Types of Incentive Schemes

Definition: The Incentive Schemes are the programs designed to encourage and motivate workmen for higher efficiency and greater output. The Incentives are the monetary rewards given to the workmen in recognition of their achievement of specific results during a specified time period.

According to International Labor Organization (ILO), the incentives are “payment by results” but however it is correct to call it as the “incentive system of payment” since it lays more emphasize on motivation, i.e., incentives are imparted to the workers for their outstanding performances. Therefore, the workers are encouraged and motivated to earn more by increasing their productivity.

There are several incentive schemes that can be most successfully employed in larger firms where both the administrative and engineering staff is required to ensure an efficient production, quality and the measurement of work. ILO has classified the incentive schemes into four major categories. These are:

1. A scheme in which the worker’s earning vary in the same proportion as output: Under this category, the income of the worker varies proportionately with his level of output. This means, any gains and losses incurred as a result of worker’s output shall be accrued to him/her. The two most popular incentive schemes that fall under this category are:

• Straight Piece-Work System
• Standard Hour System

2. A scheme in which the worker’s earning vary less proportionately than output: Under this method, the employees will earn less in proportion to his level of output. There are four methods that come in this category:

• Halsey Plan
• Rowan Plan
• Barth Variable Sharing Plan
• Bedaux Plan

The common feature of all these methods is that time is used as a measure of output and bonus is given for the time saved ( a difference between the time set for the completion of a job and the time actually taken). These incentive schemes are also called as gain-sharing schemes since both the employee and the employer share the gains resulting from the time saved. These methods are typically used in the cases where the standards of the worker’s output cannot be set or measured accurately.

3. A scheme in which worker’s earning vary proportionately more than output: Under this category, the worker earns proportionately more than his level of output. There are two methods under this:

• High Piece Rate System
• High Standard Hour System

4. A Schemes in which the worker’s earnings vary differently at different levels of output: This group includes several types incentive schemes which explain that how the worker’s earnings vary from minimum to maximum levels with respect to their different levels of output. It includes the following schemes:

• Taylor’s Differential Piece-Rate System
• Merrick Differential Piece-Rate System
• Gantt Task System
• Emerson Efficiency Plan

Thus, these are some of the incentive programs desirable to be employed in a labor-intensive industry, where the workers are more than the automated plants.