- Incentive plans link pay to individual, group, or organizational performance in order to motivate employees and improve productivity. There are various types of incentive plans including individual, group, and organization-wide plans. - A proper compensation system should be simple, beneficial, equitable, provide a guaranteed minimum wage, be balanced, incentive-oriented, ensure quality output, provide certainty, be cost-effective and flexible. It is important to develop incentive plans that are easy to understand and have a clear relationship between effort and reward. - In addition to wages and salaries, companies provide fringe benefits like healthcare, retirement funds, paid time off to supplement employee compensation and improve industrial relations.

1. INCENTIVES AND EMPLOYEE BENEFITS Chapter EXCEL BOOKS 17-1 17

5. 17-5 Methods of Wage Payment Methods of wage payment Compensation Administration

11. Bonuses 17-11 Compensation Administration It is an incentive payment granted to a worker at the end of a particular year, in addition to one’s normal standard wage. The Payment of Bonus Act, 1965 The Act defines an employee who is covered by it as one earning Rs 2,500 p.m. (w.e.f. 1.4.93) basic plus dearness allowance and specifies the formula for calculating the allocable surplus from which bonus is to be distributed. The minimum bonus to be paid has been raised from 4 per cent to 8.33 per cent (w.e.f. 25.9.75) and is sought to be linked to increased productivity in recent times. Through collective bargaining, the workers, through their representative union, can negotiate for more than what the Act provides and get the same ratified by the government, if necessary. In the absence of such a process, the Act makes it mandatory to pay bonus to employees (who have worked in the unit for not less than 30 working days in a year) following a prescribed formula for calculating the available surplus. The available surplus is normally the gross profits for that year after deducting depreciation, development rebate/investment allowance/ development allowance, direct tax and other sums referred to in Sec. 6 The Act applies to every factory or establishment in which 20 or more persons are employed in an accounting year. Currently the position is such that even if there is a loss, a minimum bonus needs to be paid treating the same as deficit to be carried forward and set off against profits in subsequent years (Sec. 15). The Act is proposed to be changed since the amount of bonus, the formula for calculating surplus, and the set off provisions have all been under serious attack from various quarters.

12. 17-12 Compensation Administration Merit Pay Any salary increase awarded to an employee based on his or her performance is called merit pay. It is like rewarding the best performers with the largest increases in pay as an appreciative gesture from the employer. When high achievers are rewarded, they set the benchmarks for others to follow. But the whole process of recognising merit, measuring performance, picking up the winners need to be followed objectively.

13. 17-13 Compensation Administration Commissions For Sales People Compensation plans for sales personnel generally consist of a straight salary plan, a straight commission plan, or a combination of both. Evaluation of Incentive Plans Incentives based on performance would definitely motivate people to give their best to the organisation. They can improve their standard of living. Other benefits include; better use of facilities, reduced supervision; reduced lost time, absenteeism and turnover. There is, of course, the dark side of the moon and the research evidence in this regard is somewhat mixed.

20. 17-20 Compensation Administration Incentive Schemes For Indirect Workers Since Indirect workers also play a key role in manufacturing operations, their contributions need to be recognised and rewarded appropriately. The list of beneficiaries here would include repairs and maintenance staff, store staff, material handling staff, office staff etc. Such schemes, however, must be based on some agreed criteria aimed at improving the overall efficiency of the organisation over a period of time.

22. 17-22 Compensation Administration Types of Fringe Benefits