Introductory Note

The National Productivity Council, since 1958, has conducted a large number of training programmes in
the fields of Industrial Management, Industrial Relations, and Industrial Engineering. Its specialists have
also been .carrying out an increasing number of consultancy assignments in a wide variety of organisations
using different tools and techniques of productivity improvement. These experiences are being consolidated
in the form of Training Manuals, .as they would be of benefit not only to its own specialists, but also to the
Local Productivity Councils, and other training organisations in the country.
The Training Manuals are just an attempt at systematising and consolidating the course contents, which
would undergo progressive improvement from time to time. It is the experience of the Council that a good
Training Manual in the field of productivity should be essentially practice-oriented, illustrating the applied
aspects for effective communication to the trainees. It is hoped that the experience of the NPC specialists as
trainers-cum-consultants would make the Training Manuals useful to the needs of Indian industries .and
other organisations.

I. Theory of Incentives

1.

INTRODUCTION
1.1 Incentives are measures to stimulate human effort; people are encouraged to give out their best

by inducing them on to greater and more productive efforts.

1.2 Incentives may be positive or negative. A positive incentive rewards the employee for superior
performance, whereas a negative incentive consists of some form of penalty for poor performance. Though
the fear involved in negative incentives may be occasionally necessary for maintaining discipline, they are
not long lasting, and are hence unsuitable for increasing production.
2.

TYPES OF INCENTIVES
2.1 Positive incentives can be broadly classified into (i) Non-financial, (iii) Semi financial, and (iii)

Financial Incentives. A strict classification is rather difficult, since some indirect monetary benefits may be
there in any scheme.
2.2 Non-financial incentive schemes are those where there is absolutely no monetary benefit. G'Jod
work is appreciated and praised. For example, many factories have the practice of publishing the names
and/or photographs of good workers in their House Journals, or of exhibiting their photographs in the
Reception Room, issuing certificates, etc. Non-financial incentives will be effective at the worker levels
only as a supplement to financial incentives. However, for supervisors and those above them, such
incentives serve as morale boosters, and spur them on to being more effective in their organisations.
2.3 Semi-financial schemes may be classified as those which have some monetary benefits, but not
directly linked with output and wages. Promotions, increments, and provision of training and welfare
facilities may be included in this.

24 All direct financial incentive schemes, which are also known as Wage Incentives and
Payment by Results, may be classified under the financial schemes. Direct financial incentive
schemes are the most effective among the different types of schemes, and provide the
strongest motivation. 1 he discussions that follow relate mostly to Wage Incentives.
2.5 It should be remembered that incentive is only a means to an end. It is only one of
the forms of motivation, and one of the techniques of increasing productivity. It does not
automatically result in lower costs, and higher wages. It is not a panacea for all industrial
problems. not it is a substitute for good management or good industrial relations At best it
can only be a supplement to other management techniques, and we may regard it as one of
the effective tools available at present, since it attempts to link wages with performance.
2.6 Individual and team-spirit are both essential to achieve an organisations objectives,
and in this regard an industry may be compared to a game or sport. Individual incentives in
the form of recognition and extra pay for superior performance encourage competitive spirit
among workers, and result in the employees putting forth their maximum effort. Cooperation
is an equally important incentive in many situations. Sometimes cooperation may conflict
with competition, but in most of the cases they are complementary to each other. There are
many situations in industry where work will be interdependent and a group of workers may
have to work as a team for the completion of the job. Since the work is inter-related and each
worker will have to cooperate with the other, a group incentive is given, so that by a cooperative effort better group performance is obtained.
3.

WAGE PAYMENT
3.1 Wage incentive is a method of wage payment. The total wage for any job

Would consist of the following components.

(i) Basic Wage
(ii) Dearness Allowance
(iii) Other Allowances
(iv)

Incentive.

The basic wage consists of a minimum wage and a job differential. Job differential is
an addition to the minimum wage, and will be different for different jobs depending upon
their relative worth which is determined by job evaluation.
3 2 some of the governing factors is determining the basic wage and allowance may
be:
(i) Statutory rules and regulations by the Government.
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(ii) Current wage levels in similar industries, area, etc.

(iii) Cost of living index.
(iv) Capacity of the company to pay.
(v) Demand and supply position with regard to labour.
(vi) Bargaining powers of the trade unions.
3.2.1. Thus the basic wage and the allowance are guided by the above factors and also
a systematic evaluation of jobs, taking into consideration the various characteristics of the
job like skil1, effort, responsibility, and working conditions. Wages are paid for certain
quantities of output by the workers, and these are generally stablished at mutually accepted
levels for the purpose of reckoning what is called 'a fair day's work'. The basis of fixation of
these levels of output may be one of a combination of the following.
(i) Output levels traditionally built up during the life of the organisations
called the 'conventional standards'.
(ii) Outputs obtained in similar or identical work situations in other
organisations.
(Hi) Output levels fixed by the application of Work Study techniques.
Though theoretically it may mean that the wage is paid for an acceptable level of performance for the particular duration, in certain cases it does not work like that in practical
when the payment is relay made only for the attendance. To ensure maximum application
during the attendance time, some extra remuneration needs to be made to the worker, and
this is done through wage incentives.
4.

PURPOSE OF INCENTIVES
4.1. The main purpose of incentives is to motivate the worker to give his best.

Incentives try to improve the efficiency of workers, by making them work more effectively
with less wastage of time, at a greater pace, and with better application to the job without
detriment to his health.
4.2. The philosophy of wage incentives may be expressed thus: leech and every
individual possesses latent abilities, both mental and physical, in far greater abundance than
he normalIy utilises. The dual rewards of individual recognition and material gain through
wage incentives provide powerful encouragement to the use of those latent abilities"
(Louden & Deegan).
4.3. Usually the objective of any incentive scheme is increased output consistent with
certain quality standards. But there are many other objectives which incentives could
achieve. These would vary depending on the conditions. Some of the objectives are:
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(i) Higher output

(ii)

Improved Quality

(iii) Higher Workloads

(iv) Reduced Waste, higher recovery, improved material utilisation
(v)

Higher Plant Utilisation

(vi) Less maintenance down time

(vii) Greater process efficiency
(viii) Better Housekeeping
(ix) Less accidents and greater safety
(x) Reduced Absenteeism
(xi) Economy in the use of service facilities.
5.

ADVANTAGES & DISADVANTAGES OF INCENTIVES

5.1 All the objectives mentioned earlier may be counted as the advantages of incentives,

when the scheme is well designed, and meets the required objective. Briefly, the main
advantages of an incentive scheme may be stated to be- (i) Increased output, (ii) Lower Cost of
Production, and (iii) Higher earnings for workers.
5.2 Incentives may have certain disadvantages as well.
(i) Quality of the products may deteriorate unless proper measures are instituted.
(ii) Introduction of improved methods, better tools and machines, etc., may
become difficult. Workers may resist such changes for fear that are-study of the job
may result in lower earnings.
(iii) Clerical work will increase due to the calculations involved in computing incentive
earings.
(iv) Workers may overlook safety precautions. and overwork for the sake of earning
incentive which may effect their health.
(v) Standards have to be fixed properly. Both too tight and to low rates will result in
difficulties.
(vi) In industries where there is a wide fluctuation in production, introduction of incentives
becomes a difficult task.
5.3 Most of these disadvantages and difficulties could be avoided if the incentives are
properly designed taking into consideration all the factors involved. Some of the characteristics of
a well-designed scheme are given below:
(i) The plan should be directly related to the factor or factors to be controlled.
(ii) The plan should provide extra pay consistent with extra effort.
(iii) The incentives should be adequate enough to stimulate the worker to put in extra effort
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(iv)

The plan must be simple enough for the worker to understand, and be easily
calculable.

(v)

The plan must be acceptable to the workers and the unions.

(vi) Adequate minimum wages must be guaranteed.

(vii

Installation and maintenance of the scheme must be as easy and inexpensive as

possible.

(viii) Performance should be measured over as short a period as is possible under the
circumstances.
(ix) The payment period should be as short as possible.
(x)
(xi)

The plan should be based on fair and proper standards.

There must be adequate safeguards to maintain the desired quality standards.

(xii) Standards should not be altered unless changes occur which may alter the work under
question, in which case the plant should provide for modification of the standards.
(xiii)

The plan should cover as many operations and workers as practicable.

(xiv) The plan should usually result in the reduction of unit labour costs.
(xiv)

Definite instructions covering policy and methods should be provided.

(xvi)

Adequate safeguards must be provided whenever there is a failure to meet the

standards due to reasons beyond the control of employees.

(xvii) As far as possible, there should be no restrictions no individual earnings.

6.

INDIVIDUAL & GROUP INCENTIVES

6.1

Incentives could be broadly classified into (i) Individual, and (ii) Group Schemes.

Under the individual scheme each employee is rewarded based on his performance, while the
group incentive plan compensates a number of workers for their combined output.
6.2 An individual plan can be applied wherever the individual effort can be measured, and
normally one worker is responsible for th~ completion of an operation or a task. There are many
industrial situations where a group of workers have to work as a team for completing a job. In
such cases individual incentives may not be practical either because the individual contribution
cannot be measured or the work is so much inter-related that one worker's pace may be dependent
upon the speed of the previous worker, and so on. Group incentives will be more suitable under
such situations. To be effective, it is preferable to keep the groups as small as possible.

6.2.1 By and large, individual incentives have been found to be more effective.
However, group incentives have certain advantages, and have definite applications which are
discussed later.

7.

PREREQUISITES FOR INCENTIVES

7.1

Incentives should not be used to compensate workers against low wages for as

compensation towards rise in economic wage levels. The rate structure must be kept separate
from incentives. Incentives will be fair and reasonable when the industry has established an
equitable wage structure based on a systematic job evaluation. Thus, as far as practicable, Job
Evaluation should precede the introduction of incentives.
7.2

To achieve maximum results from incentives, the production processes and

methods should be first improved and standardised. Methods should be simplified, and
delays and interruptions minimised through the application of Method Study techniques
before an incentive is introduced. Safety precautions and working conditions must all be
improved and controlled. Workers would not like their performance and thereby their
incentive earning to be affected by unnecessary delays, interruptions, and breakdowns.
Besides, if standards are set without improving methods, workers themselves would try to
improve the methods and render the standards loose.
7.3

When the operations have been analysed and simplified, and the operators are

trained in new methods, standards should be established based on Work Measurement

techniques.
7:4

Above all, there must be sufficient amount of work available continuously to

justify the introduction of an incentive scheme.

8.

TRADE UNIONS & INCENTIVES

8.1

Any wage incentive plan will be successful only if it has the acceptance of the

workers and their unions. Good labour relations are a prerequisite to successful operation of
an incentive plan. Workers are likely to resist anything which they do to know or do not
understand. It is advisable to take the workers into confidence, and explain fully all the
benefits and implications of the scheme.
8.2 The main objections to wage incentives expressed by the trade unions are:
(i) Working continuously at a high pace is injurious to the health of the worker.
(ii) Incentives may result ultimately in the reduction of the total labour strength.
8.3

Incentives based on standards fixed by work measurement techniques, are fair

and appropriate since all the factors affecting the job are taken into consideration. Adequate
minimum wages 'should be guaranteed. It may also be necessary to give a guarantee that
surplus labour, if any, would be absorbed on other jobs to allay the fear of unemployment.
8.4

Most of the difficulties can be overcome by providing for the participation of

union representatives in the introduction of the incentive scheme. This participation may be
in the timing of the job, in fixing standards, or in setting rates.
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8.5

Most of the trade unions have realised the value of incentive schemes, and in

many cases, welcome the introduction of incentives.

9.

SCOPE OF APPLICATION
9.1

Though wage incentives could be applied with advantage in most of the cases,

there may be certain limitations rendering the introduction of incentives difficult in some
industries where:
(i) high quality and precision are of Paramount importance;
(ii) work is dangerous and adherence to safety precautions is essential; and
(iii) work is such that measurement of either individual or group effort is extremely
difficult.
10.

DEVELOPING A COMPANY WAGE INCENTIVE PLAN

10.1 The broad procedure involved in developing an incentive plan for a company is

:
(i)
(ii)

Determining the objective of the Incentive Plan;

Method Study of all the production processes and activities to be included in the
plan;

(iii) Quantitative measurement of the achievement and setting up of standards;

(iv) Studying the company's operating conditions including the manner in which
work is assigned and effort applied;
(v) Selecting a suitable standard incentive plan or designing a special plan to suit the
company's needs;
(vi) Designing suitable paper work and information flow procedures;
(vii) Reviewing the scheme from all angles to ensure fairness to all concerned; and
(viii) Installation and maintenance of the scheme.

II. Standard Financial Incentive Plans

1.

INTRODUCTION
1.1 There are a number of incentive plans formulated by different persons from time to

time. The basic differences between these plans are in the incentive levels, and the rate of
payment. Some of the most commonly, used systems are discussed here. Though each .of
these plans has been designed to fit a particular set of conditions, each plan has certain special
features. It may be possible in many cases to select one of the standard plans for use or with
some modifications. However, familiarity with the following representative plans will be
helpful in designing a company incentive plan.*
2.

THE STRAIGHT PIECE-WORK SYSTEM

2.1 The straight piece-work system compensates the worker directly in pro. portion to

the output. The worker gets paid at a specified rate per unit of output. (There is. however. one
modification to this system that the workers' time rate is guaranteed).
Example: Rate per piece = Re. 0.10
Total number of pieces produced = 100
Earnings = 100 x Re. 0.10
2.1.1 Direct labour coets per unit of output remains constant above the standard, but
the total unit costs decrease due to reduction in certain overhead costs.
3.

THE STANDARD HOUR SYSTEM

3.1 Under this plan, the task standards are expressed in time. A definite

* Summary of the standard incentive plans and the corresponding charts have been taken from
Payments by Results. and reproduced by the kind permission of I.L.O., Geneva.

hourly rate is paid for each task hour of work performed. The unit of payment is the task
time. The worker is paid full value for the time saved.
Example: If the standard is 20 units per hour, and the worker completes the work in 45
minutes, he gets the full hourly wage for 45 minutes of work.
4.

THE HALSEY PREMIUM PLAN

4.1 A standard time is set for completing a job or a unit of work which is usually

based on past production records. The worker gets the guaranteed wage if he completes the
job in the allowed time or more than the allowed time. If the job is completed in less than
the standard time, the worker is paid at his time rate for the actual time taken, and, in
addition, is rewarded at his time-rate for a definite percentage of the time saved. ~This
percentage varies from 30 to 70 per cent of the time saved, the most common percentage
being 50 per cent, and the other 50 per cent being the employer's share.
Example: Standard time

8 hours

Worker's hourly rate = Re. 1

Actual time taken to complete the job = 6 hours Total
earnings = (6 hours x Re. 1) + (1 hour x Re. 1)
for 50 per cent of the time saved under 50:50
Sharing = Rs. 7 for 6 hours' work.
4.1. 1. Since there is a sharing and the bonus is modest, slight inaccuracies in time
standards would not be too serious. A portion of the employer's share may be given to
indirect workers and supervisors, thus encouraging overall performance. The plan is easy to
introduce. The Halsey System can also be applied to indirect workers, such as maintenance,
where the work can be estimated.
5.

THE ROWAN SYSTEM

5.1 In this system also, a standard time is allowed for a job, and a bonus is paid if the

job is completed in less than the standard time. The time saved is calculated as percentage of
the standard time, and the same percentage of the workers' rate is credited as bonus for the
time saved. Guaranteed time-rate will be paid for standard and below standard
performances.

Example: workers hourly rate

= Re. 1

Standard time for the job

= 8 hours

Actual time taken to complete the job

= 6 hours

Time saved

= 2 hours

Time saved as a percentage of the standard

= 25 %

Time

Bonus per hour

6.

0.25%XRs. 1

Rs. 0.25

6 hours (1X0.25)

Rs. 1.50

THE BEDEAUX POINT SYSTEN

6.1 In the Bedeaux System, a standard time is allowed for a job based on work

measurement. Each minute of the allowed time is called a "point or a "B". Thus a standard
hour would consist of 60 Bs, or and a standard day of eight hours, 480 Bs. A standard number
of Bs, or points is allowed for each job. A bonus is paid for the number of Bs, saved, i.e., the
time saved. As per the original Bandeaux system, 75
Per cent of the number of points earned in excess of 60 per hour multiplied by one sixtieth of
the workers' hourly rate is paid as bonus. Guaranteed time rate is paid to workers not reaching
the standard.
6.2 This system may be convenient for application where workers are assigned
different types of work. Since the output can be expressed in terms of points or Bs, the
system would also be helpful for planning purposes.

7.

THE TAYLOR DIFFERENTIAL PIECE-RATE SYSTEM

7.1 This system was developed by P.W. Taylor. There is a low piece-rate for output

below standard, and a higher rate for output above standard. As high as 50 per cent of the
time-rate is paid for standard output. Thus this system while rewarding handsomely the
above-standard workers, penalises the below standard workers.
8.

THE MERRICK DIFFERENTIAL PIECE RATE SYSTEM

8.1 This is a modification of the Taylor System with three steps, instead of two.

Straight piece-rates are paid up to 83 per cent of standard output at which a bonus of 10 per
cent of the time-rate is payable. At standard an additional 10 per cent bonus is paid with high
piece-rates above standard.
9.

THE GANTT TASK AND BONUS PLAN

9.1 At the standard performance, which is usually set at a high level, the worker is paid

a bonus of 20 per cent of his time wages. High piece-rates are paid for performance about
standard. Similar to Taylor and Merrick Systems, the Gantt
10

Scheme also rewards workers for reaching the standard which is set at a high level. The
scheme provides for a guaranteed time rate for performance below standard.
10

THE EMERSON EFFICIENCY PLAN

10.1 Standard time are set for the jobs. The actual times taken to complete' the jobs

are recorded. - The individual efficiency is then calculated by dividing the standard time by
the actual time. Up to 67 per cent efficiency the worker is, paid at, his time-rate. Above this
and up to 100 per cent efficiency a bonus is paid. Theban is equal to certain specified
fraction of one per cent of the hourly rate for each addition I one per cent of efficiency. At
100 per cent efficiency a bonus of 20 per c7nt is payable. Thereafter an additional one per
cent bonus is paid for each additional one per cent efficiency.
11.

IMPACT OF INCENTIVES ON PRODUCTlVITY

11.1 The National Productivity Council carried out a research project on Incentives

in Industries" during the year 1970. The research project highlights the impact of incentives
on productivity. It was found that except 5 companies which were severely hit by
recession, in all other companies both production and productivity went up after the
introduction of incentive schemes. The study with a coverage of 131 companies indicted an
average increase of 60% and 40.85% in the levels of output and productivity. The range of
increase in output and productivity falls between 1.7 to 265% and 1.0 to 158%
respectively.
11.2 The following two tables included in the NPC Research Publication on
Incentives in Indian Industries (Part III) exhibit the impact of incentives on productivity
both statewide and industry wise.

12

EARNINGS AND DIRECT LABOUR COSTS

FOR DIFFERENT TYPES OF
INCENTIVE PLANS

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III. Work Measurement Techniques

1. INTRODUCTION
1.1 The establishment of proper and fair standards is a fundamental requirement for the
success of an incentive scheme. Though the incentive may be based on various factors
depending on the objectives, the most commonly used unit of performance is time. When the
unit of measurement is time, techniques of Work Measurement provide the best available
means for setting standards for incentive payment. More sophisticated techniques involving
mathematical and statistical analysis have also been developed of late. A very brief discussion
of the common types of Work Measurement techniques is attempted here.
1.2 "Work Measurement is defined as the application of techniques designed to
establish the work content of a specified task by determining the time required for carrying it
out at a defined standard of performance by a qualified worker". The principal techniques of
Work Measurement are
i. Time Study
ii. Standard data and predetermined motion time systems,
iii. Analytical Estimation, and
iv. Work Sampling.
1.3 Time Study is most extensively used for setting up standards. ,standard data,
predetermined motion time system, and analytical estimation are used where direct
measurement by Time Study is either difficult or time-consuming, Estimation being less
accurate is used only where other techniques are not applicable. The Work Sampling
technique for determining time standard, though possible, is rarely applied. But it is an
extremely useful tool for determining accurately the. present

22

efficiency of workers and, equipment, which may be required in designing an incentive

system.
1.3.1 Prior to Work Measurement, a Method Study of all the jobs should be carried
out, and the best methods under the prevailing circumstances installed.
2. TIME STUDY
2.1 Time study is a technique for determining the time required to carry out a
specified job at a defined standard of performance. The work content of the job is expressed
in terms of standard minutes. A standard minute of work is the amount of work to be
expected in one minute from a normal worker, adequately qualified in all respect to do the
job, arid working at normal speed under normal conditions, a certain percentage of
relaxation allowance being included in that minute for personal needs and recovery from
fatigue. Standard minute provides a common unit for the measurement of different kinds of
human work.
2.1.1 In making a Time Study, the following steps are involved:
i.

Collecting and recording all the information about the job;

ii.

Breaking the job into elements;

iii. Observing and recording the time taken for each element;
iv.

Rating the performance at which the work is being done, and computation of
normal time; and

v.

Determining the allowances and computing the standard time for the job.

2.2 The first step in Time Study is to record all the relevant information regarding the
job 0 This includes information regarding the method of working, sequence. of operations,
tools and equipment, material and quality specifications, and working conditions. All this
information is essential because the time values bold good for a particular set of conditions,
and would have to be changed if there is any change ,in these conditions.
2.3 When all the data have been recorded, the next step is to break the job into
"elements". An element is a constituent part of the activity selected for convenience of
observation and timing. The main purposes of elemental breakdown are:
i. To separate productive and unproductive work;
ii.
iii.

To facilitate accurate performance rating;

To provide proper rest and other allowances;

iv. To build Up standard data; and

v. To check method changes and standards by detecting additions and omissions of elements.
23

2.3.1 Some of the pornts" to be considered" in the selection of elements are: (i) they
must be easily identified with definite beginning and ending; (ii) manual and machine time
should be separate; (iii) constant, variable, occasional, and foreign elements should be
separate; and (iv) the duration of an element in a repetitive job should be as short as to be able
to be measured conveniently, the minimum duration being not less than 0.05 mts. An
elemental time of about 0.15 to 0.20 minutes permits reasonably easy and correct assessment
of the performance.
2.4 The time required for performing each element of the job is measured with the help
of ,a' stop watch. The stop watch used for time study is a decimal minute type, one minute
'being divided into 100 equal divisions, with provision for stopping, starting and snapping
back the hands. The time study details are recorded on time study forms ..
2.4.1 There are two methods of timing-(i) continuous timing, and (ij) fly back timing.
In the continuous timing the watch runs continuously throughout the study; at the end of each
element the watch reading is recorded. The individual elemental times are obtained by
subtracting each reading by the successive ones. In the fly back method at the end of each
element, the reading is recorded and snapped back to zero Thus the individual elemental
times will be easily available.
2.4.2 Normally about 20 to 30 cycles would ce required to obtain a reasonable
representative average time' for an operation with a duration of about one minute. However,
the number of cycles to be observed would be governed by factors such as the, amount of
variation in the elemental time between cycles, degree of accuracy required, and the coverage
of occasional elements.
2.5 The time values' obtained from time study should be representative figures and
should be capable of being achieved by a great majority of the workers in a plant. The
majority of workers belong to the average group. Hence it is necessary to conduct time study
only on average workers. The performance of a person varies from time to time, and depends
upon varying factors like aptitude, training, physique, and mental attitude, and other external
factors like quality requirements" condition of tools and equipment, working conditions, and
a host of others. Thus it becomes impossible to find a worker who would give a consistently
average performance. Some methods would be required by which the observed time values
on any operator could be adjusted to a normal or an average performance. This is done by
'rating'.
2.5.1 Rating is the method of comparing the actual rate of working of an operator with
the concept of a normal performance. Normal performance is the average rate of working
which can be maintained consistently without undue fatigue. The normal would vary from
job to job based on various conditions.
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2.5.2 There are different scales of rating .. The scale that is extensively used in most of
our industries is the one in which the normal performance is represented by 100. The actual
rating is denoted by a figure either more or less than 100 in steps of five, depending on the
judgement of the time study observer, whether, the actual rate of working is more or less than
his concept of normal. Each element of the job is rated in each cycle, and the rating is
recorded simultaneously with the recording of the time.
2.5.3 The normal time is obtained by multiplying the observed time by the rating
factors.
Normal Time = Observed Time x Rating
100 (normal)
2.6 It is impossible for any person to work continuously without rest. A certain amount
of allowance would have to be made for attending to personal needs, and to recover from
fatigue. This is known as "relaxation allowance", Land is expressed as a percentage and
added to the normal time. The relaxation allowance will vary from job, to job, and depends
upon the various conditions of the job. Different scales of allowances have been involved.
But careful judgement based on experience is necessary to arrive at the proper percentage of
allowance.
2.6.1 In addition to the relaxation allowance, several other allowances like
contingency, interference and process allowances, may have to be added. Contingency
allowance is given to cover those portions of the work which are not included in the normal
time, but are a necessary part of the job. Interference allowance is given to an operator
working several machines which are subjected to cyclic and random stoppages which may
affect the earnings. Process allowances are added to compensate for enforced idleness on the
part of the operator due to the character of the process or operation. Sometimes additional
allowances to compensate for fluctuations in quality of raw materials may also be added.
2.7 The allowed time or the standard time for a job is the sum of the normal time and
the allowances.
Standard Time = Normal Time + allowances
3. STANDARD DATA
3.1 Standard data is a set of time standards built up from elemental times obtained
from various time studies over a period of time, covering a wide range of conditions and
specifications. Time formulae, curves, and charts are developed for elements which vary in
duration according to certain physical and technical characteristics, and also those controlled
by machines. Thus by dividing a job into convenient elements, and applying synthetic
elemental data it would be possible to determine the
time required to do the job.
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4. PREDETERMINED MOTION TIME SYSTEM

4.1 The fundamental concept that all manual work consists of various basic motions of
the human body has brought about the development of Predetermined Motion Time Standards
(PMTS). These are mainly based on elementary movements of the 'therblig' type. All the
basic motions involved in performing a job are recorded, and the assigned time values are
applied to get the total time. Among the various methods available, the most commonly used
are MTM (Methods time Measurement) and the work factory systems.
5. ANALYTICAL ESTIMATING
5.1 Analytical estimating is a technique adopted for setting time standards for non-repetitive type of
jobs in the area of maintenance, construction, etc. Time study may be either not possible or uneconomical
due to the non-repetitive nature of the jobs. The job to be estimated is broken down into elements. The
elements are normally of longer duration than in time study, The normal time for each element is
estimated. The estimation is done by persons who have adequate knowledge of the job and trained in work
study, and have a concept of normal performance. Wherever possible elemental times may be derived
from standard data and predetermined motion time systems. A blanket allowance is added finally to get
the allowed time for the job.
6. WORK SAMPLING
6.1 Work Sampling is a sampling technique based on statistical methods. An estimate of the true
situation is made on the basis of samples. The types of information that can be obtained from work
sampling from the point of view of work measurement are: (i)the proportion of idle or delay time for each
cause. Snap observations are made at random intervals of time noting the machines/men working, not
working, and the causes for the same. Each snap observation is a sample, and if a sufficiently large number
of readings are taken at random intervals the percentage of readings a machine/men working will tend to
equal the percentage time it is doing so. The per cent activity is given by :
Per cent activity

= Number of readings observed of activity

Total number of observations

For example, if 100 snap observations are made on a machine, and 80 are recorded as working,
Then the working time of the machine=80=80%
100
26

EXAMPLE IN THE STUDY

Operation:

Stay rod threading

Element
Description

Pick up rod and

load in chuck

Disengage &
Tighten chuck

Start machine
& turn outside
dia

bring slide to
starting point,
adjust, and
engage

Chamfer

Threading

Check Threads

Take out rod

Loosen chuck

and keep aside

Cycle No.

ET

WR

ET

WR

ET

WR

ET

WR

ET

WR

ET

WR

ET

WR

ET

WR

ET

WR

18

18

IS

33

48

81

84

93

16

26

35

IS

50

59

2
3
4
6
6
7
8
9

17
16
19
22
16
15
19
19

76
42
96
53
2
65
25
84

13
12
9
10
14
II
12
15

89
54
5
63
16
76
37
99

60
53
52
47
45
49
51
49

49
7
57
10
61
25
88
48

7
6
5
8
9
11
8
7

56
13
60
18
70
36
96
55

10
12
12
12
II
9
9
II

66
25
72
30
81
45
5
66

II
14
10
8
14
10
11
14

77
39
82
38
95
55
16
80

23
13
26
24
30
26
26
22

0
52
8
62
25
81
42
2

16
IS
13
12
13
14
12
17

16
67
21
74
38
95
54
]9

10
10
10
12
12
11
11
10

26
77
31
86
50
6
65
29

20

49

17

66

56

22

10

32

22

54

12

66

31

97

12

17

10
Total

144

102

394

55

8
0.127
100
0.127
12
0.142

8
0.493
110
0.S423
13
0.612

7
0.08
95
0.076
12
0.085

68

96

203

127

107

8
0.12
90
0.108
14
0.123

8
0.254
100
0.254
12
0.284

9
0.140
100
0.140
12
0.157

10
0.107
IIO
0.1187
II
0.131

Number of
8
Observation
0.18
Average
115
Rating
Normal time 0.2070
Allowance
II
0.230
Std. Time
Std. Time/Piece
No. of Pieces/hours.

6
0.113
105
0.1190
12
0.133

ET - Elapsed Time

1.897/9 = 0.210

WR - Watch Reading

60/0.21 = 285

Note: Figures In bold type are abnormal readings, either on account of wrong
reading or wrong clicking of the stop watch, and are not to be considered
for analysis.

27-A

6.2 The number of observations to be made depends upon the accuracy required, and
is given by the formula

6.3 Work Sampling can also be used to derive time standards by rating the activity at
the same time the snap observation is made. If the production during the period of the study
is known, the normal time for unit of output can be calculated which is given by :
Per cent efficiency x Rating factor
Normal time per unit of output

Production during the study period

6.3.1 In cases where the work involves activities of a different nature, like lifting
weights, welding, hammering, lightening nuts, etc., which demand different levels of
relaxations of allowances, it is necessary to extend the observations to record what activity
the worker is enagaged in at the time of observation, so that the percentage of working time
spent on such activities could be known.
6.3.2. By adding appropriate allowances, standard time for the job can be obtained.

27

IV. Design of Incentive Schemes

1. PROCEDURE
The basic steps involved in designing an incentive scheme are:
(i)

Selecting the objective of the Incentive Scheme and determining the factors that
facilitate quantitative measurement of the objective;

(ii)

Measuring and developing performance standards for the selected factors;

(iii) Determining performance-reward relationship;

(iv) Determining payment period;
(v)

Designing suitable paper work and information flow procedure;

(vi) Reviewing the scheme; and

(vii)

Installation and maintenance of the scheme.

2. SELECTING THE OBJECTIVE AND THE UNIT OF MEASUREMENT

2.1 As mentioned earlier, Incentives are designed to serve many objectives The
objectives would obviously vary depending on the conditions, and the needs of the industry A
careful and correct selection of the objective is essential if the scheme is to be successful
2.2 Usually the incentive schemes are designed for increasing the output consistent with
certain quality standards. However, this may not be the case always. The objective in a
chemical/process industry may be to increase process efficiency, or achieve higher recovery.
In a maintenance organisation, the objective may be reduced maintenance down time, and
increased machine utilisation. The objectives in some cases may be reduced absenteeism, or
reduced accidents, etc.
2.3 Some of the considerations in selecting the objectives are: (i) should be of sufficient
interest and importance to management; (ii) should be possible to measure quantitatively; and
(Hi) Achievement should be within the control of the employees.

30

..

2.4 It would be necessary to select certain factors which are easily measurable, and
which denote the extent to which the objective has been achieved for the purposes of
incentives. In the case of output, physical units such as quantity, volume, or weight could be
selected e g. number of pieces, tons of castings, etc. Time, reject per cent, Yield per cent,
equipment utilisation, and labour utilisation are other factors.
25 The National Productivity Council formed a Committee to study the illustrative
models for sharing the gains of productivity on the basis of which certain guidelines and
illustrative models were evolved. These are summarised in Annexure 1.
3. MEASURING AND DEVELOPING PERFORMANCE STANDARDS
3.1 Accurate setting of standards is absolutely essential if the. Incentive scheme is to
operate satisfactorily. If the standards are too tight, workers will not be interested, whereas
loose standards will work out to be uneconomical for the management.
3.2 Wherever the standards are in terms 'of time, output, the work measurement
techniques provide a systematic basis for setting up standards. In the case of factors like
safety, waste reduction, rejection, etc., past records and statistical analysis would have to be
resorted to.
4. DETERMINING PERFORMANCE-REWARD RELATIONSHIP
4.1 When once the standard performance has been determined, the next step is to
determine the incentive amount to be paid' for higher performance, at various levels. The
incentive may start at level below the standard performance in many cases. The level at
which the incentive should start depends upon the present performance and the conditions
obtaining in the company and other factors,
4.2 The incentive rate is normally a certain percentage of the total wage in order that
the same job differential is maintained between the jobs.
4 3 There are basically three types of performance-reward relationships-(i) Straight
Proportional, (ii) Geared, and (iii) Variably Geared.
4.4 Some of 'the considerations to be borne in mind while determining the
"performance-payment relationships are:
(i) Payment should be in direct proportion to the increase in performance;
(ii) Incentive should be adequate and fair;
(iii) It should be simple to understand and calculate;
(iv) Incentive should be above the basic wage which should be guaranteed.
(v)

As far as possible there should be no restriction on earnings unless special

considerations demand the same;

(vi) Unit labour cost should remain constant after the standard performance; and
(vii)

Payment should be determined in such a way that it is profitable to both

management and employees.
31

5.1 The period over which the incentive earnings are calculated and payment made may
be a day. week or a month, or any suitable period or on the completion of the ' job. But if the
primp is too long the effect of incentive might diminish compared to a shorter period. The
period should not be too short either. This may not give dufficient time lag, for the worker's to
maintain a steady performance resulting in wide fluctuations

32

in earnings, and besides may not be convenient for administrative' and accounting purposes.
A week may be considered as a reasonably good incentive period for almost all the jobs.
Many Indian industries adopt a month as the incentive payment period for incentives.
6. PAPER WORK PROCEDURES
6.1 Good paper work procedures and information flow systems are necessary if the
incentive, scheme is to operate smoothly and efficiently. Informing workers of the standards,
recording actual performances, calculations and payment of incentives, preparation of cost
and other reports. handling of disputes and grievances with regard to standards, etc., require
the design of suitable procedures.
1. REVIEWING THE SCHEME
7.1 After designing the incentive scheme the normal procedure is to review it
thoroughly before implementation in' order to ensure whether it is properly designed, taking
all the factors into consideration. During the review it should be ensured that
(i)

the scheme achieves the objectives,

(ii) the reward is fair and equitable commensurate with the effort,
(iii) the scheme is economical,
(iv) reduces unit cost,
(v)

the scheme is beneficial to both management and employees, and

(vi) ensures the safety and health of workers.

8. INSTALLATION AND MAINTENANCE
8.1 It is only with the active cooperation of the trade union and workers that an
incentive scheme can be made to achieve its objective. The scheme is discussed thoroughly
with the union at various stage of its development, and before implementation. They are
taken into confidence from the very beginning.
8.2 Installation of the scheme is done on the basis of a union-management agreement.
The agreement normally provides for a trial period. Based on the experience gained during
the trial period, suitable modifications may be incorporated in the scheme. Incentive plans
may be introduced gradually department by department, and in stages.
8.3 When once introduced the incentive scheme is a continuous affair. Unless
carefully and properly maintained it may fail. It should be periodically reviewed and
evaluated to ensure proper functioning. Incentive schemes may need modification after
being in operation for some time.
33

SHARING THE GAINS OF PRODUCTIVITY

The models given below have been tried by various enterprises with considerable
benefit which has accrued to the concerned organisation and their employees. The models are
fairly representative of diverse industrial situations in our country. They may be used as a
basis for formulating incentive schemes and sharing of productivity gains.

Model No.

Description

Gains Linked to sales value of production.

Gains Linked to value added to production.

Gains Linked to production and productivity

indices.

Gains linked to monthly productivity index

and annual productivity bonus plans.

5
6

Gains linked to multi factors of production.

premium pay plan for measuring productivity
gains.

Productivity gains measured by saving in

standard time.

'Productivity gains measured by group and

plant performance indices.
.

Productivity gains measured by improvement

in performance index or saving in standard
time with extension or induction factor.
Productivity gains measured by overall

10

performance index of plant using fixed

and variable bonus payments.

11

Productivity gains linked to production and

quality standards.

For details please refer to "Sharing the Gains of Productivity" published by National
Productivity Council.

34

V.

Incentive Schemes for Higher Output,

Utilisation, Workload, etc.

1. INTRODUCTION
1.1 A majority of the incentive schemes in operation are for higher output.
Wherever individual effort can be measured, these are designed as individual schemes. Work
measurement techniques are used to measure the work content of the job, and setting of
standards. The Standard Minute is the most common method of expressing the effort.
Performance Indices can be established for all types of jobs with the help of standard time.
2. PERFORMANCE INDICES
2.1 For the sake of convenience, performance indices are used to express the
performance of workers. When the unit is time the performance index is the ratio of standard
time to actual time.

2.2 Before proceeding with the actual design of incentive schemes one should be
familiar with the following terminology:
Standard Index: When the actual time taken to do the job is the same as the standard
or the allowed time, then the performance index becomes 100 and is called the standard
index. This is the performance of an average employee adequately qualified, mentally and
physically, to do the job, sufficiently experienced working at a normal pace without the
stimulus of an incentive scheme.
35

Reference Index: Normally it is found that the performance obtaining before the
introduction of incentives is below the standard. This is known as the Reference Index.
Base Index: This is the performance exceeding which the Incentive is Payable.
This may be the same as the reference index or an index between reference and standard
performance.
Incentive Index: This is the average performance which the employees would attain and
stabilise normally after being on incentive for some time. It is found by experience that
workers increase their performance by about 33 per cent above the standard under the
stimulus of an incentive scheme, the average incentive performance being 133.
Attendance time: Total time spent by an employee at the place of employment when
working or available for work for which payment is made,
Unoccupied time: The period during machine or controlled time, when a worker is
neither engaged on inside work not in taking authorised rest, the time for carrying out the
work being calculated at a defined performance.
Waiting time: Part of attendance time other than unoccupied time during which the
worker is available, but a prevented from working.
Unmeasured work: Work for which standards have not been determined directly or
indirectly by work measurement.
Diverted time: The part of attendance time
when a worker is engaged on other than productive or
ancillary work, e.g., committee work, accident, etc.

3. CHOICE QF INDEX
3.1 Each one of the above performance indices, viz., the operator performance and the
overall performance, is applicable under certain conditions, and the choice of the particular
index would have to be made accordingly.
3.2 The operator performance can be used only if the waiting time can be recorded or
calculated. In chemical process, indirect work, maintenance jobs, etc.,
36

it might be difficult or uneconomic to record or determine the waiting time. When the
amount of waiting time and unmeasured work is not known, the overall performance is
applied. It is obvious that the overall performance index does not give an indication of the
actual performance of the operators, since the actual time taken to do the job and the waiting
time is not known. The performance payment relationships based on overall performance are
designed in such a way as to compensate for the waiting and unoccupied time which are not
measured.
3.3 The schemes based on operator performance should be used only when the amount
of work available for each worker is reasonably high, and the number of workers on the job is
optimum.
4. DETERMINING THE BASE INDEX
4.1 In most of the Indian industries it is found that before the introduction of incentives
the average performance of workers is far below the standard of 100. Hence it becomes
necessary to design the incentive scheme in such a way that the workers are motivated
initially to reach the standard performance and then go beyond.
42 Thus the base index, invariably, is fixed at below 100. The actual figure would
depend upon the present performance (reference index), and would necessarily vary from
industry to industry.
4.3 There are many cases where the reference index or the performance before
,incentives is less than 50. In such cases it is preferable to raise the performance to at least
around 50-60 by methods improvements, better supervision, and labour control, and then
introduce the incentive Sharpe with the base index at 50-60. There have also been some
industries where the base index is the same as the standard, i.e. 100 for the incentives
scheme, though these are rather few in number.
Gearing: Since an incentive has to be provided for reaching the standard performance,
it is usual to have a gearing at 100 performances at which level the relationship may be
straight proportional or any other depending on the circumstances. A second gearing may
also be provided at a higher performance level, if necessary. The level at which the gearing is
applied and the type of performance-payment relationship depends upon certain conditions
such as (i)

Non-availability of work beyond a certain limit,

(ii)

Restrictions on increase in output.

(iii)
(iv)

Risk of Safety and health hazards beyond a certain performance, and

Restrictions on equipment utilisation and such other factors.

5. RATE AND AMOUNT OF INCENTIVE

5.1 1 he rate and amount of incentive should depend upon the savings accruing as a
result of the incentive scheme. Introduction of the incentive scheme results in (i) savings in
direct labour cost, and (ii) savings in overheads.
37

5.2 The above savings minuts the cost of installing and maintaining the scheme would
be the net savings. In practice the rate is normally decided after collective bargaining, and
based on the management and labour share in the savings. The incentive offered should also
be adequate and fair, if the scheme is to work satisfactorily.
3.5 However an incentive of 20 per cent to 30 per cent of wages at the standard
performance of 100, and 45 per cent of wages at the incentive performance of 133 may be
considered as reasonable. It is to be emphasised that this cannot be taken as standard, and
incentive rate is to be fixed taking all the factors into consideration; the primary consideration
being the scheme should be economically advantageous to the organisation.

EXERCISE

DESIGNING AN INCENTIVE SCHEME

Time Plan-Briefing
Design of the Scheme by participants

10

Review

120 minutes

minutes

20 minutes

Total

150 minutes

38

EXERCISE
DESIGNING AN INCENTIVE SCHEME
Part I
You are required to set up an Incentive Plan for a section of shop involving' Lathe and
Milling Machine Operators, the following standards having been set up for the four types of
products manufactured in the shop (see Annexures 1,2,3& 4).
From an Analysis of Records you can find that there are 5 similar lathes al).d 13
milling machines of similar types, each working &- hours a day. You can further find that
during the month of June there were only 25 working days, and that all the machines were
eommissioned during that period resulting in the following production

1.
2.

GEARS,
SHAFTS

1800
1800

3. BOLTS

675

4.

675

NUTS

During the same period, the machines were idle due to unavoidable delays (not included in
Std.) for a total period of 40 hours in the case of lathes, and 110 hours in the case of Milling
Machines
Discussion with the Management resulted in the agreement of sharing the savings in
direct labour cost between labour and management in the Ratio of 1 : 9. No sharing was
agreed by Management after achieving standard performance, thereby enabling the
operatives for a cent per cent (l00 per cent participation.
Part II
Determine reference index and develop Bonus curves for Lathe and Milling Machine
Operators. The total existing wages of lathe operators vary from Rs. 110 to Rs 150 per
month with weighted average of Rs. 125, and that of Milling Machine Operators from Rs
150 to Rs. 200 with weighted average of Rs. 175. Prepare incentiveearning tables for the 2
types of operators with actual time varying from 1 to 8 hours with increment of 1 and
performance index increasing by 5 up to 150.
P.S. : In practice the performance should increase by 1 and actual time by 1/4 hours.
39

41

VI. Group incentives

I.

INTRODUCTION
1.1

wage Incentive plans may be applied on an individual or group basis.

Normally an individual incentive plan has a stronger appeal since payment is directly related
to an individual's effort. However, there are many cases, where individual incentives are not
applicable either because the individual contribution cannot be measured or the work is
interdependent. Some of the examples are assembly line operations, chemical processes, blast
furnace operation, etc. In such cases group incentive schemes are applied. The output of all
the workers comprising of the group is pooled, and the incentive earnings are computed and
distributed among the individuals, at a certain proportion. Group schemes are also applicable
to situation where the work and performance are not interdependent. The total achievement of
the group is taken for incentive purpose. It is to be mentioned that the group system applies
best when (i) there is a community of interest, and (ii) it is not possible to measure individual
contribution.
1.2 Any of the incentive plans already covered may be adopted for the group scheme
as well. The group output is computed and the group earning are worked out based on the
type of performance-payment relationship adopted. The earning is distributed among the
numbers of the group according to their contribution, in proportion to their wages, or
according to specified percentages, or in proportion to the number of hours worked by each
individual in the group.
1.3 Group incentive schemes are very popular, and widely employed because they
are easier and cheaper to work than individual schemes.
2. ADVANTAGES OF GROUP SCHEMES
(i) Better Cooperation: Normally in a group incentive scheme there is greater
cooperation compared to individual incentive. A team spirit is built up,

42

and each worker tries to help the other. Small delays and waiting times will be
reduced. A worker will attend to some odd job, or help another man in the group
during his enforced waiting time if any, and tendency to idling is less. An
operator will be more careful in performing his operation when he knows it will
help another man in the group. Difficult and more complicated tasks will be
shared by all. Also, discipline and responsibility for accomplishment is assumed
by all the members in the group.
(ii) Less Supervision: The working group leader assumes most of the direction and
control, and hence the supervisory effort required will be less. Besides, the
supervisor has to deal with groups than the individuals.
(iii) Lesser training time: The new workers are quickly trained by the group.
The quicker the workers learn their job, the better it is for the group. And hence
the group is interested in the new worker learning his job as quickly as possible.
The new man would also pick up the job sooner being in the group than
otherwise. Even the slow and Jazy workers improve being in the group.
(iv) Reduction in Absenteeism: Each worker becomes conscientious of his work and
realises that his absence will dislocate the work of the group, and consequently
the earnings.
(v) There may be certain other advantages like reduced clerical work and steady
earnings of workers compared to the individual schemes.
.
3. LIMITATIONS
1. An efficient and skilled worker may earn more when on. an individual scheme
than in a group system.
2. It may be difficult to keep check on slow and inefficient workers in a large
group.
3. When personal difficulties arise among the group members the functioning of
the group may be disrupted.
4. SIZE OF THE GROUP
4 1 The size of the group is one of the important factors in the success of a group
incentive plan. Generally smaller groups are better and more effective. However, the size of
the group would depend on the type of group task. On a line operation larger groups may be
equally effective since each worker is assigned a definite task. On certain jobs the group
strength may be only two, as in the case of a fitter or a welder, and his helper. Thus the
group strength depends upon the nature of jobs, area of work and similar factors.
43

5. DEPARTMENT AND PLANT-WIDE INCENTIVE SYSTEMS,

PRODUCTION BONUS SCHEMES, ETC.
5.1 Incentive schemes may be applied to departments and even to the complete factor
as a whole. These are extensions of the group systems where the strength of the group may
be as big as the whole factor. Departmental and plant-wide incentive schemes based on
certain easily determinable yardsticks are quite popular, and are common in Foundry, Heat
treatment, Plating, etc. In a majority of the "plant-wide schemes, incentive is related to
overall monthly production figures and are commonly known as production bonus schemes.
The incentive payment is also normally done on a monthly basis,- though in a few cases it
may quarterly or other convenient periods. Incentives based on factors such as rejection
percentage, recovery percentage, maintenance down time, etc., may also be designed. The
departments and employees are normally classified as direct, semi-direct, indirect, etc. A
ratio is evolved for sharing the total incentive earnings based on their overall contribution.
The bonuses are usually paid to the individual workers in proportion to their wages. Where
the total incentive earnings are split for different classifications as per agreed ratios, the
workers in each classification earn incentive in proportion to the hours put in by each worker.
5.2 In such overall incentive schemes development of accurate standards per each
operation will not be necessary. Schemes can be devised in such a way as to include both
direct and indirect workers. They are fairly easy to design and install.
5.3 But one of the difficulties with such systems is that the overall yardstick chosen
may not bear a close relationship to performance. For example, in a gray iron foundry if the
yardstick is tonnage of castings produced, the effort required to make a ton of intricate
castings will be very much different from that of making a ton of rough castings. Thus if the
product varies from period to period, the earnings may also vary. Secondly, when the group
is large the individual worker cannot relate his effort to his earnings.
6. PROFIT-SHARING
6: 1 The Profit-sharing Scheme is based on the same principle. as the group system
where incentive is related to the collective effort of the group. A certain percentage of the
total profits is paid to the employees at the end of the year. The payment is usually related to
the workers' monthly wages. The scheme has as its basis the recognition of' the importance of
employees' contribution, and continued interest in the success of the company.
6.2 The Profit-sharing Scheme is comparatively easy and less expensive to adopt,
while the profit-sharing plan has become successful in some cases resulting in increased
production at lower costs. There are many instances where they have not
44

made any significant contribution towards improving the overall efficiency of the company.
Some of the main disadvantages of the profit-sharing plan are:
(i)

Employees see little connection between their efforts and the

profitableness of a company.

(ij)
(iii)

Group is too large, and the reward is too long deferred.

With the introduction of the Bonus Act, the scope of profitsharing plan as an incentive scheme may become limited.

(iv) Workers may mistrust the profits declared.

(v) Good and bad, and direct and indirect, workers share alike.
(vi) Profit does not depend only on output, but on many other factors
beyond the control of the worker or the management. Employees do
not realise the influence of these outside factors when the profits go
down, and consequently their earnings,
7. SCANLON PLAN
7.1 The scanlon Plan is a plantwide incentive scheme developed by Joe Scanlon in the
United States around 1938. The scheme is based on a creative concept of Union Management
relations
7.2 The objective of the plan is to devise a formula which will most adequately reflect
the productive efforts of workers and management as a whole. The Bonus formula is devised
to fit the particular operating conditions of the plant. One of the bonus formulas devised by
Scanlon for the Laponite Machine Tool Company is briefly discussed.
7.3 The following steps formed the basis for working out the bonus formula:
(a) Deciding on a normal labour cost and arriving at an acceptable ratio of labour cost
to production or sales value;
(b) Evaluating the performance in a given period and estimating the cost reduction,
with reference to the decided ratio; and
(c) Dividing the cost reduction benefit between the company and labour, and paying
the work-group at the earliest possible period.
7.4 The process by which the formula was arrived at consisted of the following:
Firstly, a mutually acceptable team from management and labour was formed. They freely
discussed the three aspects of the plan mentioned above, and arrived at constructive
conclusions. Initially, they arrived at the base ratio for performance measurement, i.e.Total adjusted payroll
Sales value of prodution
45

Exhibit 1 illustrates how this ratio is arrived at, based on the previous year's <table
performance. Here, the inventory changes include the work in process and finished stock, as
raw materials are not considered as part of production. Also, the vacation and holiday pay are
accounted to arrive at the total adjusted pay-roll.
However, the factors which should go into the making of the numerator and the
denominator are discussed, negotiated, and decided by the labour-management group
representatives. The final ratio in the example cited in Exhibit 1 comes to 38:2.
(2) Once this was arrived at, a 'memorandum of understanding' was prepared, wherein
the terms, conditions; applicability of the ratio, and method of payment were clearly stated.
This was signed by the management-labour representatives and notified to all the employees.
(b) The first performance evaluation is done in the month just after the notification of
the understanding. The labour and management representatives sit together, discuss the
business trends, inventory changes, sales figures, and the pay-roll. Then the sales value of
production is arrived at, and from the accepted ratio, the allowed pay-roll is calculated.
The difference between this allowed pay-roll. and the actual pay-roll is the "economic
gain". A reserve is kept out of these deficit months, and the rest is distributed to. labour and
management as per the clauses of the 'memorandum of under- standing.

Exhibit 2 explains the calculations done. In the same company, the allowed pay-roll
was calculated by using the agreed ratio of 38.2 of the sales value of production.
The difference between this and the actual pay-roll represents the 'bonus pool'.
There was an agreement to set aside 25 per cent for deficit months, and distribute the rest at
75 per cent to the employees and 25 per cent to the management. The employees' share is
represented by a percentage of the total participating pay-roll. It was 10.5 per cent in the
given case. Here, too, the method of working, the decision on reserve, and the employeemanagement share is subject to negotiation.
(c) The cost-reduction benefit is distributed to the employees within a month, so that
they are made aware that they get something for what they did. All, including the president of
the company, are eligible to this benefit.
Taking the company represented in Exhibit 2, the payment was calculated at 10.5 per
cent of the emoluments of individual worker, and paid along with the next month's earning.
The salient features at the Scanlon Plan are:
(i) It encourages group work.
46

(ii)

There is high flexibility in the generation of decisions and the execution

of the plan.

(iii)

It integrates the company's objectives with group activity.

(iv) From a psychological angle the purpose of the organisation fits with the
natural human tendency to collaborate when it is the sensible way to do
things; and it is a remedy to 'resistance to change', because it involves
people in the process of creating
. Changes, rather than imposing it on them.
(v)

AII the improvements in the working of a factory are brought about

through suggestions received from personnel, and the percentage of
useful suggestions in companies where the Scanlon Plan is working is
usually about 90 per cent, while in other companies where suggestion
schemes are in operation without the plan, the percentage hardly goes
over 7 per cent.

(vi) Job evaluation is a necessary pre-requisite to avoid discontent regarding

the share allotment to individuals.

47

49

EXERCISE
GROUP INCENTIVE SCHEME

Time Plan-Briefing

20

minutes
Development of Plan by participants in groups
Review and Discussion

180

minutes

40 minutes

. Total

240 minutes

Key Points:
(i)
(ii)

The participants will work on this exercise in small groups.

With the data provided, each group will discuss, make any reasonable
assumptions that are necessary, and arrive at a suitable incentive plan.

(Hi)

All the plans will be discussed and reviewed in the general session at the
end,

50

SYNDICA TE WORK
GROUP INCENTIVE SCHEME
The management of a paper mill is interested in introducing an incentive scheme in their
factory. The objective is to improve the overall efficiency, and to reduce manufacturing costs.
The savings made as a result of increase in paper production as well as improvements in the
performance of each department will be shared between the management and the_ employees.
Being a process type industry, improved recovery of chemicals in the soda recovery
department, higher yield in the pulp department, reduction in the maintenance down time of
certain critical equipment and various other factories would result in considerable savings in the
manufacturing costs. It is also observed that the improvement in efficiency is dependent more
upon the supervisory and the managerial personae in the department rather than upon the
workers. It has been agreed that the standards would be fixed based on the past performance for
which fairly accurate records are available.
Paper Machine, Pulp Mill, Soda Recovery, Boiler House and Water Treatment
may be considered as direct departments. All the others are service departments.
All the data that may be required is given in Annexures 1 to 10. A suitable incentive
scheme is to be devised covering all the employees in the factory.
ANNEXURE 1

54

57

CASE STUDIES
Design of a few incentive plans operating in different types of industries are given below
for illustration:
A.Malleable Foundry
The objective of the incentive scheme was to increase the production of malleable castings
maintaining certain quality standards. Since measurement of individual contribution was
difficult and time-consuming, a group plan was devised.
The base index for incentive purpose was to be fixed based on work study, and also past
data. The variation in production was between 30 and 60 tons, and the standard worked out to
45 tons. However, taking the furnace operation into consideration, an average production of 40
tons is fixed as the minimum for being eligible for incentive. In order to maintain quality and
safety, a ceiling is fixed at S5 tons above which no incentive is payable. The cost of production
per ton of Castings was Rs. 3,000 and the savings in labour and overhead costs worked out to
Rs. 1,000 per ton. It was agreed that this would be divided between the management and the:
workers in the ratio of 50:50.
The total labour strength in the foundry is 200. A flat rate of Rs. 2.50 for every extra ton of
castings produced above the minimum is payable as incentive to each worker. Supervisory staffs
(5 Nos.) are paid an incentive of Rs. 2 per every extra ton from the management's share of the
gains.
Incentives are payable only for the good castings after the finishing is completed.
B.Cast Iron Foundry-Hand-moulding section-Moulding of Head Stocks
For incentive purposes each head stocks allocated 30 work units. For the payment of
incentive, only good and acceptable castings duly passed by inspection are considered.
A team strength of one moulder and one helper is taken, and payment of the incentive will
be based on the total number of work units produced by this team.
There will be a minimum level of production of 150 units below which no' incentive will be
paid. For every 100 units produced in excess of ISO, a sum of Rs. 70 will be credited by the
company to an incentive pool. This will be distributed to the moulder and to any casual worker
engaged as a temporary replacement to this

.58

moulder, in proportion to the normal wages earned and the number of days worked by each
worker during the month. The helper will earn the same percentage of normal wages as
incentive as is earned by the moulder.
In order to encourage the workers to produce castings to good and acceptable quality
standard, an additional credit of 10% of the total units produced will be given in incentive
calculations.

C. A Chemical Plant
Incentive bonus is paid depending on the performance Index of the group.
Performance Index is calculated thus:

For each group a base Performance Index corresponding to the normal production
expected out of the group is fixed by time study. The performance of various groups is calculated
every month. Bonus is paid as a percentage of the average total wage depending on the increase of
the performance over the base index. In each group, the bonus is different for workers in different
categories, but is the same for workers in the same category. The incentive scheme is so designed
that at 100% Performance Index a worker gets 25% of his gross monthly wage as incentive.
Weighted average Performance Indices of all the groups are taken to calculate the incentive for
supervisors,
59

D. A Paper Mill-Production Bonus Scheme

The workers in the mills have been classified into production, semi-production,
service, and non-production departments.
The percentage of bonus proposed for semi-production service and non-production
departments is 75, 50, and 25% respectively of the average percentage of the production
departments. The percentage of production bonus payable shall be the percentage of basic
pay wages. only exclusive of all allowances.
The bonus for a month is to be calculated on the average monthly production, based
on the production for that month and the preceding eleven months. Production bonus is
payable only after the papers produced have been finally finished and accounted for, for the
respective month.

60

VII. Incentives for Indirect Workers,

Supervisors, and Clerical Personnel
1. SYSTEM FOR INDIRECT WORKERS
1.1. Workers who are not directly engag8d in production may by classified broadly as
indirect workers. Workers in departments such as maintenance, material handling,
inspection and office would fall into this category. Indirect workers may be further classified
depending upon the type of relationship their work has to output. For example, maintenance
is more closely related to production, compared to Administration.
1.2 Almost all types of indirect work is in some way or other connected with
production. It is with the combined efforts of direct and indirect workers that increased
outputs are obtained in any industry. With increasing mechanisation the ratio of such
indirect to direct workers is increasing, and it is important that all efforts be made to provide
incentives to indirect workers as well, to stimulate their effort.
1.3 Incentives for indirect workers, besides ensuring improved service to direct
workers, brings down indirect costs and also reduces the inequities in earnings between
direct and 'indirect workers.
1.4 There are various types of schemes for indirect workers. Some of the simple types
include 0) payment of a certain incentive based on the output or the performance of the
department or the factory, and (ii) a specified percentage of incentive earned by direct
workers. However, it is to be emphasised that the incentive payment must be related to some
essential factors within the control of the indirect workers. Wherever possible, the schemes
must be based on measurable factors which are easy to understand and calculate. Indirect
work is comparatively difficult to measure, and consequently the setting up of suitable and
accurate vardsticks is also

61

difficult. Sometimes standards may have to be determined based on past records and
experience.
1.5 Some of the factors selected as bases for designing schemes for indirect workers
are-(i) volume of output expressed as units or standard time; (ii) departmental or factory
performance; (iii) ratio' of direct to indirect hours; (iv) costs; (v) waste and rejection; (vi)
shop cleanliness; (vii) accident rate, etc. Anyone or a combination of the above factors may
be used. When the incentive is based on multiple factors the number of factors should be
limited, and a suitable formula evolved for arriving at the incentive earnings.
2. INCENTIVES FOR MAINTENANCE WORK
2.1 Based on work measurement
Generally setting up incentive schemes for maintenance workers presents certain
problems. Some of these are;
(i) Measurement of maintenance work: Most of the work is of a non-repetitive nature,
and the elements of work may but recur very frequently. Thus the allowed times
may have to be made up by using previously built up standard data, if available. It
addition, analytical estimation may also have to be used.
(ii) Variation in work content of jobs: Maintenance jobs vary in their nature and work
content. The time taken for. the same task may very from time to time. There will
be a wide variety and type of jobs and standadisation in rather difficult. The
standard time for a particular job may not always be representative.
(iii) Difficulty in supervision:

Maintenance workers may be working at different a

location which renders supervision difficult. Consequently there may be errors in

recording the work done and the time taken.
(iv) Quality of Work:

Quality of work cannot be easily checked as in the case of

production operations. At the same time, quality is an important factor in

maintenance work. Expensive equipment may be involved, and poor workmanship
may result in damage to the safety of the equipment as well as the worker. Thus, it
may be necessary to impose certain restrictions on earning to ensure quality of
work.
Maintenance work can be broadly classified' into (i) Preventive Maintenance, and (ii)
Repair and Breakdown maintenance. Preventive maintenance involves regular inspection of
the various equipment and its critical parts and components, lubrication, checking and
replacement of certain components, and also making emergency
62

repairs where necessary. The job follows a particular pattern, and is repetitive over a period
of time. Standard times for various tasks can be fixed using time study. In certain cases
standard data and analytical estimation may also be used.
In the case of repair and breakdown work, the type and nature of work may vary from
time to time, and there may be a wide variation in the work content of the jobs. However, it
may be possible to compute standard time for different jobs from standard data and
analytical estimation.
2.2 Performance-payment relationships
For certain types of maintenance work, where the work content does not vary for the
same job between different occasions, a straight proportional scheme could be used.
In most of the cases, however, the work content does not remain constant, and
presents the problems discussed above. Hence a geared relationship would be more suitable.
The following chart is an illustration of the geared relationship.

2.3 Based on other factors

As already mentioned accurate measurement of maintenance work is a difficult and a

time-consuming process. Building up standard data, for maintenance jobs
63

will have to be done over a very long period, since all types of elements under various
conditions have to be covered. There are many companies who have not adopted preventive
maintenance procedures yet, and are continuing with breakdown maintenance. Even when
preventive maintenance is in vogue there will be a certain amount of repair and breakdown
work. Due to these and many other difficulties, many times maintenance incentives are
based on factors such as machine down time, production Joss, maintenance costs, etc. In
such cases standards may have to be fived based on past data and experience. More
comedown in Indian industries are the schemes where the incentives for maintenance
workers is a ratio or a percentage based on either the output of direct workers or the
incentive earned by them.
3. Inspection Work
Whether it is advisable to include inspection in an incentive scheme, has still
remained a controversial subject. There may be some cases like inspection of certain
aircraft components where incentive may definitely be not advisable. On the other hand,
there are some cases where inspection incentives with suitable safeguards are easy to
design and operate. Finishers and checkers in a paper mill is one of the examples. Incentive
schemes for inspection work should aim at achieving a balance between quantity of work
turned ont and quality of inspection. It may be possible to ensure quality of work by
incorporating suitable penalties in the scheme.
4. CLERICAL WORK
Many clerical operations lend themselves to the application of direct incentives.
There are many jobs which are repetitive, and which could be measured by the techniques
of time study and standard data. Typing, filing, time-keeping, kardex work in the store,
punch card operation, duplicating, and similar jobs could be easily measured. In all these
cases, any of the schemes already discussed may be employed either on an individual or a
group basis. However, there are many more office jobs which are difficult to measure
accurately. Besides, a clerk may be attending to various types of jobs in a day. In such
cases the incentive for office personnel mi\Y be a group system related to the output of
direct workers or their incentive earnings.
5. SUPERVISORY INCENTIVES
Incentives for supervisors and foremen are meant to motivate them to take maximum
initiative and interest, to control costs, reduce wastage, increase production' and various
other objectives. The aim is to measure the efficiency of supervision, and reward
accordingly. The schemes may be based on only one factor or a com. bination of several
factors. The following are some of the methods which could be adopted for defining
incentives for supervisors and foreman :
(i) Based on the output of the department, in units or in value.
64

(ii)

Based on the standard hours of work done or hours saved or the overall de
partmental performance expressed in terms of actual 'and standard hours,

(iii)

Based on reduction in waste or rejects, reduction in costs, increase in yield or

recovery.

(iv)

Fulfilment of delivery promises.

(v)

Based on reduction in machine down time for maintenance supervisors

(vi)

Reduction in shop overtime hours.

(vii) House-keeping and accident rate.

(viii) Combination of the above factors.
Some of the above factors can be measured, whereas others can only be assessed.
Schemes based on measurable factors are more acceptable. In all cases the reward must be
related to factors over which the supervisor has control.
6. EXECUTIVE PLANS
The objectives of an executive incentive plan are the same as those for other
employees, i.e. improved performance. Rewards in the form of increments, promotions, free
transport, accommodation, and other fringe benefits are more common and appealing at the
higher levels. The schemes for middle management may be similar to supervisory plans
based on similar factors discussed earlier. Incentives may be based on the profits earned by
the company for top executives.
7. INCENTIVE SCHEMES FOR PROJECT WORKERS
7.1 As compared to production workers, design of incentive schemes for project workers is a
difficult task. While production involves routine and repetitive jobs, project involves a one
time effect. Under the heading of a project, activities like civil engineering jobs. Construction
of bridges, dams, buildings, factories, installations and commissioning of plant and
equipment etc, can be included. Since the jobs are not repetitive and there is bound to be
considerable variability and uncertainty during the execution of the various activities it is not
possible to set accurate time standards against which the actual performance can be measured
However, time is an important factor in the execution of any project. The losses incurred or
benefits lost due to the late commissioning of the projects can be phenomenal. In fact the
management would be interested in commissioning the projects ahead of schedule.
7.2 When the project work is awarded on contract every agreement has a penalty clause
normally to penalise the contractor for the delays. Sometimes bonus clauses also are included
to reward the contractor for ahead of schedule achievements. The contractor or the company,
whoever is executing the job would have to compute some suitab1e incentive method for
motivating the workers to complete the
65

Project early or on schedule. In order to be able to do this, there will have to be a proper
planning of the whole project. Network techniques like PERT and CPM provide a very
good basis for project planning. Through the network, schedules can be set for various
activities. Critical activities can be identified. A workable schedule can be prepared for the
project taking into consideration the costs and resources. With this schedule as the basis the
loss or gain as a result of any ahead or behind schedule situation can be worked out. The
gains whether financial or non-financial in nature may be shared with the project workers in
terms of incentives. While completion of non-critical activities will not be helpful, any
savings in time, achieved in the critical activities, will result in compressing the project
durations
7.3 Like a production unit, a project will also have various functions like stores and
purchasing, Accounts, personnel and execution. There has to be a proper co-ordination
between all these functions. Resources have to be made available for the execution to
proceed according to schedule. Delays can be caused due to non-availability of various
resources, managerial shortcomings and other factors. A well designed incentive scheme
should cover all the supporting functions so that there is a coordinated effort to complete
the project on time.

66

CASE STUDIES
A. INCENTIVE SCHEME FOR GROUP LEADERS
The group leaders are essentially working supervisors with six to ten direct labour
operators. and a get-up man under their immediate direction. The group leaders have the
same responsibilities as first-line supervision with regard to product, equipment, methods,
and job training.
The objectives of the incentive scheme were to (i) encourage more activity in thinking
and leadership fields by using money as a stimulus; (ii) pay incentive bonus relative
effectiveness; and (iv) maintain equitable pay relationship between incentive operators and
the group leader.

B. INCENTIVE PLAN FOR SETTERS IN CAPSTAN GROUP

The overall efficiency of setters has a direct bearing on the final output of the
department and the machining operations performed by the operators engaged on the
machines served by these setters.
Therefore, incentive is based on the monthly production as well as the incentive and
daily wages earned by the operators engaged on various machines. For the purpose of
incentive, unit values as following are allocated for the various items of production.

Component
Component II

3 units/component
1 unit/component

There will be a minimum level of production of 125 units/month below which no

incentive is payable, and for each unit produced in excess a sum of Rs. 6 will be
67

credited to the incentive poll. In addition, the total wages of all operators in the capstan group
will be reckoned, and a sum of Rs. 30 for every thousand rupees earned as total wages by
capstan operators during the month will be created to the pool. The pool amount is distributed
to the setters in proportion to the number of hours worked by each setter during the month.

C. INCENTIVES FOR RECEIVING AND SHIPPING DEPARTMENT

Standard mandays have been fixed by the Industrial Engineering Department
for different groups in the department. The groups whose Performance Index exceeds . 50 per
cent will be awarded incentive. A maximum of 40 per cent bonus is awarded for 100 per cent
performance. Performance Index is calculated as follows:

Performance Index = Standard mandays x 100

Actual mandays

68

VIII. Incentive and Quality

One of the criticisms leveled against the incentive scheme is that it results in a
deterioration of quality standards. This may happen if proper controls are not established over
quality, wastage, rejections, and material utilisation factors It is important that quality aspects
are fully considered in the development of incentive plans, and necessary safeguards are
incorporated. There are many different approaches to this problem of controlling quality and
waste. Some of these are listed below

(i) Supervision and inspection: Supervision is made to concentrate more on quality than
on quantity, and inspection is tightened to see that the required quality
specifications are maintained. Control through supervision and inspection is
commonly adopted in the operation of almost in the incentive schemes.
(ii) Payment of incentives for good production: This is one of the most common type of
controls incorporated in all the schemes. Incentives would be payable only on
those parts which meet the required quality standards. Only time rates will be
applicable for the rejected products. This type of control is suitable where the
material costs are low or material shortage is unlikly
Where it is possible to rework or salvage the rejected or spoiled materials then it
is stipulated that the rework would be done by the worker. There work time is
either paid at time rates, or added on to the production time of the concerned
component, and the total time is taken for incentive calculation.
(iii) Incentive Plans with Penalty for not meeting quality: A certain standard of quality is
specified in the incentive plan. If there is a reduction in quality below this level,
a corresponding deduction will be made in the production Incentive earned. For
example, the rejection percentage may be fixed as

69

5 per cent for earning full production incentive. If the rejections go up, say to 7 per
cent, a specified amount will be deducted from the incentive earnings.
(iv)

Incentive for improved quality or reduced waste : When the sole objective of the
incentive plan is improvement in quality or improved material utilisation, such type
of plans will be useful. However, even in schemes where the main purpose is
increased output, control over quality can be obtained by providing an additional
incentive based on quality factors. A certain allowable level of quality, material u
tilisation or wastage may be specified, and any improvement over it may be
rewarded as an addition to the production incentive earned. The amount of additional
incentive would depend upon the savings expected from improved quality. This is a
useful control when material costs are high. and the maintenance of quality depends
on the skill of the worker.

(v)

Incentives to supervisors based on quality: In certain types of process and chemical

industries the control of quality depends more on the supervisory staff than on the
workers. There are also other cases where supervisors have to exercise careful control
in order to check sub-standard production. A suitable incentive plan to supervisory
staff based on quality would help in maintaining the prescribed quality level.

70

CASE STUDIES
A. INCENTIVE PLAN FOR SUPERVISORS FOR BETTER QUALITY
In a tea estate, each supervisor controls a gang of 20 to 30 pluckers. The pluckers are
covered by an incentive scheme based on the quantity of leaf plucked. The pluckers are
allowed to sort out the coarse leaf. The payment is made only for the good leaf. Since most of
the coarse half goes as waste in the manufacture of tea, it is necessary to control the coarse
leaf content in order to see that the coarse leaf content is maintained at an acceptable level of
performance, an incentive plan is introduced for the supervisors.' The acceptable level of
coarse leaf content is 20 per cent. If this level is maintained, each supervisor is paid an
incentive of Rs. 5 per month, and for everyone per cent reduction an additional incentive of
Re 1 per month is given.
B. GROUP SCHEME WITH OUTPUT AND QUALITY FACTORS
In order to minimise the scrap and rejection, and at the same time increase production,
a group scheme is introduced in the moulding section of a foundry. A
taem size of 12 workers is reckoned, and the payment of incentive is made at the rate of 8.5
paise per box of 6 castings produced per day worker.
To maintain the level of quality and reduce rejection and scrap, a proportionate increase
or decrease is made in the incentive earnings depending upon the decrease or increase in scrap
percentage as given below:
A scrap level of 10 per cent is specified as acceptable. For every 1 per cent reduction in
scrap, an additional payment of 1 per cent of the incentive earned is paid as an incentive. In
the event of scrap being greater than 10 per cent, for every 1 per cent increase in scrap, I per
cent of the incentive earned would be deducted. Hence rewards are well as a penalty is
incorporated in the scheme.

71

IX. Installation and Maintenance of

Incentive Schemes
1. REPORT
Once the incentive schemes to be adopted are finalised, it is important that the details
of the scheme are properly documented, and all the terms and conditions are clearly specified.
This is normally done through a report. The report should essentially contain the following
information:
(i)

Details of the incentive scheme giving (a) the jobs covered, (b) performance
standards, (c) employees involved with number, categories, and names if
necessary, (d) basis of payment, (e) date of application, and (f) calculation of
earnings and the terms and conditions of the scheme. Normally a specimen
calculation is also given for an easy understanding of the scheme. Certain other
information, such as calculation of savings and the expected savings at various
levels of performance, should also be included.

(ii)

Work specification including (a) description of work, (b) "method or procedure,

(c) machinery and equipment, (d) product specification and (e) working
conditions.

2. PAPER WORK
The operation of an incentive scheme involves flow of information between various
departments, like production shops planning, accounts, and industrial engineering. In order
that the requisite data is obtained at the right time, a system or a routine paper work
procedure is to be devised. It should be a simple, but an accurate system. Some of the
common forms and paper work used in the operation of an Incentive scheme are:
1. Time Dockets
2.

Operational job cards

3.

Time record sheet

4.

Incentive Bonus hours statement

72

Illustrated formats of job Card and Incentive payment Statements are

shown in Exhibits 1 and 2.
3. INSTALLATION
Incentive schemes are usually installed through labour-management agreements.
The proposed scheme is first discussed with the supervisory staff and the trade union
representatives, who, in turn, would acquaint the workers with the necessary details. It is
important that all the workers have adequate information before the introduction of the
scheme. It is preferable to install the shelled on a trial period initially, at the end of which it
may be reviewed and necessary modifications incorporated.
4. REVIEW AND MAINTENANCE
An incentive scheme is dynamic. and needs constant review and follow-up.
One of the main problems in maintenance is changes in the work, content of the job. The
standards would have been set based on a specified method of working. Hence, whenever
there is a methods change, the original standards would no longer be applicable. Such
changes may be due to changes in methods of working, tools and equipment; working
conditions, and other factors. The standard must be examined periodically, and kept up-todate. All incentive agreements provide a clause regarding revaluation and changes in
standards in case of methods changes. Method study of all the jobs before setting standards
and proper documentation of the specified method for the purpose of the incentive scheme
becomes very important in this context:
In practice, however, re-measurement of jobs is done only when there are appreciable
changes in methods. Frequent alterations in values would not be liked by the workers.
Whenever. there is an upward revision in the work content of the job, due to certain
extraneous factors beamed the, control of the operator, some companies pay average
incentive earnings, particularly where these changes, are temporary.
Regular reporting procedures covering all aspects of the scheme should also be
evolved to facilitate the management to 6etan overall, picture of the working of the scheme.
These may include performance report, labour cost report, and excess and waiting time
reports.
5. SOME PROBLEMS OF INCENTIVE ADMINISTRATION
Many practical problems arise in the administration of an incentive scheme.
Solutions and safeguards to these problems vary from company to company, depending on
the conditions obtaining. However, general policies with regard to these should be clearly
laid down. Some of the common problems are briefly discussed below:
(i) Transfer of a worker from an incentive to a non-incentive job, and consequent loss
in incentive earnings. Such transfers are kept to a minimum,
73

and some companies pay an ad hoc bonus or allowance to the affected employees.
(ii)

Difference in earnings between a non-incentive supervisor and a skilled worker on incentive,

may be very less. Thus it may become necessary to include supervisors in the incentive
scheme.

(iii)

Problem of new employee: All new employees should be fully trained before . they are engaged
on incentive operations especially when they have to work with a group. A learning period
may be specified depending upon the type of jobs, at the end of which only he would be
eligible for incentive. Some companies have separate learner incentive schemes, based on
learning
curves.

(iv)

Absenteeism: In the case of group schemes, making incentive adjustments or providing relief
becomes a problems. Introduction of attendance bonus may help to a certain extent.

(v)

Incentive during overtime work:

There are different views on this problem. (i) Some

organisation reckon production during overtime only on time rates, i.e., the incentive plan
will not be applicable for work performed during overtime; (ii) Some companies pay
incentives at single, i.e. normal rates for production during overtime; and (iii) Some
organisations pay at double rates, i.e., overtime rates.
It is to emphasised that with the introduction of incentives, overtime should be brought down to the
minimum. An incentive at normal rates for oyertime work is more common.
(vi) Bringing new jobs on incentives-the delay between the start of production of new item/job and
the setting up of standards should be minimum. If the new job is being done by a worker who
had been an incentive earner, then the average of his past incentive earnings may have to be
ensured to him, till standards are set and corresponding production figures are achieved.
6. GRIEVANCE PROCEDURE
Many disputes, clarifications, discrepancies, and grievances crop up in the operation of
incentives.
In an agreed grievance procedure for handling of disputes concerning standards, rates and
other matters should be provided.
Normally an incentive committee with representative from Industrial Engineering personnel
and shop-floor is constituted for processing all major disputes regarding incentive schemes.
74

REFERENCES
1. Armstrong, J. : Incentive and Quality, Chapman & Hall Ltd., London, 1950.
2.

Currie, R.M. : Financial Incentives, British Institute of Management, 1963; Work

Study, Pitman & Sons Ltd., 1961.

3. Gilmour, Robert W. : Industrial Wage and Salary Control, John Wiley & Sons, 1956.
4.

Lesieur, F.G. : Scanlon Plan, John Wiley & Sons, New York, 1958.

5.

Lintern, D.G; & Curtis, R.J S. : Work Measurement and Incentives, Pitman &
Sons Ltd., 1958.

6.

Louden, J.K. & Deegan, J. Wayne York, 1950. Wage Incentives, John Wiley &
Sons, New

7.

Lytle, Charles Walter: Job evaluation Methods & Wage Incentive Methods,
Ronald Press, New York 1954 and 1942.

8.

Maynard, H.B. (Ed.): Industrial Engineering Handbook, McGraw Hill, New

York, 1956.

9.

Singh, Duleep : Planning of Incentive schemes, National Productivity Council,

New Delhi, 1967.

10. Employee Remuneration and Incentives, Institute of Cost and Work Accountants.
11.

Report of the Indian Productivity Team on Incentives in Industry in West

Germany, USA, and Japan, National Productivity Council, 1962.

12.

Incentive Schemes in Indian Industries, Maharashtra State IPY Committee,

Bombay, 1969.

13. Introduction to Work Study Geneva, 1959.Payment by Results, International

Lab our Office,
14.

Sharing the gains of Productivity, National Productivity Council, New Delhi,

1972.

15.

Incentives in Indian Industries Vol. I, II and III, National Productivity Council,

New Delhi, 1972

76