compansation managements

8/14/2019 COMPANSATION MANAGEMENTs

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Promotion Policies

& compensation management-1 1of 24

CONTAIN

1. MEANING, DEFINITION AND FEATURES OF PROMOTION

2. MERIT AS A BASIS OF PROMOTION

3. SENIOR AS A BASIS OF PROMOTION

4. SENIORITY-CUM-MERIT

5. PROMOTION POLICY

6. MEANING OF WAGE / COMPENSATION PAYMENT

7. IMPORTANCE OF WAGE PAYMENT TO EMPLOYEES EMPLOYER

AND GOVERNMENT

8. FACTORS INFLUENCING / DETERMINING WAGE RATES

9. ESSENTAILS OF SOUND WAGE PLAN

10.COMPONANTS OF EMPLOYEE REMUNERATION

11.SYSTEM OF WAGE PAYMENT

12.INCENTIVE SYSTEM OF WAGE PAYMENT

13.FEATURES OF A GOOD INCENTIVES PLAN

14.A NOTE ON TAYLORS DIFFERENTIAL PIECE RATE PLAN / SYSTEM

15.PROFIT SHARING AS AGROUP INCENTIVE PLAN

16.POSITION OF PROFIT SHARING IN INDIA

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PROMOTION

When there are vacancies in an organization, they can be filled up by the internal

or external candidates. Though the organization prefers to fill up the vacancies

by the external candidates through the selection procedure, the internal

candidates may also apply for post and may be tested and selected for higher

level job in the organizational hierarchy at par with external candidates. Is such

upward movement of an employee a promotion? Or it is purely selection? It is

purely a selection. If the organization prefers to fill a vacancy only by the internal

candidates, it assigns that higher level job to the selected employee from within

through promotion tests. Such upward movement can be said as promotion.

Definition:-

Promotion is advancement of an employee to a better job- better in terms

of grater responsibility, more prestige or status, greater skills and especially

increased rate of pay or salary.

- Paul Pigors and Charles A. Myers.

The upward reassignment of an individual in an organizational hierarchy,accompanied by increased responsibilities, enhanced status and usually with

increased income though not always so.

- Arun Monappa and Mirza S. Saiyadain.

MERIT AS A BASIS OF PROMOTION:-

Merit is taken to denote an individual employees skills, knowledge, ability,

efficiency and aptitude as measured from educational, training and past

employment record. The merits of merit system of promotion are:

1) The resources of higher order of an employee can be better utilized at a

higher level. It result in maximum utilization of human resources in an

organization

2) Competent employees are motivated to exert all their resources and

contribute them to the organizational efficiency and effectiveness

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3) It works as golden hand-cuffs regarding employee turnover,

4) Further it continuously encourages the employees to acquire new skill,

knowledge etc. for all-round development.

Despite these advantages the merit systems suffer from some demerit. They

are:

1) Measurement or judging of merit is highly difficult.

2) Many people, particularly trade union leaders, distrust the managements

integrity in judging merit.

3) The techniques of merit measurement are subjective.

4) Merit denotes mostly the past achievement, efficiency but not the future

success. Hence, the purpose of promotion may not be served if merit is taken

as sole criteria for promotion.

SENIOR AS A BASIS OF PROMOTION

Seniority refers to relative length of service in the same job and in the same

organization. The logic behind considering the seniority as a basis of promotion

is that there is a positive correlation between the length of service in the same

job and the amount of knowledge and the level of skill acquired by an employee

in an organization. This system is also based on the custom that the first inshould be given first chance in all benefit and privileges.

ADVANTAGES OF SENIORITY AS A BASIS OF PROMOTION ARE:

1) It is relatively easy to measure the length of service and judge the seniority.

2) There would be full support of the trade unions to this system.

3) Every party trust the managements action as there is no scope for favoritism

and discrimination and judgment.

4) It gives a sense of certainty of getting promotion to every employee and of

their turn of promotion.

5) Senior employees will have a sense of satisfaction to this system as the older

employees are respected and their inefficiency cannot be pointed out.

6) It minimizes the scope for grievances and conflicts regarding promotion.

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7) This system seems to reserve the purpose in the sense that employees may

learn more with increase in the length of service.

IN SPITE OF THESE MERITS, THIS SYSTEM ALSO SUFFERS FROM

CERTAIN LIMITATIONS. They are:

1) The assumption that the employees learn more relatively with length of

service is not valid as this assumption has reverse effect. In other words

employees learn up to a certain age and beyond that stage the learning ability

of the cognitive process diminishes.

2) It denominates the young and more competent employees and results in

employee turnover particularly among the dynamic force.

3) It kills the zeal and interest to develop as everybody will be promoted with or

without improvement.

4) Organizational effectiveness may be diminishes through the deceleration of

the human resource effectiveness as the human resource consists of mostly

undynamic and old blood.

5) Judging the seniority though it seems to be in the theoretical sense. it ishighly difficult in practice as the problems like job seniority, company

seniority, zonal/regional seniority, service in different organizations,

experience as apprentice trainee, trainee, researcher, length of service not

only by days but hours and minutes will crop up.

Thus the two main basic of promotion enjoy certain advantages and at the same

time suffer from certain limitations. Hence, a combination of both of them may be

regarded as an effective basis of promotion.

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SENIORITY-CUM-MERIT

Management mostly prefers merit as the basis of promotion as they are

interested in enriching its human resources. But trade union favour seniority as

the sole basis for promotion with a view to satisfy the interests of majority of their

members.

Hence a combination of both seniority and merit can be considered as the basis

for promotion satisfying the management for organizational effectiveness and

employees and trade union for respecting the length of service. A balance

between seniority and merit should be struck and a new basis is to be developed.

There are several ways in striking the balance between these two basis.viz:-

1) Minimum length of service and merit:-

Under this method all those employees who complete the minimum service, say

five years, are made eligible for promotion and then merit is taken as the sole

criteria for selecting the employee for promotion from the eligible candidates.

Most of the commercial bank in India has been following this method for

promoting the employees from clerks position to officers position.

2) Measurements Of Seniority And Merit Through A Common Factor.

3) Minimum merit and seniority:-

In contrast to the earlier methods, minimum score of merit which is necessary

for the acceptable performance on the future job is determined and all the

candidates who secure minimum score are declared as eligible candidates.

Candidates are selected for promotion based on their seniority only from the

eligible candidates.

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PROMOTION POLICY

Every organizational has to specify clearly its policy regarding promotion based

on its corporate policy. The characteristics of a systematic promotion policy are:

1) It should be considered the sense that policy should be applied uniformly to

all employees irrespective of the background of the persons,

2) It should be fair and impartial. In other words it should not give room for

nepotism, favoritism etc.,

3) Systematic line of promotion channel should be incorporated

4) It should provide equal opportunities fro promotion in all categories of jobs,

departments, and regions of an organization

5) It should insure open policy in the sense that every eligible employee should

be considered for promotion rather than a closed system which consider only

a class of employees

6) It should contain clear cut norms and criteria for judging merit, length or

service, potentiality etc.

7) Appropriate authority should be entrusted with the task of making final

decision8) Favoritism should not be taken as a basis for promotion

9) It should contain promotional counseling, encouragement, guidance and

follow-up regarding promotional opportunity, job requirement and acquiring

the required skills, knowledge etc. it should also contain reinforcing the future

chances in the mind of rejected candidates and a provision for challenging the

managements decision and action by employee or union within the limits of

promotion policy.

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Compensation management-1

(Wage and incentive payment)

MEANING OF WAGE/ COMPENSATION PAYMENT:-

Wage is monetary payment made by the employer to his employee for the work

done or services rendered. It is a monetary compensation for the service

rendered. A worker may be paid Rs. 100 per day or Rs. 4500 per month. This is

wage payment. It is like give and take. The workers give his services and take

payment called wage payment. Industrial worker are paid remuneration for their

services in terms of money called wage payment. Wages are usually paid in cash

at the end of the day; one week or one month. Money wages in the monetary

compensation or price paid by the employer to his employee for the services

rendered. Such compensation is called wages or salary or reward given by an

organization to a person in return to a work done.

Real wage is more important than money wage. Money wage is the payment

in terms of money. For example, Rs. 500 per month. Real wage means goods

and services which a worker can purchase out of the money wage paid. It

represents the purchasing power of money payment. In these days of rising

prices, money wages are increasing but not the real wages as the price level is

increasing. For employees, real wages are more important than money wages as

money cannot be used directly for the satisfaction of human wants. At present,

even a worker drawing the salary of Rs.10000 in Mumbai city finds it difficult to

meet the essential needs of his family.

Wages are determined by different theories of wages. They include subsistence

theory, wages fund theory, residual claimant theory, marginal productivity theory

and so on. However, in reality wages are fixed on the basis of practical

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considerations such as supply and demand of labour, cost of living, bargaining

power, economic situation in the country and so on.

Generally, compensation payable to an employee includes the following three

parts/ components:

a) Basic Compensation For The Job ( wage/ salary)

b) Incentive Compensation for the employee on job; and

c) Supplementary Compensation paid to employees ( fringe benefits and

employee services)

IMPORTANCE OF WAGE PAYMENT TO EMPLOYEES:

Wage payment to all categories of workers. It is the income earned by hard work.

It provides bread to the worker and his family members. Wage is a matter of life

and death to workers/ employees. Their life, welfare and even social status

depend on wage payment. It is the only source of income to large majority of

workers. They and unions always demand higher wages and other monetary

benefits. This rule is applicable to factory worker and also to other categories of

workers including bank employees, government servants and teachers.

Majority of labour problems and disputes are directly related to wage payment.The efficiency of workers and their interest and involvement in the work depend

on wage payment. Even their attitude towards employer depends on the wage

payment. In brief, wage payment is a matter of greatest importance to workers.

Wage problem is the most pressing and persistent problem before the entire

labour force.

IMPORTANCE OF WAGE PAYMENT TO EMPLOYER:

Wage payment is equally important to employers as their profit depends on the

total wage bill. An employer, in general, is interested in paying low wages and

thereby controls the cost of production. However, low wages are not necessarily

economical. In fact, they may prove to be too costly to the employer in the long

run. An employer has a moral and social responsibility to pay fair wages to his

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worker as they are equal partner in the production process. He should introduce

fair wages payment system which will give benefit to both the parties. Employees

will offer full co-operation to the management when they are paid attractive

wages. On the other hand, strike and disputes are likely to develop when workers

are paid low wages or when they are dissatisfied and angry due to low wages

rates. It is possible to earn more profit by paying attractive wages to workers.

IMPORTANCE OF WAGE PAYMENT TO GOVERNMENT:

Government also gives special importance and attention to wages paid to

industrial workers as industrial development, productivity, industrial peace and

cordial labour management relations largely depend on the wage payment to

workers. Government desires to give protection to the working class and for this

minimum wages act and other act are made. In India, wages are now linked with

the cost of living. This is for the protection of workers. Government in the biggest

employer in India and the wage rate of government servants and employees of

public sector organizations are decided by the government only. Revision of pay

scale of government employees is made for adjusting their wages as per the cost

of living. For this pay commission is appointed and pay scales are adjusted as

per the recommendations made.

In India, wage payment is a very critical, controversial and delicate issue for all

categories of work force. This is due to poverty, rising price, mass unemployment

and rising population. In India, all categories of workers (a factory worker drawing

Rs.4000 as salary and a bank manager drawing Rs.15000 or more as total

salary) demand higher wages. Due to rising prices, such demand is unavoidable.

Majority of our industrial disputes move around the wage payment. Wage

payment is indeed a vexatious problem and need to be tackled from economic,

social and humanistic angles. It is a human problems and certainly not a simple

arithmetic exercise.

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FACTORS INFLUENCING/ DETERMINING WAGE RATES:

1. Demand and supply position in the employment/ labour market: if the

demand for labour is more, wage paid are higher and when the demand is

limited, the rates of wage payment are also low. In western countries,

wage rate are high while in India they are comparatively low due to

demand supply position.

2. Nature and features of the job: the wage rate depends on the qualities

and qualifications required for performing the job. When the nature of job

is hard, higher wage are paid. Similarly wage rate is high in the case of job

where special qualification and experience are required. E.g. an engineer

paid higher then a typist.

3. Cost of living: wage rate are raised when the price level increases. This

is necessary for adjusting wage as per the cost of living. At present wage

of central government employees or factory workers are raised when the

cost of living. At present wage of central govt. employees or factory

workers are raised when the cost of living index goes up. The living wagecriterion is quite suitable for determine wage rate as living wage enables

an employee to maintain himself and his family at a reasonable level of

existence.

4. Bargaining power of workers: when the trade union is strong, the

workers get the benefit of higher ages. This is because of the bargaining

power of the trade union leadership. Strong trade unions organize strike,

etc. for raising the wage rate unorganized workers are even paid less then

the minimum wage as they are not united and do not have bargaining

power.

5. Efficiency and productive of work force: efficient worker are paid more

as they give more production. The wage payment increases along with the

increase in the productivity of work force.

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6. State regulations: wage regulation depends on the law regarding wage

payment i.e. minimum wages act and linking of wage with the cost of

living. Wages must be paid as per the legal provisions made by the

government from time to time. This is applicable to organized workers as

well as to worker from the unorganized sector.

7. Ability of the employer to pay: wage rate depends on the ability of the

employer to pay. Such ability depends on the profits earned financial

position of the company and so on. This is one important factor that

determines the wage rate. Wage rate depends on the ability of the

employer to pay. Workers are paid attractive wages when company gets

huge profit.

8. The present stage of economy: The wage rates are related to the

position of national economy. High wage rates are not possible when

there is recession. There will be increase in the labour supply in a

depressed economy. This, in turn, should serve to lower the going wage

rates. Wage rates are normally high during the period of prosperity.

9. Internal factors determining wage rates: such factors include business

strategy of the company, job evolution and performance appraisal and

employee related factors such as individual performance, seniority,experience and potential. when the strategy of the enterprise is to achieve

rapid growth, remunerations should be higher than what competitors pay.

ESSENTIALS OF A SOUND WAGE SYSTEM

1. Wage system should be just and reasonable: a sound of wage

payment is one which is just and reasonable to both the parties. It must be

according to the capacity of the employer to pay. The basic needs of the

employees must be met properly out of the money.

2. Guarantee of living wage: an ideal wage system plan should ensure

living wage to all employees. Living wage is always above the minimum

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wage fixed by legal provisions and is useful for meeting the basic needs of

workers.

3. Simplicity: an ideal wage is one which is simple and intelligible to an

average worker. As a result even as average worker will understand it

easily, quickly and correctly. He will know how much he is likely to get at

the end of the month such simple wage system is also easy and quick for

calculation and gives convenience to the employer.

4. Flexibility: an ideal system of wage payment is always elastic and flexible

so as to permit necessary adjustments periodically as per the changing

economic conditions. This facilitates periodically as per the changing

economic conditions. This facilitates periodical adjustments in the wage

rates. For example, the wage rate of allowances must change along with

the changes in the price level. In brief a good system of wage payment is

flexible and adjustable to the growing and changing economic social and

cultural needs of workers.

5. Promptness: an ideal wage system ensures prompt cash payment to all

categories of a worker after certain fixed period like a week or a month.

Wage payment must be prompt so as to enable workers to make their

essential purchases regularly. Promptness in wage payment givesconvince and psychological satisfaction to workers. Wages delayed are as

good as wages denied. Late payment of wage or irregular wage payment

creates many problems and inconveniences to the workers and their

family member.

6. Incentive for extra remuneration: a good system of wage payment is

one which creates desire among workers for efforts in order to extra

remuneration. This means there should be extra reward for special skill,

better workmanship, prompt performance and higher output.

7. Attractive to talented workers: an ideal wage system should be

attractive to regular employees as well as to outsiders. This will reduce

labour turnover. In addition, talented and skilled workers from other units

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will be attracted towards the company. Thus, a good wage system creates

satisfied labour force and attracts.

8. Equal pay for equal work: a good system of wage payment should be

based on the principle of equal pay for equal work such wage

discrimination exists but is not fair.

COMPONENTS OF EMPLOYEE REMUNERATION:

The remuneration packet of an employee includes wage/ salary, incentives,

fringe benefits, perquisites and finally non monetary benefits.

Details of components of employee remuneration:

1. Wage/ salary: wage is the payment as per the pay scale decided by the

represent hourly rate of pay while salary refers to the monthly rate of pay,

irrespective of the number of hours put in by an employer. Salary payment

includes dearness and other approved in the pay scale given to

employees. Salary payment is made regularly on the specific day decided

by the management. Salary payment is not uniform to all employees as itdepends on the nature of the job, responsibilities assigned, merits

available status of the post, seniority of the employee and so on. Salary

payment is now made attractive to all categories of workers. It constitutes

major source of regular income to large majority of industrial and other

categories of workers. wages are now linked with the cost of living.

2. Incentives: monetary incentives are offered as a supplement to regular

wage payment. The basic purpose behind incentives is to encourage/

motivate employees to take more interest / initiative in the work show

concrete results and collect extra payment as per rules. Incentives are

payment by results incentive payment is in addition to regular wage

payment. Incentives depend on productivity, sales, profit, cost reduction

efforts of employees and so on.

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3. Fringe benefits: these are monetary benefits provided to employees.

They include the benefit of a) Provident b) Gratuity c) Medical care d)

hospitalization payment e) accident relief f) health and group insurance.

4. Perquisites: there are special benefits offered to managers/ executives.

The purpose is to retain competent executives by offering them special

benefits. Perquisites are a) company car for traveling b) club membership

c) paid holidays d) furnished house e) stock option scheme.

5. Non monetary benefits: they include comfortable working conditions

impartial promotions support to workers facing special problems and so

on.

SYSTEM OF WAGE PAYMENT

There are two basic system of wage payment.

1) Time rate system: time rate system or time wage payment is the oldest and

simplest5 method of wage payment it is used extensively even today in the

industrial field as well as in government departments. In the time rate system

wage are paid as per the time spent by workers in the factory. The production

given by the worker is not taken in to consideration.

E= RN where E means total earnings, R means rate per hour or day and Nmeans number of hours or day work.

MERITS OF TIME RATE SYSTEM:

a) Easy and simple: time rate system is easy to understand and simple to

follow and calculate. Every worker knows how much wage payment he will

get at the end of the day or month.

b) Guarantee of minimum wage: it gives guarantee of certain minimum

wage payment to every worker irrespective of the capacity to work.

Worker get regular and stable income and this gives a sense of security to

all workers.

c) Maintains quality of production: in the time rate system, quality of

production is maintained as the workers are not in a hurry to complete the

work. The worker does not rush the job and spoil the quality because of

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the temptation to earning more. Workers work slowly and with care. The

quality of production is maintained. Support from trade unions: workers

and trade unions accept and support time rate system as all workers are

placed in one category as regards wage payment. This ensures unity

among workers. Trade unions normally prefer time rate system of wage

payment.

d) Convenient in factory system: time rate payment is convenient in

modern factory system where production process is continuous and

integrated. It is not possible to measure the work completed by one

individual worker and hence time rate system is convenient.

DEMERITS OF TIME RATE SYSTEM:

a) Not scientific: time rate system is not a scientific system of wage

payment as there is no direct linking between wages and production /

productivity. Wage bill ay increase without corresponding increase in

the production. This will bring loss to the employer / management

b) Absence of positive encouragement: in the time rate system there is

no positive encouragement to workers to improve their efficiency as

the wage rate is uniform to all workers efficient and inefficient

c) No effect on productivity: time rate system fails productivity andefficiency of labour force. It is not an incentive system of wage

payment.

d) Strict supervision on workers necessary in the time rate system strict

supervision on the workers is essential as payment is for the period

and not for the production this raises the expenditure on supervision.

e) No initiative to workers: time rate system fails to encourage workers

to take more initiative in the work in fact it encourages them to follow

go slow policy. This is because wage payment is not linked with they

production given.

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2) Piece rate system: piece rate system is another basic system of wage

payment. It is opposite time rate system. It is also treated as an incentive

wage system as it encourages workers to produce more and also to earn

more. Wages are paid as per the output or production given by the worker

and not as per the time spent by the worker in the factory.

WE=NR, WE means workers earning, N means the number of piece

produced and R means the rate per piece of production. A worker who

produce 20 pieces at rate of 10 Rs per piece he will get Rs. 200 as the wage

payment for the day.

MERITS OF PIECE RATE SYSTEM

a) Linking of wage with production: in the piece rate system, wage are

linked with production or productivity. It raises the productivity of labour.

Workers work with speed and use their capacity fully as the wage

payment is directly related to the quantity of production given by a worker.

b) Efficient and inefficient workers: in the piece rate system distinction is

made between efficient and inefficient worker and full justice is done to

efficient worker as he gets payment in proportion to the production given.

Efficient workers support the piece rate system but it is not preferred byUN skilled and in efficient workers. They get less payment under this

method as their capacity to produce is less. In brief piece rate system is

preferred by sincere and efficient workers.

c) Take initiative in the work: piece rate system encourages workers to

take more interest and initiative in the work as every worker gets full

reward of his efforts.

d) Fair to employer and employees: piece rate system is fair to employer

and employees. The employees get income in proportion to the production

given by them and the employer gets production in proportion to the wage

amount paid.

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DEMERITS OF PIECE RATE SYSTEM:

a) No guarantee of minimum wage payment: in the piece rate system,

there is no guarantee of certain minimum wage payment to a worker. This

may prove to be dangerous particularly to newly recruited workers and

workers who are below average.

b) Workers suffer even when they are not at fault: sometimes workers

suffer in wage payment even when they are not at fault for example due

to power payment even when they are not at fault. For example, due to

power failure, workers may not be able to give production and naturally

they will not be eligible for wage payment.

c) Not fair to trainees: piece rate system is not fair in the case of trainees.

Their capacity to produce is less and naturally they will get very less

wage.

d) Disturbs unity of workers: piece rate system affects the unity among

workers as wage payment will not be uniform to all workers. This will lead

to quarrels among workers trade unions oppose piece rate system on the

ground that it will lead to rivalry along workers and destroy unity among

them.

INCENTIVE SYSTEM OF WAGE PAYMENT

Meaning of Incentive Wage System:

The wage plan should be highly incentive. This means, it should encourage

workers to take more initative and interest in the work, produce and also more.

The wage plan which serves all this purposes is called incentive wage plan.

Such an incentive plan is beneficial to both employers and employees. Incentive

are monetary benefits paid to workmen in recognition of there outstanding

performance. Incentive are defined as variable rewards granted according to

variations in the achievement of specific results. According to Dale Yoder,

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Incentive wages relate earnings to productivity and may use premiums,

bonuses, or variety of rates to compensate for superior performance. Thus

incentive wage plans offer an attraction of extra payment for efficiency. The basic

idea in the incentive plans is motive workers to produce more thorough monitory

attraction in the form of wages, allowances and so on

.

TYPES OF POPULAR INCENTIVE PLAN:

For the sake of convenience, incentive plans can be divided into two broad

groups. These are: (a) Individual incentive plans and (b) Group incentive

plans.

Individual incentive plans, meant for individual employee. He has to work hard

i.e. efficiently, produce more and share the monetary benefit for himself.

In the group incentive plans, the incentive is not for individual employee but

for the group employees working in one department or section. Such group

incentive plan may cover the entire labour force of production unit.

Managements/ employees are interested in group incentive plans while efficient

employees are interested in individual incentive plans. Production activities are

now conducted in an integrated manner and naturally incentives should beoffered to employees. Group incentive plans are better as they encourage team

spirit and develop cooperation and understanding among the employees. This

avoid wastage and promotes productivity. Types of incentive plans are as noted

below.

INDIVIDUAL INCENTIVE PLANS:

(1) Halsey Premium Plan

(2) Rowan Plan

(3) Taylors Differential Piece Rate System

(4) Emerson Efficiency Bonus Plan

(5) Bedeaux Point Premium Plan

(6) Gnatt Task and Bonus Plan

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GROUP INCENTIVE PLANS:

(1) Profit Sharing

(2) Labour Co- partnership.

ADVANTEGES OF INCENTIVE PAYMENT:

(1) Motivation of employees:

Incentives serve the purpose of motivation of employees for higher efficiency

and greater output. It is a fact that fixed income in the form of wage fails to

evoke positive response. However, positive response is certain when

incentives are added to regular wage payment

(2) Financial benefit:

Total earning of employees will increase when liberal incentives are offered.

This raises the standard of living as well as overall efficiency of employees.

(3) Reduction in the cost of production:

Incentive lead to reduction in the total as well as unit cost of production. The

productivity will be higher resulting in greater number of units produced for

given inputs.(4) Increase in production capacity:

Production capacity is likely to increase due to attractive offered to

employees.

(5) Beneficial to employer/company:

Incentive wage package is always attractive to company management due to

benefits available. Such benefits do not affect managements contribution to

the provident fund and other employee retirement benefits.

(6) Miscellaneous advantages:

Limited supervision on employees, better utilization of machinery, facilities

and equipment, reduction in wastage and scrap, reduction in lost time

increase output/production.

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LIMITATION OF INCENTIVE PLANS:

(1) Possibility of quality deterioration:

There is possibility of deterioration in the quality of production unless special

steps are taken to ensure quality control through quality control checking and

inspection. This involves additional expenditure.

(2) Introduction of new machine and method difficult:

There is opposition to the introduction of new machines or methods by

employees because of the fear that new incentive may lead to reduction in

there earning.

(3) Labour cost may increase:

Employees feel that incentive payments are normal and demand for increase

in the regular wage/salary.

(4) Neglect of security rules:

Employees do not give adequate attention to security rules made due to thedesire to produce more and more earn. This may lead to industrial accident

and deterioration in the health of workers as they strain there body of earning.

(5) Dissatisfaction of among employees:

Due to incentive payments, some workers earn more as compared to others.

This leads to dissatisfaction among employees. In group incentive payment,

the aged workers are blamed young workers on the ground they are very slow

in their work.

MEANING OF GROUP INCENTIVE PLAN:

In the group incentive plan, the entire group of workers will have to work

efficiently in the collective manner and also share the benefit collectively. In short

group incentive plan distribute rewards collectively to more than one employee

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i.e. to a group of employees. All employees have to participate for raising

production and all will participate in the extra benefits available. The benefit will

be also common for the whole group.

Group incentive plans are necessary under certain situation. For example the

performance of individual worker may not be measurable in an accurate manner.

In some cases the production process may require co-operations and

participation of all workers for better performance. Under such situation group

incentive plans are necessary and useful.

ADVANTAGE OF GROUP INCENTIVE PLAN:

(1) Better co-operation and understanding among employees of the group.

(2) Limited supervision on the employees is adequate.

(3) Administration of the plan is easy.

DISADVANTAGE OF GROUP INCENTIVE PLAN:

(1) The final benefit expected is uncertain and not depend only on the co-

operation among employees.

(2) The efficient and honest employees suffer at the cost of inefficient and lazy

workers as both are treated on par and share equal benefit.

(3) Rivalry among employees of the group defeats the very purpose of group

incentive plan.

PROFIT SHARING AS GROUP INCENTIVE PLAN:

MEANING OF PROFIT SHARING:

Profit sharing is an attractive supplement of wage system. It is a type of group

incentive plan for benefit of employees. In profit-sharing the employer agrees to

share a part of the profit with employees as per the agreement made. Profit-

sharing is different regular wage payment. Profit sharing is novel and progressive

idea in the industrial world. In western countrys profit-sharing concept is popular

since long as group incentive plan of wage payment. For example in the UK as

early as in 1891, the profit-sharing scheme was initiated by South Metropolitan

Gas Company.

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DEFINITION OF PROFIT-SHARING:

According to Pro. Henry R. Seager,Profit-Sharing is an agreement freely

entered into by which the employee receives a share fixed in advance of the

profit.

OBJECTIVES OF PROFIT SHARING:

1. To supplement the regular earning of the workers.

2. To create sense of partnership among the workers and the management.

3. To enable the workers to participate in the prosperity of their company.

4. To introduce incentive wage plan.

5. To raise productive efficiency by reducing cost.

FEATURES OF PROFIT SHARING:

(1) Method of extra payment:

Profit-sharing is a technique under which extra payment is given to workers. It

is reward for joint efforts of employees in raising the profitability of the

company.

(2) Paymentout of net profit:

Profit is paid out of the net profit and as per the agreement between theemployer and employees.

(3) Status of workers remains same:

In profit-sharing the employees get monetary benefits but their status remains

unchanged.

(4) Benefits to majority of workers:

The benefits of profit-sharing are given to majority of employees of all

categories and also irrespective of their individual skill and efficiency.

(5) Payment of yearly basis:

The profit-sharing agreement is made generally for one year and is renewed

year after year.

DIFFICULTIES IN THE INTRODUCTION OF PROFIT-SHARING:

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1) How to ascertain the net profit for sharing and share of all workers in terms of

percentage?

2) How to determine the base of profit sharing?

3) How to determine the share of profit of individual workers?

4) How to solve dispute if developed in due course out of the profit-sharing

agreement?

A NOTE ON TAYLORS DEFFERNTIAL PIECE RATE PLAN:

F.M.Taylors ( Father of Scientific Management) suggested his famous

deferential piece rate plan as an alternative to time rate system which be

considered as unscientific. In his plan he has not made reference to minimum

guarantee payment to each worker. In his incentive plan Taylors suggested two

piece rate for the workers. The lower piece rate to those who are less efficient

and give production below the standard workload fixed. The higher piece rate

suggested who are efficient give production over the above the standard

workload.

MERETIS OF TAYLORS PLAN:

(1) It is simple to understand by an average worker and wage rate applicable to

him.(2) Taylors plan makes distinction efficient and inefficient workers.

(3) It encourages workers to be efficient because there is no guarantee of

minimum wage payment.

(4) It gives more production to the employees.

LIMITATION OF TAYLORS PLAN:

(1) In Taylors plan there is no guarantee of minimum wage payments of

employees.

(2) It is rather harsh to workers.

(3) It treats workers not as human being but as machine.

(4) It kicks out inefficient workers from the organization.

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BIBLIOGRAPHY

HUMEN RESOURCE MANAGEMENT: P SUBHA RAO.

PERSONNEL MANAGEMENT: AHMED & KALE.

PM & IR: RUSTOM DAWOR.

compansation managements

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