Incentive Systems (Hasley Plan, Rowan Plan, Taylor’s & Merrick Differential Piece rate System)

Incentive System is a structured approach to rewarding employees for their performance, productivity, or achievements beyond basic wages or salaries. It aims to motivate workers, enhance efficiency, and drive organizational goals. Incentives can be monetary, such as bonuses, commissions, or profit-sharing, or non-monetary, including recognition, promotions, or additional leave. Effective incentive systems align employee efforts with business objectives, fostering a culture of commitment and high performance. They also help reduce absenteeism, increase job satisfaction, and retain talent, making them a crucial element of modern workforce management.

Halsey Premium Plan

This plan known after F.A. Halsey is also called the Weir Premium Plan because it was first introduced in the Weir Engineering Works in England. Under this plan, a standard time is fixed (on the basis of past performance records and not on the basis of elaborate time study) for the completion of a job. A worker who completes his job in less than the standard time is paid at this hourly rate for the time actual spent on the job plus a bonus for the time saved.

Feature of Halsey Premium Plan

(i) Standard time of production is determined well in advance.

(ii) The workers, who complete their work in less than standard time, are paid the wages according to the standard rate. They are paid a bonus also on the basis of time saved by him.

(iii) Standard rate of wages is also determined.

(iv) The workers, who complete their work within standard time, are paid the wages at the standard rate.

(v) The rate of bonus may be 33-1/3 or 50%.

Rowan Premium Plan

This plan was introduced by James Rowan. Under this method, the standard time and the standard rate of wage Payment are determined in the same manner as Halsey Plan. The workers, who complete their work within standard time, are paid the wages at standard rate. The workers, who complete their work in less time than the standard, are paid wages at the standard rate plus some bonus. This bonus is calculated in proportion of time saved.

Features of this plan

• Standard time of work is decided.
• The workers, who complete their work in more time than standard, are also paid the wages according to standard rate. Thus, in this system also there is no provision of punishment for late completion of the work.
• Standard rate of wage is decided.
• The workers, who complete their work within standard time, are paid the wages according to standard time.
• The workers, who complete their work before standard time, are paid wages according to standard rate plus some bonus.
• Bonus is calculated in the ratio of time saved with standard time.

Merits of Rowan Premium Plan are as under

• It checks over-speeding because the workers cannot get bonus more than 25% of the standard time.
• This method of incentive wage plan is based upon scientific calculations.
• The workers get higher bonus under this system.

Taylor Differential Piece Rate System

This system was introduced by Mr. F.W. Taylor. Under this system, standard time for every work is determined on the basis of time and motion study. Two rates of wages are determined-as High rate and Low rate. The workers, who complete their work within standard time or before standard time, are paid wages according to the high rate. The workers, who complete their work in more time than standard time, are paid the wage according to lower rate.

Basic Features of Differential Rate System

• The workers, who complete their work in more time than the standard time, are paid the wages at lower rate.
• Two rates of wages are determined i.e., Higher rate and Lower rate.
• Standard time of the work is determined.
• The workers, who complete their work within standard time or before standard time, are paid the wages at high rate.

Important merits of Taylor Differential Piece Rate System

• This system helps in reducing the cost of production per unit.
• This system is based upon scientific calculations, proper work and job standardisation.
• Most important merits of this system are that it rewards an efficient worker and penalises the inefficient worker.
• This system helps in eliminating the workers who are quite inefficient, because in the course of time, they will try to get the work elsewhere.
• This system is very easy to understand and to calculate.

Demerits of Taylor Differential Piece Rate System

• If the standard work of a worker is less than his normal capacity it causes great dissatisfaction among the workers.
• The greatest demerit of this system is that it does not guarantee minimum wages. Therefore, it is opposed by the labour unions.
• This system classifies the workers into two categories; efficient and inefficient.
• This system helps in eliminating the workers who are quite inefficient, because in the course of time, they will try to get the work elsewhere.
• This system is very easy to understand and to calculate.

Merrick Differential Piece Rate System

Merrick Differential Piece Rate System is an improved form of Taylor’s Differential Piece Rate System. It was introduced to reduce the harshness of Taylor’s method and to provide a more balanced incentive scheme. Under this system, three different piece rates are fixed based on the level of efficiency achieved by the worker.

If a worker’s efficiency is below 83%, wages are paid at the normal piece rate. When efficiency is between 83% and 100%, the worker is paid at a higher piece rate, usually 110% of the normal rate. If efficiency exceeds 100%, the worker receives an even higher rate, generally 120% of the normal piece rate.

This system encourages workers to improve efficiency gradually by offering increasing rewards for better performance. It ensures fair wages for average workers while providing strong incentives for efficient workers. The Merrick system promotes productivity, maintains quality standards, and improves employee morale, making it an effective incentive scheme in cost accounting.

Features of Merrick Differential Piece Rate System

• Three Different Piece Rates

The most important feature of the Merrick system is the use of three different piece rates. Workers below 83% efficiency receive the normal piece rate, workers between 83% and 100% efficiency receive a higher rate, and workers above 100% efficiency receive the highest rate. This tiered structure encourages gradual improvement.

• Efficiency-Based Classification

Workers are classified based on efficiency levels measured against standard performance. This ensures objectivity in wage payment and links remuneration directly to productivity. Employees clearly understand the standards they must achieve to earn higher wages.

• Guaranteed Minimum Wages

Even workers with low efficiency are paid at the normal piece rate, ensuring minimum wage security. This reduces dissatisfaction and anxiety among slow or new workers and promotes stability in earnings.

• Progressive Incentive Structure

Unlike Taylor’s system, where incentives increase sharply, the Merrick system provides progressive incentives. Workers move gradually from one efficiency level to another, making the system fairer and more motivating.

• Encouragement of Productivity

The system strongly encourages workers to improve efficiency by offering higher rewards for better performance. As efficiency increases, wages also increase, motivating employees to maximize output.

• Reduced Harshness Compared to Taylor’s System

Merrick’s system removes the punishment element present in Taylor’s method. Inefficient workers are not penalized severely, making the system more acceptable to workers and trade unions.

• Standard Time and Rate Fixation

The system requires proper fixation of standard time and piece rates using time and motion studies. Accurate standards ensure fairness and reliability in wage calculation.

• Applicability to Repetitive Work

The Merrick system is most suitable for repetitive and standardized manufacturing operations where output and efficiency can be measured easily.

Advantages of Merrick Differential Piece Rate System

• Encourages Gradual Efficiency Improvement

The system motivates workers to improve productivity step by step rather than forcing sudden increases in output. This results in sustainable efficiency growth and reduced work pressure.

• Fair Treatment of Workers

By offering normal wages even to low-efficiency workers, the system ensures fairness and avoids exploitation. Average workers feel secure and motivated to improve performance.

• Higher Employee Morale

Progressive rewards improve employee morale and job satisfaction. Workers feel recognized and rewarded for their efforts, leading to better cooperation and commitment.

• Increased Productivity

The incentive-based structure encourages workers to increase output. Higher efficiency leads to higher earnings, benefiting both employees and employers.

• Better Cost Control

As productivity increases, labor cost per unit decreases. This helps management control production costs and improve profitability.

• Reduced Labor Turnover

Fair wages and income security reduce dissatisfaction and labor turnover. Retaining experienced workers saves recruitment and training costs.

• Improved Industrial Relations

The system is more acceptable to trade unions due to its humane approach. This helps maintain industrial peace and reduces wage-related disputes.

• Balanced Focus on Quantity and Quality

Since incentives increase gradually, workers are less likely to sacrifice quality for speed. This helps maintain product standards and reduces defects.

Limitations of Merrick Differential Piece Rate System

• Difficulty in Fixing Standards

Accurate fixation of standard time and piece rates requires detailed time and motion studies, which can be costly and time-consuming.

• Dependence on Accurate Measurement

The system depends heavily on accurate measurement of output and efficiency. Errors in measurement can lead to dissatisfaction and disputes.

• Limited Applicability

The Merrick system is not suitable for non-repetitive, creative, or supervisory jobs where output cannot be measured easily.

• External Factors Affect Efficiency

Machine breakdowns, power failures, or material shortages may affect worker efficiency beyond their control, leading to unfair wage outcomes.

• Administrative Complexity

Compared to simple time rate systems, the Merrick system involves more calculations and record-keeping, increasing administrative workload.

• Possibility of Reduced Teamwork

Since rewards are based on individual efficiency, workers may focus on personal output rather than teamwork, affecting cooperation.

• Health and Fatigue Issues

Continuous efforts to improve efficiency may lead to fatigue and health issues if not properly managed.

• Resistance from Some Workers

Some workers may resist efficiency standards due to fear of increased work pressure or unrealistic targets, requiring proper communication and training.