A wide variety of incentive wage plans has been devised by industries under which the workers’ earnings are related directly to some measurement of work done either by himself or by his group. There are three broad categories of incentive schemes as classified by Dunn and Rachel. They are:
1. Simple incentive plan.
2. Sharing incentive wage plan.
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3. Group incentive plan.
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1. Simple Incentive Plan:
The simplest of all wage incentives may be described as the straight piece-rate system. The piece-work method is perhaps one of the oldest and simplest of the incentive plans. The basis of computation is the rate per piece multiplied by the number of pieces produced.
For example, if the piece-rate is Rs.2 for each unit of output, then a worker who produces 10 units in a given time, say 8 hours, will be paid Rs.20.
Another worker whose production is 12 units in the given time (i.e., 8 hours) will receive Rs.24 and so on.
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This method of payment is suitable if the process of production is standardised and large quantities are produced by repetition. The system is not suitable where workers by working rapidly to earn more wages are likely to lower the quality of the goods they produce.
2. Sharing Incentive Wage Plan:
There are a large number of plans in this category. These plans are the modifications of the Taylor’s differential piece rate incentive plan.
Under this plan, the workers exceeding the standard or even just attaining it are entitled to the higher rate and those, whose output is less than the standard output are paid at a lower rate.
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Taylor’s philosophy was to attain a high level of output and therefore, there was a differential piece rate, low rates for output below the standard, and high rates for output above the standard.
3. Group Incentive Plan:
Individual incentive scheme is not suited to cases where several workers are required to perform jointly a single operation. In such cases, a team approach is called for, with all the members of that team doing their share to achieve and maintain the output.
The advantage of group incentive plans is that they encourage team spirit and a sense of mutual co-operation among workers.
Under the group incentive plan, the earnings of each member of the group are determined first of all by measuring the amount of the production which passes inspection as it leaves the group. The total earnings for the group are then determined and if all the members are of equal skilled, these earnings are usually divided among them equally.