Incentive schemes ( IEM )

Topics includes

- Incentive

- Concept of wages

-  Time rate system

-  Piece rate system

-   Incentive wage system

- All with advantage and disadvantage

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  The term wage is generally used to denote the remuneration paid to direct the labour.

Incentive is a reward given to the employees or workers for his /her efficiency and hard work .

Concept of wages :

1.Normal wages

These are earnings of the workers expressed in terms of money. Payment is directly the cash .

2.Real wages

In addition to the cash payment real wages include the amount of necessaries, comforta and other benefits etc.

Wage payment plans

Time rate system

Piece rate system

Combination of time and piece rate system

Incentive system

High wage system

From these such  important are :

Time Rate System:

Under this method of wage payment, the workers are paid the wages on the basis of time. In this system of wage payment, the workers are paid the wages on the basis of time as, per hour, per day, per week, per fortnight or per month etc. This system does not consider the production of the employees during this time.

1. When it is not possible to divide the production into units.

2. When the production is of the nature that it requires efficiency more than the speed.

3. When the worker is undertraining.

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 Merits of Time Rate System:

1. Simplicity:

It is very easy to calculate the amount of wage under this system.

2. Certainty of the Amount of the Remuneration:This system of wage payment provides certainty of the amount of wage payment to the employee. It develops the feeling of confidence and certainty among them.

3. High Quality of Production:

As this system of wage payment has no concern with quantity of production, quality of production produced by the workers

   Demerits of Time Rate System:

1. Need of Intensive Supervision:

This system requires intensive supervision over workers. It increases the cost of supervision.

2. Lack of Incentive:

This system of wage payment makes equal payment to both the efficient and inefficient workers. Therefore, efficient workers do not get any incentive for more production.

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3. Encouragement of Labour Unions:

This system encourages labour unions. Sometimes, these labour unions misuse their powers.

4. Misuse of Time by Workers:

Under this system of wage payment, the workers do not make proper Utilisation by their time.

Piece Rate System:

Under this system of wage payment, the workers are paid the wages on the basis of quantity and quality of work performed by them. Under this system, the rates of wages are determined according to quantity and quality of work and the workers are paid according to these rates.

The amount of wages to be paid to a worker under this system is calculated as under:

Wages = Units of production × Rate per unit.

Suitability of Piece Rate System:

This system of wage payment is very suitable in the following conditions:

1. When the work is of standard nature.

2. When the work can be measured easily.

3. When there is a great need of increase in the production.

Merits of Piece Rate System:

1. Incentive to More Work:

This system encourages the workers to do more and more work because they get their wages according to their work.

2. Proper Utilisation of Machines:

Under this system, the workers use their machines and equipment with proper care because they feel that if their machine is out of order, their work will be held up and their wages will be low.

3. Increase in the Quantity of Production:

The system of wage payment gets more production because all the workers make their best efforts to increase the production.

4. Best Utilisation of Time:

As the workers are paid according to their work, they make the best possible utilisation of their time. They do not want to waste their time.

Demerits of Piece Rate System:

1. Lack of Unity among Workers:

This system lacks the unity and mutual co-operation among workers. They feel themselves competitor to each other.

2. Loss of Workers on the Failure of Machines etc.:

It because of any reason, the machines fail or the power fails, the work of workers is held up and they lose their wages.

3. Misuse of the Factors of Production:

The workers do not pay proper attention towards the factors of production. They only want to increase the speed of production.

4. Adverse Effect on the Health of Workers:

This system motivates the workers to do more and more work. It affects the health of workers adversely.

Incentive Wage System:

There are two basic systems of wage payment—time rate system and piece rate system. Both the systems have their merits and demerits. No system can be considered suitable for all times and under all circumstances. To maintain the merits of both the systems and to overcome the demerits of these systems, some experts have developed the systems of incentives wage.

These systems are also known as incentive wage systems, progressive wage system and bonus schemes etc. Under these systems, both the time and speed are considered as the basis of wage payment.

These systems provide incentives to the workers to produce more and more maintaining the quality as well. The workers are paid bonus or premium for the additional work. It is important to note that almost all the systems incentive wages provide for minimum guaranteed wages to the workers.

Characteristics of an Ideal Incentive Wage System:

Important characteristics of an Ideal Incentive Wage System are as under:

1. It must be easy to calculate and to understand.
2. The standards of work must be determined on scientific basis.
3. It must establish direct relationship between efforts and remuneration.
4. It must give a guarantee of minimum wage to all the workers.
5. It must be in the interests of both the employers and the employees.
6. It must be flexible but stable.
7. It must be framed in the manner so that it may be used widely for all the activities of the enterprise.

8. It must be helpful in increasing the production as well as productivity.

Advantages of Incentive Wage System:

i. There is increase in the prospect of workers to earn more. As shown by F. Herzberg good salary is one of the hygiene factors in the absence of which people are unhappy and dissatisfied. Wage incentive offers them the prospect of earning more.

ii. The scientific work study which is done before introducing a wage incentive plan brings about improvements in methods, work­flow, and man-machine relationship and so on.

Effects of Incentive Wage System:

Experience has shown that incentive compensation is not an unmixed blessing. It may produce certain ill-effects unless precautionary steps are taken to check them in advance.

These ill-effects are as under:

i. There is tendency among the workers to sacrifice quality for the sake of quantity. This calls for a very strict system of checking and inspection.

ii. In the absence of adequate provisions incentive payment brings about certain rigidity in the operations. This makes it difficult for the management to revise norms and rates following changes in technology, methods, machines, materials etc.

iii. Employees very often ask for compensation whenever production flow is disrupted due to the fault of management.

iv. Unless greater vigilance is exercised there is a danger of workers disregarding safety regulations.