Desirable conditions for the success of an incentive scheme

A good wage incentive plan should have the following characteristics.

Administrative simplicity: The incentive system should be simple and must be easily understood by the workers and their representatives.  An incentives scheme, which can be understood, only by engineers and mathematicians or a scheme which involves the use of complex formulate or references and cross-references is sure to fail.  The incentive scheme should be such that workmen can calculate their own earnings easily and quickly.

Minimum clerical work: The system should fit into existing system of production and cost control.  It should not involve any significant addition to the clerical work.

Maximum coverage: The system should cover as many workmen as possible.  A scheme if applied to a few workmen creates a demoralizing effect on the morale of those not covered by the scheme.

Direct: Incentive payments should increase at least in direct proportion to the increase in output by the operator.  There are two reasons: Firstly because it is more difficult to producer extra units and secondly because saving in the overheads are far greater at higher levels of production.

Period of Payment: The period of payment should be as short as possible

Adequate guaranteed minimum hourly rate: The scheme must ensure adequate guaranteed minimum hourly rate to all incentive workers regardless of their output.  Such an hourly guaranteed rate is normally referred to as the guaranteed base rate. The guaranteed base rate must be realistic and should be at least equal to the hourly rate payable to a non-incentive worker doing similar job in the industry.  Incentive earnings of the workers should never be regarded as a substitute for poor wages.

Accurate and yet attainable performance standards: Performance standards should be set through systematic work measurement studies.  The experts to that there is no dispute or malpractice and yet the standards are attainable so that a worker working at normal pace can attain them should base the standards of measurement on the assessment. Further the incentive plan should be such that it provides an opportunity to all average workers to earn reasonable earnings.

Consistency of the standards: Standards once fixed should not be changed unless there is a permanent change in methods, or change in equipment, or change in material and plan should provide for the provisions to modify the performance standards.

Inbuilt check on process rejections: A good incentive scheme should exercise a check on the operator against achieving higher bonus by poor workmanship.  Payment should be made only for pieces declared acceptable by the inspection department and a workman constantly producing substandard pieces should be liable for disciplinary action.

Payment of partially completed jobs: The problem of payment for the incomplete work arises only in case of long cycle jobs.  situations do arise when the jobs are of very long cycle duration and cannot be finished within the bonus period.  Similarly, a semi-finished job may require to be handed over by one operator to another at the end of shift, or prior to having a holiday.  The scheme should clearly spell out as how assessment of work done by the workmen on the same job will be carried out and how disputes arising out of such assessment would be resolved.

Payment of Idle Time: Adequate safeguards must be provided to compensate the operator for the time lost due to reasons beyond his control.  A good incentive scheme should ensure that an operator does not suffer financial loss for reasons attributable to the managerial weakness, e.g.: lack of material due to bad buying, breakdowns of the machines due to poor maintenance practices, non-availability of work etc.  Thus an operator rendered idle because of factors attributable to the management should be given a lieu bonus.

Safeguards: The scheme should be fair not only to the employees but also to the employer. Safeguarding clauses as under should be incorporated to protect.

  • Management’s right to change a standard when there are changes in methods.
  • Management’s right to withdraw or discontinue temporarily a scheme during bad period.
  • Management’s right to initiate disciplinary action against operators who continually produce sub-standard articles.
  • Management’s right to initiate disciplinary action against employees who, time and again, do not achieve minimum standard of production even in the presence of fair and accurate standards.
  • Management’s right to initiate disciplinary action against employees who, time and again are found using speeds and feeds higher than those recommended in the process sheet (or operational layouts).

Maximum ceiling on the earnings: The system should have built-in-control against higher earnings beyond a certain limit.  Firstly, the system should discourage workers to work beyond a certain limit otherwise too attractive an incentive scheme may induce the worker to work more and more and thereby adversely affect his health.  Secondly, the system should ensure that in case of loose standards the company does not lose financially.

Consistency of Plan: The plan should be consistent over a period of time.  Frequent changes in the plan make it’s functioning difficult.  Faith in plan is lost if there are frequent revisions.

Acceptance of Labor Body: The scheme should finally have acceptance of the labor body.  The body of workers’ representatives to prevent any misunderstanding and ill feeling later on must accept the basic incentive plan and its provisions.

    Continuous Use: The scheme should be in continuous use.  The temporary use of the scheme in good times and its discontinuation in bad times makes it’s functioning difficult.

      Define End Results: The plan must result in reduction in per unit labor cost.