B.Sc Notes

What is Incentive Plans | Objectives, Suitability, Advantages, Disadvantage

What is Incentive Plans
What is Incentive Plans

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.

ALSO READ- What is Meaning of Scrap | Characteristics and Treatment of Scrap

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.

ALSO READ- What is Difference Between Waste and Scrap

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.

ALSO READ- Meaning of Material Losses | Types and Treatment

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.

ALSO READ- What is Meaning of Weighted Average Price Method | Advantages and Disadvantages

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


Disclaimerwww.efullform.in does not own this book, PDF Materials Images, neither created nor scanned. We just provide the Images and PDF links already available on the internet. If any way it violates the law or has any issues then kindly mail us; itsabhi356@gmail.com

About the author


Leave a Comment