives
27 Evaluation of Incentives Attention getter?Understandable?Establishes culture through values?Improves communication?Pays when it should?(achievements versus failures)Improves individual performance?Improves org. performance?