HRM: TYPES OF INCENTIVE PLANS

Piece Rate: Taylors Differential Piece Rate System

F W Taylor, the father of Scientific Management, originated this system. The main
features of this plan are:
i. There shall be two piece work rates, one is lower and the other is higher.
ii. The standard of efficiency is determined either in terms of time or output
based on time and motion study.
iii. If a worker finishes work within standard time (or produces more than
standard output within time) he will be given high piece rate.
This system penalizes the slow worker by paying low rate because of low
production, rewards an efficient worker by giving him high rate because of higher
production. Indirectly, this system gives no place to inefficient work. In other
words, if the output of a worker is less than the standard output, he is paid a low
rate and vice versa.
Merricks Differential Piece Rate System
We have seen that in Taylors Method, the effect on the wages is quite severe in
the marginal cases. To remove this defect, Merrick came out with a Multiple Piece
Rate System. There are three piece rates under this scheme instead of two, and
workers producing below the standard output are not penalised by the low piece
rate. Since the earnings increase with increased efficiency, performance above
the standard will be rewarded by more than one higher differential piece rate.
The basic features of this scheme are:
(a) Up to 83% of the standard output workers are paid at the ordinary piece rate
(b) 83% to 100% at 110% of the ordinary piece rate, and
(c) Above 100% at 120% of the ordinary piece rate.

b) Merricks multiple piece rate plan: under this plan there are three grade piece
rate rather than two given by Taylor.

Workers who produce Less than 83% are paid basic piece rate

Workers who produce between 83%- 100% are paid 110% of basic piece rate

Workers who produce more than 100% paid 120% of basic piece rate.l

Thus this system is improvement over the Taylors plan. But this system also does
not give guarantee minimum wages to the workers. All the workers producing
between 1 to 82% of standard output are considered same and paid at the same
piece rate.

Gantts bonus plan:

under this method minimum wages are guaranteed. If the worker fails to
complete the task within the standard time he receives only the wages for actual
time spent at the specified rate. But if he completes the task within time he gets
extra wages.

Standard time= 10 hours

Rate= rs 8 per hour

Bonus 25% of the standard time

If the worker finishes his job within 8 hours he will get rs 80 plus 25% of the days
wages i.e. 80*25%=20 that means total rs 80+20= rs 100 so he will get bonus for 8
hours work.