1. Incentives and
Performance-based Pay

2. Nature of Incentive Payments
Incentives are variable rewards granted to employees according to variations in their performance
Importance
Inducement and Motivation of workers
Reduced supervision, better utilisation of equipment, reduced scrap, reduced lost time, reduced absenteeism and turnover, and increased output 2

3. Nature of Incentive Payments (Contd.)
Disadvantages
There is a tendency for the quality of products to deteriorate unless steps are taken to ensure maintenance of quality through checking and inspection
Jealousies may arise among workers because some are able to earn more than others
Difficulty also arises in determining the standard performance 3

4. Prerequisites for an Effective Incentive System
The co-operation of workers in the implementation of an incentive scheme is essential
The scheme must be based on scientific work measurement
Indirect workers should also be covered by incentive schemes
There should be management commitment to the cost and time necessary to administer incentive schemes properly
There is greater need for planning 4

5. Types of incentive programmes
Individual
Differential piece rate
Piece rate
Time based
ranking
Group
Cost efficiency bonus plan
Priestman bonus plan
Organization wide incentive plan
Profit sharing
ESOP (employee stock ownership plan)

6. Types of incentives schemes
Straight Piece rate
In direct proposition of their performance.
Wage earning = no. of units produced X the piece rate per unit

7. 2. Differential piece rate
First fail to motivate and recognize highly efficient employees.
sets standards and several piece rate (like rubrics)
Example: Std output 60 units
Employee 1: 150 then getting Rs.2.5/piece
Employee 2: 49 then getting Rs. 2/piece

8. 3. Task and time Bonuses Modified differential based upon time Example: std time 5 hour, regular payment 10rs/hour, bonus Rs. 10/hour Employee 1: completes in 4 hours So, 4x10+10=50Rs. Employee 2: Completes in 5 hours So, 5x10=50

9. Which can not be measured in terms of production units
4. Merit rating
Which can not be measured in terms of production units
Setting standard and comparing with actual performance
Example for setting std are punctuality, competency, initiative, reliability, safety measures, punctuality, regularity, behavior etc.

10. Group 1. Cost efficiency bonus plan
Std cost - actual cost = saving
Certain % of this saving distributed among students

11. 2. Priestman Bonus plan
Std set by expert in terms of unit produced in specific time by any group.
Comparison with actual
If exceed performance then liable to have incentive

12. Group Incentive Plans Some of the advantages of group incentives are:
Better co-operation among workers
Less supervision
Reduced incidence of absenteeism
Reduced clerical work
Shorter training time
The disadvantages are:
An efficient worker may be penalized for the inefficiency of the other members in the group
The incentive may not be strong enough to serve its purpose
Rivalry among the members of the group defeats the very purpose of team work and co-operation 12

13. Executive Compensation
It is refers to compensation package offered to the managerial personnel of an organization.
For attracting and retaining them.

14. Salary + incentive + managerial benefits (bills) + perks (car, apartments) + bonus (for risk and performance) + managerial commission (profit x rate of commission/100) +

16. Devising a compensation plan
Job description
Job evaluation
Job hierarchy
Pay sy
Pay survey
Pricing jobs