Published on March 3, 2016
2. What is compensation & incentives? The term COMPENSATION mean to give something in return. Weather in terms of money or product (i.e. goods & services). From the organization point of view, to give something (generally in terms of money) for the work we obtain from the employees. Which includes wages, salaries & incentives. To attract & retain effective & efficient manpower sound compensation policy has to be designed. The term INCENTIVES mean, something which encourages a person to do something. Or the “extra financial reward/ motivation”. Incentives is the performance-link reward to improve motivation & productivity of the employees. Incentives includes all that provide extra pay for the extra performance in addition to regular wages for the job.
3. Why Incentives are Important? Incentives are considered beneficial to both employers as well as employees in following ways. Workers are likely to work at their best when they are offered monetary rewards for good performance. Provide opportunity for hard-working & ambitious employees to earn more. To improve work-flow, work methods & man – machine relation ship. To bring employee involvement to make employee innovative. Incentives are the sound technique of improving productivity. Help to improve discipline and industrial relation. The cost of supervision are reduced. To obtain desired result.
4. In the absence of mutual trust between management & workers, an incentives may be viewed as an attempt to improve production/ profit only. Incentive plan should be installed in consultation with workers & union. Payment of incentives should be free from bias & established through scientific/ proper work study. To implement incentives plane effectively minimum wages should be guaranteed to every workers. It should be easy to understand & simple to operate so that employee can calculate their own earnings. It should provide equal opportunity to all workers to earn incentives pay. Plan should not be very costly in operation. Plan should be flexible to adopt any changes later on. Payment of incentives should be prompt i.e. as early as possible. It should be adequate to motivate each employees. Every plan should be reviewed periodically. What makes an Incentives plan effective?
5. The basic from of incentives are as follow. Bonuses :- is an incentive payment that is given to an employee beyond his normal standard wages. It is generally given at the end of the year & does not become part of the basic pay. The payment of bonus Act 1965 is applicable to every factory or establishment in which 20 or more person are employed in an accounting year. Merit pay :- is a reward based pay on haw well an employee done the assigned job. Higher the performance Greater will be the reward. The payment is depend on individual employee’s performance. Commission for sales people :- is paid on the basis of sales made by the employee, through different plan. Such as Salary plan :- where new salesman is appointed, is unable to generate new. Commission plan :- where organization is totally based on sales of their product. Combination of both :- is the most frequently used method. Basic forms of incentives.
6. Classification of Incentives Plans Profit sharing Co-partnership Gain-sharing ESOPs Incentives plans Output-based Individual Time-based Organization- wide Group Time-based
7. Time based incentive plan Under time based plan, per hour wage rate is determined & incentives paid on the bases of time saved. Time based incentives plane is divided in four different ways. Hasley plan, Rowan plan, Emerson plan, Bedeuax plan. This all plan more or less follow same method i.e. (pay bonus on the basis of timed saved by employee), but with different formula. Output based incentive plan Under output based plan, per piece wage rate is determined & incentives paid on the bases of output produced. i.e. more output in standard time OR standard output in less time. For output based incentive following 3 method can be used. Taylor plan, Merrick plan, Gnatt plan. Individual
8. Profit sharing Profit sharing is an arrangement by which employees receive in addition to wages, a share is fixed in advance in profit of the enterprise. It is an agreement between employer & his employee. According to International Labour Organization, “Profit-sharing is a method of industrial remuneration under which an employer undertakes to pay to employee, a share in net profit of the enterprise in addition to regular wages” Co-partnership Co-partnership is an extension of profit-sharing. Under this method worker’s share in company’s profit is paid in the form of share by which they become entitled to participate in decision-making process. Organization- wide – 1
9. Gain-sharing This method aims at increasing productivity & decreasing labour cost & sharing the result gains wit employee. It is based on a mathematical formula which compares a standard perform with actual performance during given period. When actual performance exceed the standard performance, shaving are shared with employees. ESOPs (Employee Stock Option Plans) This method is originated in the USA in early 90s. Under this plan, the eligible employee are allotted company’s share below the market price. The term “stoke option” implies the right of eligible employee to purchase a certain amount of stoke in future at an agreed price. The eligibility criteria may include length of service, contribution to the department etc… Organization- wide – 2
10. Group based or team-based incentives plans reward all team members equally based on overall performance of the team member. Under group based incentive plan, individual output can’t be measured. So team performance is evaluated on the basis of time taken rather than output produced, if team complete their target in well advanced to standard time the team member are eligible for incentives. Payment to team members may be made in the form of cash bonus or in the form of non-cash reward such as pleasure trip, times off or luxury items. Team based incentives foster cohesiveness among tem members. Methods for team based incentives plans are Preistman’s production plan Rucker plan Scalon plan Town plan and so on… Group
11. Fringe Benefits Fringe benefit may be defined as “Compensation in addition to direct wages or salaries, such as company car, house allowance, medical insurance, paid holidays, pension schemes, subsidized meals. Some fringe benefits are regarded part of a taxable income. In simple words “Any nonwage payment or benefit granted to employees by employers”
12. Employers' payments for fringe benefits are included in employee-compensation costs and therefore are not usually taxed. If the cost of fringe benefits were paid directly as wages, the worker would pay taxes on this amount and therefore have less to spend when purchasing equivalent benefits independently. FRINGE BENEFITSFringe Benefits
13. The view point of employers is that fringe benefits form an important part of employee incentives to obtain their loyalty and retaining them. The important objectives of fringe benefits are: To create and improve sound industrial relations To boost up employee morale. To motivate the employees by identifying and satisfying their unsatisfied needs. To provide qualitative work environment and work life. Objectives of Fringe Benefits
14. To provide security to the employees against social risks like old age benefits and maternity benefits. To protect the health of the employees and to provide safety to the employees against accidents. To promote employee’s welfare by providing welfare measures like recreation facilities. To create a sense of belongingness among employees and to retain them. Hence, fringe benefits are called golden hand-cuffs. To meet requirements of various legislations relating to fringe benefits. GroupObjectives of Fringe Benefits
15. Rising prices and cost of living has brought about incessant demand for provision of extra benefit to the employees. Employers too have found that fringe benefits present attractive areas of negotiation when large wage and salary increases are not feasible. As organizations have developed ore elaborate fringe benefits programs for their employees, greater pressure has been placed upon competing organizations to match these benefits in order to attract and keep employees. Recognition that fringe benefits are non-taxable rewards has been major stimulus to their expansion. The growing volume of labor legislation, particularly social security legislation, made it imperative for employers to share equally with their employees the cost of old age, survivor and disability benefits. The growth and strength of trade unions has substantially influenced the growth of company benefits and services. FRINGE BENEFITSNeed for extending benefits to Employees
16. FRINGE BENEFITSTypes of Fringe Benefits Employment Security Health Protection Old Age and Retirement Personnel Identification, Participation and Stimulation Organizations provide a variety of fringe benefits. The fringe benefits are classified under four heads as given here under:
17. Benefits under this head include unemployment, insurance, technological adjustment pay, leave travel pay, overtime pay, level for negotiation, leave for maternity, leave for grievances, holidays, cost of living bonus, lay-off, retiring rooms, jobs to the sons/daughters of the employees and the like. Physical and job security to the employee should also be provided with a view to promoting security to the employee and his family members. The benefit of confirmation of the employee on the job creates a sense of job security. Further a minimum and continuous wage or salary gives a sense of security to the life. Employment Security
18. Benefits under this head include accident insurance, disability insurance, health insurance, hospitalization, life insurance, medical care, sick benefits, sick leave, etc. Safety Health Protection
19. Benefits under this category include: deferred income plans, pension, gratuity, provident fund, old age assistance, old age counseling , medical benefits for retired employees, traveling concession to retired employees, jobs to sons/daughters of the deceased employee and the like. Old Age and Retirement
20. This category covers the following benefits: anniversary awards, attendance bonus, canteen, cooperative credit societies, educational facilities, housing, income tax aid, counseling, quality bonus, recreational programs, stress counseling, safety measures etc. Personnel Identification, Participation and Stimulation
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