Mehran University of Engineering and

Technology,

Jamshoro, Sindh Pakistan

LECTURE PRESENTATION

INCENTIVES AND REMUNERATION

SUBJECT TEACHER:

PROF. SAAD MEMON

LECTURE PRESENTED BY:

MOHAMMAD YOUNUS (08IN70)

DEPARTMENT OF INDUSTRIAL

ENGINEERING & MANAGEMENT

INCENTIVES AND REMUNERATION REMUNERATION Remuneration is a payment or compensation received for service or employment. This includes

the base salary and any bonus or other economic benefits that an employee or executives received

during employment.

Or

Remuneration is traditionally seen as the total income of an individual and may comprises a range

of separate payments determined according to different rules.

For instance the total remuneration of medical staff may comprise a capitation fee and a fee for

services mot is may include a salary and shared financial risk.

A remuneration strategy therefore is the particular configuration of building of payments that go

make up an individual’s total income.

TYPES OF REMUNERATION The following are the types of remuneration.

1) COMPANSATION It is of two types

a) Executives Pay

Executive pay is the total pay or financial compensation an executive offer within the

co-corporation salary, and all bonuses, shares, options and any other company

benefits. Executives pay is an important part of corporate governance and is often

determined by companies’ board of director.

b) Deferred Compensation

It is an arrangement in which a portion of an employee’s income is paid out at a

date after which that income is actually earned. Example of deferred compensation

includes pensions, retirement plans and stock options.

2) EMPLOYEE BENEFITS Employee benefits are various non-wage compensation provided to employees in addition to

their wage and salaries, where an employee exchange (cash) wages for some other forms of

benefits, this is generally referred to as salary sacrifice arrangement. Some of these benefits are

housing ( employer provided or employer- paid ) , group insurance ( health, dental, etc), disability

income protection, retirement benefits, tuition reimbursement, sick leave, vacation ( pad and not

paid), social security, profit sharing, funding of education and other specialized benefits.

The purpose of employee’s benefits also is to increase the economic security of employee.

3) COMISSION The payment of commission as remuneration for service rendered or product sold in a common

way to reward sales people.

4) SALARY A salary is a form an employee to an employee which may be specified in a employment contract.

It is contracted with piece wages, where each job, hour or other unit is paid separately rather than

on a periodic basis.

From a point of business salary can also be viewed as the cost of acquiring human resources for

running operation it is the termed personnel expenses or salary expenses.

In accounting salaries are recorded in payroll account.

5) PERFORMANCE LINKED INCENTIVES (PLI) A performance linked incentives is a form of payment from an employer to an employees which

is directly related to the performance output of an employee and which may be specified on an

employment contact.

PLI may be either open handed ( does not have fixed ceiling ) or closed handed ( has an upper

ceiling which is normally stipulated in the employment contacts). Open handed incentives are

normally applicable revenue generating activities (e.g. sales) and close handed are associated with

support functions ( e.g. operation, human resources, administration etc)

INCENTIVES • Incentive is a reward monetary or non-monetary which is given to a worker for his

efficiency and hard work.

• If a worker has raised production by hard work then there must be increase in wage

corresponding to an increase in output. Any firm earning high profits give bonus at high

rate as incentives. So the workers exert themselves to produce any where near their full

capacity and try to increase the profit of the firm because their income increases with the

increase in the firm’s profit.

• An incentive motivates and encourages a worker to produce more and better and are

prevalent in the fixed salary method. Incentives help in increasing the interest of the

worker in the production and are in addition to the job hourly rate and in some proportion

to the worker’s contribution towards production.

• Incentive and production are closely related with each other. Incentives stimulate the

worker for increased production and help to create better efficiency.

TYPES OF INCENTIVES Incentives may be classified in to the following two groups:

a) financial incentives

b) non- financial incentives

A) FINANCIAL INCENTIVES Financial incentives involve direct monetary payments or benefits to workers for

better productivity and performance. Besides incentives for the immediate work contribution,

workers may receive additional financial benefits in the form of;

i) bonuses

ii) profit sharing

METHOD OF FINANCIAL INCENTIVES i) Piece rate system

ii) Cent percent premium

iii) Halsey system

iv) Rowan system

v) Bedaux or point system

vi) Emerson’s effiency bonus system

vii) Gantt task and bonus system

viii) Taylor’s differential piece rate system

ix) Merrick’s multiple piece rate system

x) Weir premium plan

xi) Barth system

xii) collective or group bonuses system.

Here I am going to elaborate the two (piece rate system and cent premium) methods

1. PIECE RATE SYSTEM:- Under this system, a piece rate for the completion of job is fixed. Now if

a worker completes the job earlier, he can save his time. In this time he can make jobs and get

extra money for his extra work

Earning of a worker = no. of pieces produced * rate per piece

ADVANTAGES OF PIECE RATE SYSTEM i) This method is simple understood by every worker.

ii) The employer can calculate his labor cost per unit of job.

iii) Workers are paid on their merits.

iv) In this method production will improve.

v) Man power does not go waste.

DIS-ADVANTAGES OF PIECE RATE SYSTEM

i) The worker put maximum efforts to earn more and more which result suffering with

their health.

ii) Accidents may be more due to hasty work.

iii) Quality of work may decrease.

iv) It does not ensure the regularity of the employment.

v) The worker may waste more material because of tendency for higher output.

2. Cent Percent premium: - In this system the standard time for completion of the job is fixed and its rate of

completion during this period is also fixed. Now the worker who completes the job earlier

they get full payment for the time saved.

ADVANTAGES OF CENT PER CENT PREMIUM

i) It is used for bigger job in which single job takes several days for completion.

ii) This method is very simple and easy to understand.

iii) The workers earning is based upon his efficiency.

iv) Time and rate is fixed earlier. So there is no problem at the time of payment.

DIS-ADVANTAGES OF CENT PER CENT PREMIUM

i) The worker is not guaranteed a minimum wage.

ii) The inefficient workers suffer.

iii)

2) NON-FINACIAL INCENTIVES The financial incentives must be supported by the non-financial incentives. Only cash wages

cannot help in solving the problems of the workers. So there must also be some non-financial

incentives. Non financial incentives include good working conditions, amenities and social

benefits in the organization. Non financial incentives play an important role in maintaining better

production and efficiency in an organization. With this type of incentives workers create interest

for greater and better output and will also enjoy richer and fuller life.

At last the say that the non-monetary reward given to the worker for the better productivity and

performance, is called non-financial incentives.

Some of the chief Non-financial incentives are:

1. Security of service. The service of the trained person should be secure in the industry. A

worker knows that the he is not going to be dismissed, suspended or discharge unless he behaves

wrongly or creates indiscipline or shows carelessness against the work. He will have security of

his service.

2. Opportunity for training. There should exist a suitable arrangement for the training the

workers of different levels and thus offering them opportunities for improving their knowledge

and skill.

3. Chances of Quick Promotion. There is no back door entry of the worker. Every worker is

likely to be promoted to a higher rank when the opportunity arises. There fore it is necessary for

every worker to increase his efficiency and show his skill what he has. Only then he gets the

chances of promotion.

4. Personal Reward. The rewards like certificates of merit, appreciation for good work, good

conduct and attendances etc. also increase the efficiency of the workers. Respect of recognition in

the organization in also is itself a reward to the workers.

5. Welfare Measures. Some of the necessary welfare measure like provision of medical

facilities, transportation, housing, food services, recreational and educational facilities to workers

and their families has a sound effect on the workers.

In the factory some facilities like drinking water, shelters, canteen, rest room, latrines and urinals

etc must be provided to the increase the efficiency of the workers.

6. Sympathetic Attitude of the Management. For increasing the efficiency of the worker it is

necessary for the management that fair and sympathetic treatment is given to a worker. A

faith in their individuality is not ignored and their grievances should always be redressed

speedily.