Contents
Meaning of Incentive Plans
Incentive plans attempt to combine the good points of both the system. Time rate system and piece rate system. The primary purpose of an incentive plan is to induce a worker to produce more to earn a lighter wage.
Naturally, producing more in the same period of time should result in higher wages for the workers. Because of greater number of units produced, it should also result in a lower cost per unit for fixed factory cost and also for labour cost.
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Objectives of Incentive Plans
The main objectives of incentives wage plans are:
1. To induce the workers to increase their productivity.
2. To provide additional remuneration to the workers to their efforts and efficiency.
3. To have a contented labour force, and to reduce the labour turnover.
4. To keep the morale of the workers high.
5. To have increased production from the improved productivity of the workers.
6. To have reduction in the fixed overhead cost per unit through increased production.
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Suitability of Incentive Plans Plan
Incentive wage plans are suitable in the following cases-
1. Those industries where proper time and motion studies can be undertaken and proper standards of time and output can be fixed.
2. Those industries where overhead charges are considerable and which can be reduced through increased production resulting from incentive schemes.
Advantages of Incentive Plan
Incentive wage schemes have the following advantages-
1. The workers are assured of their time rates of day rates of wages, whether they attain the standard or not.
2. In-efficiency is not penalized, as the workers are assured of their day rates of wages, whether they attain the standard or not.
3. Efficiency is rewarded, as the workers of higher efficiency are given bonus in addition to their time wages.
4. Incentive is given to workers to increase their productivity.
5. Opportunity is given to workers to increase their earnings by efficient work.
6. It keeps the labour force contented, and thereby, helps to reduce labour turnover.
7. The increase in production leads to reduction in cost per unit.
8. The gain or losses arising from the efficiency of the workers are shared by both the employer and the employees.
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Disadvantages of Incentive Plan
The incentive schemes are not without drawbacks. They suffer from several drawbacks. Their main drawbacks are:
1. The incentive schemes can not be gain-fully employed in concerns where the overheads are less.
2. These schemes can not be adopted in undertakings where proper standards can not be fixed.
3. It is difficult to calculate indirect labour under the common incentive schemes.
4. These schemes require careful determination of standard time and standard output which involves additional work and expenditure.
5. The bonus paid to workers under these schemes may not be proportionate to the improved efforts or productivity of the workers.
6. The quality of the product may suffer, because of their eagerness to save time and earn more.
7. Once an incentive scheme is introduced, it will be very difficult to withdraw that scheme later, it becomes uneconomical.
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Essential of A Good Incentive Plan
A good incentive plan should contain certain essentials. The essentials of a good incentive plan are:
1. For the successful implementation of an incentive plan, proper and accurate time and motion studies should be conducted and proper standards should be fixed.
2. The standard set for production should be such that any worker of normal efficiency can attain them.
3. The standards, on set, should not be changed unless there is a change in the method of production.
4. Job analysis and standardization must be made on scientific and equitable basis.
5. Tools, equipment’s and machines must be maintained in efficient working condition.
6. Proper and comfortable working conditions should be provided to workers.
7. Uniform working conditions should be provided to all the workers.
8. Regular flow of materials and other supplies should be ensured.
9. Every worker should be given equal opportunity to earn.
10. The workers should be taught the proper way of doing the work.
11. The workers should not suffer on account of factors beyond their control, such as, break-down of machines, power failure, etc.
12. The incentive plan should be permanent and not temporary.
13. The plant should be flexible enough to permit changes to suit the changes in the method of work.
14. The plan should be easy for the workers to understand.
15. The workers should be properly educated about the scheme and motivated to improve their efficiency and earn more.
16. It should be economical to operate.
17. There should be no maximum limit on the amount of earnings of the workers.
Related Links
- Cost Accounting | Purpose or Functions of Cost Accounting
- Advantages and Disadvantages of Cost Accounting
- Difference between Cost Accounting and Management Accounting
- What is Cost Concepts and Different Terms of Costs
- What is concept of Cost Audit | Objective and Scope of Cost Audit
- Advantages and Disadvantages of Cost Audit
- Meaning of Methods of Cost | Basic Methods of Costing
- What is meaning of Classification of Cost & elements of Cost | rules of Cost Accounting Standard
- What is Installation of a Costing System | Conditions and Factors
- What are the practical difficulties in installing cost accounting
- What is technique of Costing | Various techniques of Costing
- What is Material or Inventory Control | Techniques of Materials Control
- What is FIFO Method | advantages and disadvantages
- What is LIFO method | Advantages and Disadvantages
- What is Periodical or Annual Inventory Control System | Limitations
- Methods of Pricing Material Issues | Cost Methods
- What is Cost of Labour Turnover | Causes, Effects Classification
- What is meant by idle time | Definition, Causes, Control
- What is meaning of overtime work | Reason, Disadvantages
- HIFO method of inventory valuation |Advantages, Disadvantages
- What is two Bin System | Meaning of Bin Card and Specimen
- What is Meaning of NIFO Method | Advantages, Disadvantages
- What is Market Price Method or Replacement Price Method | Advantages, Disadvantages
- What is average cost method of Inventory valuation | Advantages and Disadvantages
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