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1. Incentive wage/pay by
result/ performance
based compensation
Ref: Strategic compensation,
Joseph J martocchio

2. • Incentive pay rewards the ees partially or
completely attaining a predetermined work
objective.
• Defined as compensation other than base
wage or salaries that fluctuate according
to company’s attainment of some standard
such as individual or group goals

3. • Incentive wages refer to performance-linked
compensation paid to improve motivation and productivity
of the employees. It implies monetary inducements
offered to employees to perform beyond accepted
standards. It is related directly or indirectly to
productivity and profitability of the enterprise. Wage
incentives include all the plans that provide extra pay
for extra performance in addition to regular wages for
the job. It is a formal system under which the earnings
of a worker, a small group or a plant workforce are
related partially or wholly to some measure of output.
The National Commission on Labour defines wage
incentives as “the extra financial motivation”. Wage
incentives are designed to stimulate human effort by
rewarding the person, over and above the time rated
remuneration, for improvements in the present or
targeted results. Thus, wage incentive plans are
designed to improve productivity and to secure better
utilisation of human and material resources of the
enterprise.

4. Assumptions
• Individual ees and work teams differ In how much
they contribute to the company and how well they
contribute .
• The company’s overall performance depends on
individual and group efforts
• To attract , motivate retain ees and to be fair to
the ee ,company needs to reward the ees on their
relative performance

5. • Incentive vs traditional pay

6. Classification
• Individual incentive plan
• Group Incentive plan
• Company wide incentive plan

7. Individual Incentive plan
• 3 conditions:
• when ee has full control on work
• When the performance of each ee
has to measured objectively
• When it doesn't create unhealthy
competition among the individuals

8. 4 types
• Piece rate plan
• management incentive plan
• Behavioral encouragement plan
• Referral plan

9. • Advantages :
• equitable distribution
• Relation ship between pay and performance
• Disadvantages
• Promotes inflexibility
• Creates problems when the management
implements improved work methods as the
employees will be reluctant to use the new
methods
• Encourages undesirable work behavior when the
plan rewards only one dimension

10. Group Incentive plan
• When group incentive plan is used?
Types
• Team based incentive plan
• Gainsharing
3 ways of
allocating
the rewards
Rewarding a
Group of ees
In a dept
or work
Unit for
productivity gains
3 components
of gainsharing:
Leadership
philosophy, ee
involvement
system, Bonus
Types of GS:
Scanlon plan
Rucker plan
Improshare plan

11. • Scanlon plan
• Joseph scanlon in1935
• Ee involvement system without a pay
element
• Scanlon believed that ees would exercise
self control and self direction if they are
committed to the company objectives

12. • Scanlon plan is a generic term which
is given for GS plan with 3
components:
• Teamwork
• Suggestion systems
• A monetary rewards based on
productivity improvements

13. Scanlon ration= labour cost / sale value
of production
Sale value of production = sum of sales
revenue + value of goods in the
inventory
Smaller Scanlon ratio is advisable

14. Rucker plan
• Developed by Allan W Rucker in1933
• Ee involvement system
• Uses value added formulae to measure
productivity gains
• Rucker ratio=(value added – cost of
services, material ,supplier)/total
employment cost
• Larger rucker ratio is advisable

15. • Improshare (Improved productivity
through sharing )plan on the basis of
labour hour gain or saving

16. Company wide incentive
plan
• Profit sharing
• Co-partnership
• ESOP

17. • Profit sharing
• What is it? Features. 2 types

18. • Profit-sharing is an important supplement to wages and a
good financial incentive. Profit-sharing is an arrangement
by which employees receive in addition to wages, a share
fixed in advance in the profits of the enterprise. It is
an agreement between an employer and his employees
under which the employer pays besides wages, a pre-
determined share in the company’s profits. Profit-
sharing, in other words, refers to the system wherein an
employer pays in addition to regular wages, special sums
based upon the net profits of the enterprise as a whole.
According to the International Labour Organisation,
"Profit-sharing is a method of industrial remuneration
under which an employer undertakes to pay to his
employees, a share in the net profits of the enterprise
in addition to their regular wages." The main objective
of profit-sharing is to create unity of interests and the
spirit of co-operation.

19. • Features of Profit-sharing
• (a) Profit-sharing agreement is voluntary and is based on
joint consultation between the employer and the
employees.
• (b) Agreement is made at the unit level or the industry
level.
• (c) The proportion of profits to be distributed among the
participants is computed on the basis of some agreed
formula.
• (d) The employees participating in the scheme must have
some minimum years of service or other qualifications.
• (e) The payment is in addition to normal wages and
allowances.
• (f) The payment may be in the form of cash, company’s
shares or deposit in the employee’s Provident Fund
Account.
• (g) Workers share the profits only and do not contribute
to the company’s loss.
• (h) The payment is not based on individual merit or
performance. Rather, it is a reward for collective
effort.

20. • Co partnership
• Co-partnership is an extension of profit-sharing. It is a
system wherein employees are made partners of the
enterprise and are allowed to participate in the management
and control of the undertaking. Workers’ share in the
company’s profits is paid in the form of shares by which
they become entitled to participate in the decision-making
process. In this way, co-partnership involved both profit-
sharing and control-sharing.

21. PS Co partnership
Share co profit in a
specified ration
Profit sharing and
control sharing
Wage earner Partner, status is
high
Shares only profit Shares profit and
loss
Salary + share on
profit
Salary + share on
dividend
Incentive to worker Industrial democracy
No risk and
responsibility
Risk and resp is high

22. • Esop
• Employee Stock Option Plans originated in the
USA in early 90s. Under this plan, the eligible
employees are allotted company’s shares below
the market price. The term ‘stock option’ implies
the right of an eligible employee to purchase a
certain amount of stock in future at an agreed
price. The eligibility criteria may include length of
service, contribution to the department/division
where the employee works, etc.

23. Designing Incentive pay
programs
• Whether the plan should be based on individual
or group performance ?
• What should be the performance criteria?
• What is the level of risk the employees are
willing to take ?
• Should the org replace the traditional pay to
incentive pay fully ?
• What should be the time deadline for
performance evaluation?

24. • http://www.valuebasedmanagement.n
et/