a) Employees cannot earn more than the fixed hourly rate for their extra effort. b) There is no guarantee that the scheme will work consistently.
c) Employees may prefer to work at a normal rate of output.
Example:
X Ltd has an average of 42 workers employed in one of its factories in a period. The company pays a basic rate of ?4.60 per hour to all its direct personnel. This is used as the standard rate. In addition, a factory wide bonus scheme is in operation. A bonus of half of the efficiency ratio in excess of 100% is added as a percentage to the basic hourly rate, for example if the efficiency ratio is 110%, then the hourly rate is ?4.83 (i.e. ?4.60 + (5% X ?4.60)). During the period, 114,268 units of the company’s single product were manufactured in 4,900 hours. The standard hour is 22 units.
Required:
Calculate the hourly wages rate paid and total wages for the period.
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4900*22=107800
(114268-107800)/107800=6%
2.4.2 Individual bonus schemes
Individual employees qualify for a bonus on top of their basic wage, with each person's bonus being calculated separately.
To be successful, it must take account of the following factors.
a) Each individual should be rewarded for the work done by that individual. b) Work should be fairly routine, so that standard times can be set for jobs.
c) The bonus should be paid soon after the work is done, to provide the individual with the incentive to try harder.
2.4.3 Group bonus schemes
A group bonus scheme is an incentive plan which is related to the output performance of an entire group of workers, a department, or even the whole factory.
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The advantages of group bonus schemes.
a) They are easier to administer because they reduce the clerical effort required to measure output and calculate individual bonuses. b) They increase co-operation between fellow workers. c) They have been found to reduce accidents, spoilage, waste and absenteeism.
Serious disadvantages would occur in the following circumstances.
a) The employee groups demand low efficiency standards as a condition of accepting the scheme. b) Individual employees are browbeaten by their fellow workers for working too slowly.
Example:
Which of the following statements is/are true about group bonus schemes?
(i) Group bonus schemes are appropriate when increased output depends on a number of people all making extra effort
(ii) With a group bonus scheme, it is easier to award each individual's performance
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(iii) Non-production employees can be rewarded as part of a group incentive scheme A. (i) only
B. (i) and (ii) only C. (i)and (iii) only
Answer: C
2.4.4 Profit sharing schemes
A profit sharing scheme is a scheme in which employees receive a certain proportion of their company's year-end profits.
The advantage of these schemes is that the company will only pay what it can afford out of actual profits and the bonus can be paid also to non-production personnel.
The disadvantages of profit sharing are as follows. a) Employees must wait until the year end for a bonus. The company is therefore expecting a long-term
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commitment to greater efforts and productivity from its workers without the incentive of immediate reward. b) Factors affecting profit may be outside the control of employees, in spite of their greater efforts.
c) Too many employees are involved in a single scheme for the scheme to have a great motivating effect on individuals.
2.4.4.1 Incentive schemes involving shares
A share option scheme gives its members the right to buy shares in the company at a set date in the future and at a price usually determined when the scheme is set up. Golden Handcuffs
An employee share ownership plan（ESOP） is a scheme which acquires shares on behalf of a number of employees, and it must distribute these shares within a certain number of years of acquisition.
Those schemes make workers feel they have a stake in the company which employs them.
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