Types of incentive plans

2 types or kinds or methods of incentive plans

1) Individual incentive plan

2) Group incentive plan

 1) Individual incentive plan: it may either be time based or production based. Under time based plan a standard time is fixed for doing the job. A worker is said to be efficient if he completes the job in time and he is given the reward for his efficiency.

i) The time based individual incentive plans are:

 a) Halsey plan

b) Rowan plan

c) Emerson plan

d) Bedeaux plan

 a) Halsey plan: under Halsey plan minimum wages are guaranteed to every worker. A standard time is fixed for the workers. If the workers finish the work before standard time they are given bonus. But no penalty if they fails to do that.

Total wages (W) =T*R+ 50% of (S-T)*R

Standard time(S) =15 hours

Time taken (T) = 10 hours

Rate of wages(R) =rs 10 per hour

Bonus (P) = wages of 50% of time saved

Than wages= 10*10+50 %*( 15-10)*10 = rs 125

 b) Rowan plan: it is the modification of the Halsey plan it also guarantees the minimum wages and does not penalize the slow workers. Standard time is fixed and the bonus is paid on the basis of time saved

Total wages (W) =T*R+[T*R* Time saved/ Standard time]

Standard time(S) =15 hours

Time taken (T) = 10 hours

Rate of wages(R) =rs 10 per hour

Bonus (P) = Time saved/ Standard time

Than wages= 10*10+[10*10* 5/15] = rs 133.33

 c) Emerson plan: in this plan minimum wages are guaranteed to the workers efficiency is measured on the basis of the comparison of actual performance with the standard fixed. Under this method if the efficiency is 100% the bonus would be paid at 20% and above 100% bonus at 30% would be paid. Thus efficient workers will be rewarded at an increasing rate with the increase in saving time.

 d) Bedeaux plan: under this minute is the time unit described as the standard minute. The standard time for each job is fixed after undertaking time and motion study expressed in terms of B. the standard time for a job is the number of B’s allowed to complete it. Generally the bonus paid to the worker is 75% of the wages for time saved. The rest 25% goes to the foreman.

Standard time(S) = 360 B’s (6hours*60 minutes)

Actual time (T) =300 B’s (5hours*60 minutes)

Wage rate(R) = Rs 10 per hour

Value of time saved=360-300/60*10


Total wages (W) =S*R+75%of value saved



The above discussed wage payment methods were based on the time while the wage payment methods based on the productivity are going to be discussed below:

 incentive plans

ii) The production based individual incentive plans are:

Under the production based incentive plan a standard output is fixed and the workers are paid on the basis of the production. They are given incentive if they produced more number of units than the standard fixed. it includes the

a) Taylor plan

b) Merrick plan

c) Gantt plan

a) Taylor’s differential piece rate system: in this plan, Taylor did not give minimum guarantee to each worker. As per his statement it is possible to calculate standard workload for every worker on the basis of time and motion studies. He gave two piece rates for the workers. The lower rate for average and less efficient workers who produce less than the standard production and the higher piece rate for the above average or efficient workers. So the efficient workers are paid more than the inefficient workers.

Standard production = 40 units in a day

Wage rate = between 60 to 70 rs

If the worker produces 40 units in a day he will be paid 40* 70= rs 280

If the worker produces 30 units in a day he will be paid 30* 60 = rs 180

As only those who give standard output or more will be paid at rs 70 and rest will be paid at rs 60 only.

Thus in this method inefficient workers are penalized. Workers are treated like machines and there is no guarantee of minimum wages in this method.

b) Merrick’s 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 110% paid 120% of basic

Thus this system is improvement over the Taylor’s 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.

c) Gantt’s 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 day’s wages i.e. 80*25%=20 that means total rs 80+20= rs 100 so he will get bonus for 8 hours work.

2) Group incentive plan: under this method group bonus is given instead of individual bonus. The bonus is distributed among all the employees of the organization on the different basis which are as follows:


a) Priestman’s plan: under this method Bonus is increased in proportion to increase in output.

Increased production/standard production*100

b) Profit sharing method:  under this method increased profit is shared among the workers and management as agreed between both the parties.

c) Scanlon plan: under this method bonus is paid in proportion to the production 1% bonus if 1% increases in production.

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4 Responses to Types of incentive plans

  1. Alex says:

    Its very nice i like it.

  2. Prof K RAVINDRANATH says:

    Very brief presentation and yet informative

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