To remove the defects of both time wages and piece-wage systems, incentive plans are used. Under these plans, the advantages time and piece wage systems are combined, and incentives are provided to workers to work hard. The characteristics of these plans are as follows:
(i) Minimum wages are guaranteed to all workers;
(ii) Incentives by way of bonus etc. are given to efficient workers for the time saved;
(iii) A standard time is fixed and the worker is to perform the given work within the standard time. The standard time is set after making time studies for the performance of a specific job.
The incentive plan is a compromise between the two extremities – on the one, if workers are paid according to time, they gain nothing if time is saved and, on the other hand, if they are paid on the basis of piece rate, employers get nothing if the time is saved. Under incentive plans, the employer as well as the workmen share the benefit of time saved, and both labour and overhead costs are reduced.
Incentive and Bonus Plans are suitable for the industries where overhead charges are more and expert time and motion studies can be undertaken. However, these systems involve complicated scientific studies and arithmetical calculations.
The incentive plan should be selected according to the nature of work and other circumstances. It should secure the goodwill of management as well as labour otherwise it cannot work successfully.
Cost benefit ratio: The incentive scheme should be beneficial to the firm. In other words, the benefits accruing to the firm should be higher than the cost of the scheme to the firm.
Comparative study: The incentive scheme applicable to the organisation should be comparable with incentive schemes prevalent in other competitive organisations.
Worker’s education: The workers should be properly educated about scheme to avoid any future confrontation due to misunderstanding.
Practicability: The scheme should be capable of being put into practice without much complication. In other words the scheme should be simple to understand and easy to operate.
Demand for the products: In every incentive scheme it presumed that the organisation has adequate demand for the surplus production it will be in a position to make due to grant of incentives to the workers. It is, therefore, necessary that a market study for the organisation’s product should be undertaken before adopting any incentive scheme.
Fixation of standards: Standard norms for production and wages rates will have to be determined.
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