Definition: Under Emerson Plan, the standard time for the completion of a task is fixed against which the actual performance of the workers is measured. The worker’s efficiency can be determined by dividing the time taken by the standard time.
In Emerson Plan, the worker is paid only the time rate for the efficiency up to 67%. At 100% efficiency, the worker is paid time wages, plus a bonus of 20% on the wages earned. The worker is paid one percent additional bonus for each additional one percent efficiency added after the standard. The Emerson plan can be understood through an example given below:
Standard output in 10 hrs = 200 units
Rate per unit = Rs 2
Case (1): Output in 10 hrs = 100 units
Efficiency = 50% (100/200 x 100)
As efficiency is below 67% the worker is entitled to only time wage, thus, Earnings = 10 x 2 = 20.
Case (2): Output in 10 hrs = 200 units
Efficiency = 100% (200/200 x 100)
As the efficiency is 100%, then the worker is paid time wages, plus a bonus of 20% on wages earned. Thus,
Time Wages = 10 x 2 = Rs 20
Bonus = 20/100 x 20 = Rs 4
Total earnings = Rs 24
Case (3): Output in 10 hrs = 260 units
Efficiency = 130% (260/200 x 100)
For 100% efficiency, the worker will get a bonus of 20% on wages earned, plus one percent additional bonus for every one percent increase in efficiency, i.e. 30%. Thus, the total bonus of 50% of time wage is paid to the worker.
Time wages = 10 x 2 = Rs 20
Bonus = 50/100 x 20 = Rs 10
Total Earnings = Rs 30