Group Incentives/Team

based Compensation

Under individual incentive system workers are paid on

the basis of their personal performance. Their wages will be

directly linked to their efforts. A worker may improve his

remuneration by raising the level of output.

There may be circumstances when individual performance

may not be measurable. A number of persons may be

associated in completing a task. The work of one person

may be influenced by the work of the other. Under such

conditions, incentives may be offered for raising group

performance.

Group incentive schemes are suitable under

the following situations:

1. When individual performance cannot be measured

precisely.

2. The workers comprising a group possess the same type

of skill or ability.

3. The completion of the task is linked with the collective

efforts of the group.

Features

• Group based or team-based incentives plans reward all

team members equally based on overall performance of

the team member.

• Under group based incentive plan, individual out put can’t

be measured.

• So team performance is evaluated on the basis of time

taken rather than output produced, if team complete their

target in well advanced to standard time the team member

are eligible for incentives.

• Payment to team members may be made in the form of

cash bonus or in the form of non-cash reward such as

pleasure trip, times off or luxury items.

• Team based incentives foster cohesiveness among tem

members.

Type of Group Incentive

Plans1. Priest man’s plan:

This system of wage payment was first used by Priestman's of

Hull in 1917.

• A standard production is fixed for the whole enterprise

under this plan. If productivity exceeds the standard then

bonus is paid in accordance with the increase.

• In case production does not reach the standard then

workers get minimum wages only.

• For example, a standard production of 200, 000 units is

fixed for the year. Actual production during the year is

240,000 units since production has gone up by 20%

workers will get 20% higher wages as bonus.

• It is applied to workers who work in groups. It

provides for payment of group bonus in addition

to the ordinary time rate to the individual

workers.

• Thus if during a year, an enterprise is able to

reach the predetermined standard output or

exceed the previous year's output, workers are

paid increased wages in the same ratio in which

output has increased.

Advantages and

Disadvantages

An advantage of the system is that it brings about team-spirit

among the workers of a group. If the group as a whole works

well, this is bound to add to overall output of the enterprise

and in that case all the workers would stand to benefit.

But its disadvantage is that it may be insufficient to motivate

individual workers, particularly these who possess greater

skills and experience.

Rucker Plan/Cost saving

plan• The Rucker plan was developed in the 1930s by

the economist Allan W. Rucker.

• Bonus incentive plan based on the historic

relationship between the total earnings of hourly

employees and the production value created by

the employees

• The share-of-production plan (SOP), or Rucker

Plan, normally covers just production workers but

may be expanded to cover all employees.

• Go for Value addition

• based on value added, the increased value of

goods at each stage of production, and

calculated by comparing labor costs with sales

minus the cost of goods sold.

• These plans are used in manufacturing where

costs are relatively stable over time and where

the business wants to reduce other costs in

addition to labor, such as the cost of energy and

production waste materials.

Scanlon Plan

• First used in the 1930s, it relies on department-level

employee/management committees to develop cost-

savings activities.

• Scanlon Plans focus on the cost of labor and encourage

cooperation among employees.

• Savings are calculated by comparing the sales value of

production with employee costs.

• They are often used in service industries where customer

service focus is essential to success.

The plan is characterized by two basic

features:• First, both employees and managers can

participate in the plan by submitting their

suggestions for cost-cutting methods.

• Second, increase in efficiency on account of

cost-cutting is shared by the employees of the

unit.

The philosophy behind the Scanlon Plan is that

employees should offer ideas and suggestions to

improve productivity and, in turn, be rewarded for

their constructive efforts. The plan requires good

management, leadership, trust and respect

between employees and managers, and a

workforce dedicated to responsible decision

Advantages

• The Scanlon plan, has been successful to encourage a

sense of partnership among employees, improved

employee-employer management relations, and increased

motivation to work.

• Scanlon Plan can result in improved efficiency and

profitability for the organization and steady employment

and high compensation for employees.

Disadvantages

Under the plan, workers are not paid the entire amount of

bonus earned by them in any month. One half of the first

15% of such bonus is set apart for the creation of a

reserve fund. This fund is used to neutralise the effects of

any fluctuations in labour costs.

Gain Sharing Plan aka

Profit sharing plan

• When shareholders share profits for contributing

towards capital then workers should also get a

part of profits for contributing their labor.

• Profit sharing is a method of remuneration under

which an employer undertakes to pay his

employees a share in the net profits of an

enterprise, in addition to regular wages.

• Both the percentage of profit to be shared by

employees and mechanism for its distribution

are determined in advance and also made

known to the employees.

Purpose

The purpose:

• To strengthen the loyalty of employees to the firm

by offering them an annual bonus.

• The share of profit of the worker may be given in

cash or in the form of shares in the company.

• In India, the share of the worker is governed by

the Payment of Bonus act.

Advantages

• It inspires the management and the worker to

be sincere, devoted and loyal to the firm.

• It helps in supplementing the remuneration of

workers and enables them to lead a rich life.

• It is likely to induce motivation in the workers

and other staff for quicker and better work.

• Workers do not require close supervision as

they are self-motivated to put in extra labor for

the prosperity of the firm.

• It attracts talented people to join the ranks of a

firm with a view to share the profits.

Disadvantages

• Workers may get nothing if the business does

not succeed.

• Management may dress up profit figures and

deprive the workers of their legitimate share in

the profits.

• Workers tend to develop loyalty towards firms

discounting their loyalty towards trade unions,

thus, impairing the unity of trade unions.