Top 8 Types of Incentive Wage System | Labour Economics

Incentive wage systems are the following types: 1. Halsey Premium Plan 2. Rowan Premium Plan 3. Taylor Differential Piece Rate System 4. Gantt Bonus Plan 5. Emerson Efficiency Plan 6. Bedaux Point Premium 7. Merric Differential Wage Multiple Piece Rate Plan 8. 100% Bonus Plan.

Type # 1. Halsey Premium Plan:

This plan known after F.A. Halsey is also called the Weir Premium Plan because it was first introduced in the Weir Engineering Works in England. Under this plan, a standard time is fixed (on the basis of past performance records and not on the basis of elaborate time study) for the completion of a job. A worker who completes his job in less than the standard time is paid at this hourly rate for the time actual spent on the job plus a bonus for the time saved.

This bonus is calculated at his hourly rate on a percentage (usually 50) of the time saved by him. A worker who fails to finish the job within the standard time is not penalised but is paid a guaranteed time wage. Thus, with a standard of 25 units per hour and a base rate of pay of Re. 1 per hour, an employee producing at the rate of 15 units per hour for an 8-hour day would receive Rs. 8.

If, however, the worker produced at the rate of 35 units per hour he would be producing 10 extra units per hour or 40 per cent extra output. Therefore, at the end of eight hours he would have produced 280 units of outputs (35 units per hour times 8 hour), or in terms of standard hours 11.2 standard hours (280 + 25). His pay, therefore, would be Rs. 9.60.

Thus, with a 40 per cent increase in output the employee receive a 20 per cent increase in pay, because the bonus was split half.

Another Example:

Standard time = 10 hours, Actual time = 8 hours

Rate of wages = Re.1 per hour, Bonus = 50%

Solution:

Bonus = 50% (Time saved × Rate per hour)

Wages of 8 hours = 8 × 1 = Rs.8

Bonus = 50% (2 x 1) = Re. 1

So, Total wages for 8 Hours = 8 + 1 = Rs.9

Basic Feature of Halsey Premium Plan:

Following are the basic features of this plan:

(i) Standard time of production is determined well in advance.

(ii) The workers, who complete their work in less than standard time, are paid the wages according to the standard rate. They are paid a bonus also on the basis of time saved by him.

(iii) Standard rate of wages is also determined.

(iv) The workers, who complete their work within standard time, are paid the wages at the standard rate.

(v) The rate of bonus may be 33-1/3 or 50%.

(vi) The workers, who complete their work in more time than the standard, are also paid the wages at the standard rate. Thus, there is no provision of penalty to any worker for completing his work late.

Merits of Halsey Premium Plan:

Important merits of Halsey Premium plan are as under:

1. Every worker gets a guarantee of minimum wage.

2. This system is justified.

3. The workers are encouraged to do more and more work.

4. This system helps in maximum utilisation of time.

5. This system is useful for both the employers and workers.

6. Under this system, the workers are always fully satisfied.

7. This system is easy and convenient.

8. This system encourages mutual co-operation and co­ordination among employees.

9. This system is not against the unity of workers.

Demerits of Halsey Premium Plan:

Halsey Premium Plan suffers from the following demerits:

1. This system is not suitable from administrative point of view.

2. The basis of this system of wage payment is not scientific. It is based upon prejudice.

3. The workers become ignorant of work due to the reason that they get the guarantee of minimum wages.

4. Due to the guarantee of minimum wages, it depends entirely upon the discretion of workers to do or not to do extra work.

5. As the workers do not get full benefit of the time saved by them, they do not get due encouragement to produce more.

Type # 2. Rowan Premium Plan:

This plan was introduced by James Rowan. Under this method, the standard time and the standard rate of wage Payment are determined in the same manner as Halsey Plan. The workers, who complete their work within standard time, are paid the wages at standard rate. The workers, who complete their work in less time than the standard, are paid wages at the standard rate plus some bonus. This bonus is calculated in proportion of time saved.

Under this system the bonus is calculated as under:

Bonus = Saved time/Standard time × Actual time taken × Rate per hour.

Example:

Standard time = 10 hours,

Actual time = 8 hours

Rate of wages = Re. 1 per hour.

Solution:

Wages for 8 hours = 8 × 1= Rs.8

Bonus = 2/10 × 8 × 1 = Rs.1.60

So, total wages for 8 hours = 8 = 1.60 = Rs.9.60

Basic Features of Rowan Plan:

Following are the basic features of this plan:

1. Standard time of work is decided.

2. The workers, who complete their work in more time than standard, are also paid the wages according to standard rate. Thus, in this system also there is no provision of punishment for late completion of the work.

3. Standard rate of wage is decided.

4. The workers, who complete their work within standard time, are paid the wages according to standard time.

5. The workers, who complete their work before standard time, are paid wages according to standard rate plus some bonus.

6. Bonus is calculated in the ratio of time saved with standard time.

Merits of Rowan Premium Plan:

Merits of Rowan Premium Plan are as under:

1. It checks over-speeding because the workers cannot get bonus more than 25% of the standard time.

2. This method of incentive wage plan is based upon scientific calculations.

3. The workers get higher bonus under this system.

Demerits of Rowan Premium Plan:

Rowan Premium Plan suffers from certain demerits which are as under:

1. Under this system, the bonus is always in decreasing proportion because as the time saved by workers goes on increasing, the time taken by him will go on reducing.

2. This system is difficult to understand. Therefore, the workers do not like it much.

3. Due to decreasing proportion of bonus, the workers do not get due encouragement to work more and more under this system.

4. It may be possible under this system that the bonus of a very efficient worker and a less efficient worker are the same.

5. Due to the guarantee of minimum wages the workers do not get due encouragement.

Comparison between Halsey and Rowan Incentive Wage Systems:

Though both Halsey and Rowan systems of incentive wage are similar to each other in many respects, still there are some differences between these two systems.

These differences are as follows:

1. The rate of bonus at early stage is higher in case of Rowan Wage System than Halsey System.

2. In case a worker works very fast his wages can be double also in case of Halsey System but in Rowan System, it can never be double.

3. In case a worker saves more than half of the standard time, the rate of bonus goes very high in Halsey System.

4. If the time saved is equal to a half of total time, the bonus under both the systems will be equal but if the time saved is more than l/3rd of total time, the bonus will be more in Halsey System.

Type # 3. Taylor Differential Piece Rate System:

This system was introduced by Mr. F.W. Taylor. Under this system, standard time for every work is determined on the basis of time and motion study. Two rates of wages are determined-as High rate and Low rate. The workers, who complete their work within standard time or before standard time, are paid wages according to the high rate. The workers, who complete their work in more time than standard time, are paid the wage according to lower rate.

Basic Features of Differential Rate System:

Basic features of this system are as under:

1. The workers, who complete their work in more time than the standard time, are paid the wages at lower rate.

2. Two rates of wages are determined i.e., Higher rate and Lower rate.

3. Standard time of the work is determined.

4. The workers, who complete their work within standard time or before standard time, are paid the wages at high rate.

Example:

Standard work = 10 units per day

High rate of wage = Re. 1.00 per unit

Lower rate of wage = Re.0.80 per unit

Solution:

If a worker completes his standard work, he will be paid the wages at higher rate and if a worker is unable in completing his work within standard time, he will be paid at lower rate.

Merits of Taylor Differential Piece Rate System:

Important merits of Taylor Differential Piece Rate System are as follows:

1. This system helps in reducing the cost of production per unit.

2. This system is based upon scientific calculations, proper work and job standardisation.

3. Most important merits of this system are that it rewards an efficient worker and penalises the inefficient worker.

4. This system helps in eliminating the workers who are quite inefficient, because in the course of time, they will try to get the work elsewhere.

5. This system is very easy to understand and to calculate.

Demerits of Taylor Differential Piece Rate System:

This system of Incentive Wage Payment suffers from following demerits:

1. If the standard work of a worker is less than his normal capacity it causes great dissatisfaction among the workers.

2. The greatest demerit of this system is that it does not guarantee minimum wages. Therefore, it is opposed by the labour unions.

3. This system classifies the workers into two categories— efficient and inefficient.

4. This system helps in eliminating the workers who are quite inefficient, because in the course of time, they will try to get the work elsewhere.

5. This system is very easy to understand and to calculate.

Demerits of Taylor Differential Piece Rate System:

This system of Incentive Wage Payment suffers from following demerits:

1. If the standard work of a worker is less than his normal capacity it causes great dissatisfaction among the workers.

2. The greatest demerit of this system is that it does not guarantee minimum wages. Therefore, it is opposed by the labour unions.

3. This system classifies the workers into two categories- efficient and inefficient.

4. This system is not suitable for the unity of workers.

Type # 4. Gantt Bonus Plan:

This system was introduced by Mr. H.L. Gantt. Under this system, the minimum amount of wages to be paid to the workers is determined. The workers, who complete their works within standard or before standard time, are paid a bonus of 25% of their wages. The rate of bonus may be 33-⅓% also. The workers, who complete their work in more than standard time, are also paid the wages determined earlier.

Example:

Standard work = 20 units

Standard time = 8 hours

Rate of bonus = 33-1/3%

Rate of wages = 50% Paise per hour

Solution:

If a worker produces 20 units in 8 hours, his wages will be Rs. 4.00 and he will also get a bonus at the rate of 33-1/3%, which will be Rs. 1.33. Thus, his wages will be Rs. 5.33. On the other hand, if he produces less than 20 Units in 8 hours, he will get Rs. 4.00 as his wages. In this case he will not get any bonus.

Merits of Gantt Bonus System:

Important merits of Gantt Bonus System are as follows:

1. This system is easy to understand and calculate.

2. This system encourages the workers to complete their work in standard time.

3. This system is useful from the point of view of the employer also, because it causes economy in the cost of production.

4. Under this system, a foreman or the supervisor also gets bonus in proportion to the bonus earned by his workers. Thus, this system encourages harmonious relations between labour and capital.

5. Under this system, the workers get a guarantee of minimum wages so they feel assured.

Demerits of Gantt Bonus System:

This system of Incentive Wage Plan is also not free from defects.

It suffers from the following demerits:

1. The worker does not bother for more work because they get a guarantee for minimum wages.

2. This system is against the interests of labour unions.

3. If the standard performance is too high, it may cause dissatisfaction among the workers.

4. This system classifies the workers into two categories, efficient and inefficient.

Type # 5. Emerson Efficiency Plan:

This plan was introduced by Mr. Hemington Emerson. Under this plan of incentive wages, the wages are paid at the standard rate and the amount of bonus paid to the workers depends on the individual efficiency of the workers. Under this plan, the tools and equipment are standardised and the standard time for completing the work is determined so that an average worker of average efficiency may also complete the work within that standard time.

The efficiency of the worker is determined in the ratio of actual time taken by the worker with standard time of the work.

Emerson was of the opinion that generally the worker produce only 67% of the standard production, therefore, the workers who produce more than this, must be rewarded with bonus. The rate of bonus increases with the increase inefficiency of the worker.

If a worker produces less than this, no bonus should be paid to him. The bonus is calculated on the basis that bonus must be 20% of his daily rages if the efficiency exceeds 100%. If efficiency exceeds by 10% over 100%, bonus will be 20% + 10% = 30%. In the same manner, the rate of bonus will be 40%, 50% and 60% at 120%, 130% and 140% level of efficiency respectively.

Type # 6. Bedaux Point Premium:

Under this plan, the standard time for every work is determined and this standard time is expressed in minutes. Standard performance is expressed in terms of points. One minute of standard time for a particular work is considered to be one point. Every point is equal to the standard rate wage per minute. Under this plan, the standard time and standard wage rate, both are expressed in terms of point.

The worker, who achieves more than 60 points in one hour, gets the bonus also. This bonus is equal to the excess of production over pre-determined production of 60 points of one hour production; he will get the wages of 40 points as bonus.

Type # 7. Merric Differential Wage Multiple Piece Rate Plan:

This system is an improvement over the differential wage plan as introduced by F.W. Taylor.

Under this plan, three rates of wages are determined in place of two rates:

(i) Upto 80% of standard performance;

(ii) Upto standard performance; and

(iii) Above standard performance.

Under this system, the workers who complete 80% of standard production get minimum wages. They do not get any bonus. The workers, who achieve the level of performance between 80% and 99%, get 10% bonus also in addition to their wages. The workers, who achieve 100% of standard performance, get 10% additional bonus.

Type # 8. 100% Bonus Plan:

Under this plan, the workers get a bonus at the rate of 100% of time saved by them.

Main characteristics of this plan are as under:

(i) Standard time for every work is determined,

(ii) All the workers are given wages at a certain rate, whatsoever, the work may be,

(iii) All the workers get a guarantee of minimum wages,

(iv) The wages of a worker are calculated considering his efficiency.

This efficiency is measured by considering the standard work and standard time determined for his work.

Example:

If the rate of wage is Re. 1 per hour, the standard time is 8 hours, standard time per unit is one hour and total units manufactured by a worker are 10.

Solution:

The total wages of this worker will be computed as:

(Time × Rate per hour) + (Time saved × Rate per hour)

= (8 × 1) + (2 × 1) = 8 + 2 = Rs.10.

Above discussion makes it clear that there may be several methods and types of plan for the incentive wage. A certain wage plan must be adopted in the enterprise considering its objects and needs.