Suggestion Schemes

1. Suggestion Schemes Prepared by: Bhakti Joshi Date: January 30, 2013

2. Meaning Who do the real work? • Focus on employees • Ideas for improvement and innovation • Target creative minds and talent What kind of processes are required? How are innovative products created?

3. Why Suggestion Schemes?...To avoid: • Lack of consistency of purpose to plan product and service that will have a market and to sustain in market and create jobs • Emphasis on short-term profits • Personal review systems, or evaluation of performance, merit rating, annual review, etc. for people in management, the effects of which are devastating.  • Job hopping • Use of visible figures and considering information that are unknown or unknowable • Excessive medical costs • Excessive costs of liability The aforementioned are also known as Deming’s Seven Deadly Disasters

4. Wage Incentive Plans A system which provides additional pay (or bonus) for qualitative and quantitative performance which exceeds standard or normal levels • Relationship building • Increasing productivity • Employee morale • Employee motivation • Employee regularity • Cost control • Improvement in quality of life • Optimum resource utilisation • Flexibility in changing business conditions

5. Types of Wage Incentive Plan Time-Rate System Piece-Rate System • Most common method • Time-based wages • Mostly for general roles (administration, maintenance, etc) • Tendency to creep upwards (inflation, promotion, etc) • Easier from an employee’s perspective • Payment by results system • Output-related payment • Encourages effort at the cost of quality • Home-based workers, sub-contractors • Working hours are unaccountable • Earnings mostly below average Halsey Plan Straight Piece Rate Rowan Plan Straight-Piece with minimum guarantee Emerson Plan Differential Piece Rate Bedeax Plan

6. Straight Piece Rate Example: If a worker produces 325 pieces per day and he is paid at the rate of Rs.0.20 per piece, the daily wage is 325 × 0.20 = Rs.65 ?

7. Straight Piece with minimum guarantee If output > expected or standard production then: Wages = Base wage + (Current Output – Standard Production) X Wage Rate Example The standard output in a hypothetical welding shop is 110 pieces per day. For a production less than or up to the standard output, the minimum guaranteed or daily base wage is Rs.70. Over the standard output an incentive at the rate of Rs.0.50 per piece is given. If the output is 150. What is the total wage? Rs 90

8. Halsey Premium Plan • Time Taken (T) • Standard time (S) • Current Wage (R) • Incentive for time saved (Bonus percentage) • Conditions: • Time Taken < or = Actual Time • Time taken > Actual Time (No incentive)

9. Halsey Premium Plan (Contd…) • When T < or = S • Total Wages (W) = S*R + S*R*Bonus rate Example If the standard time taken to produce 10 units is 240 hours and the actual time taken is 220 hours, with average wages of Rs 4 per hour and 50 % bonus. What is the wage rate under Halsey Premium Plan? 1440

10. Halsey Premium Plan (Contd…) • When T > S • Total Wages (W) = S*R + R *(S-T)/100 (No bonus) Example If the standard time taken to produce 10 units is 240 hours and the actual time taken is 260 hours, with average wages of Rs 4 per hour and 50 % bonus. What is the wage rate under Halsey Premium Plan? 959.20

11. Rowan Plan • Time Taken (T) • Standard time (S) • Current Wage (R) • Incentive for time saved (No bonus percentage) • Conditions: • Time Taken < or = Actual Time • Time taken > Actual Time (No incentive)

12. Rowan Plan (Contd…) • When T < or = S • Total Wages (W) = S*R (No bonus) Example If the standard time taken to produce 10 units is 240 hours and the actual time taken is 220 hours, with average wages of Rs 4 per hour and 50 % bonus. What is the wage rate under Rowan plan? 960

13. Rowan Plan (Contd…) • When T > S • Total Wages (W) = S*R + R *[(S-T)/S] (Never a bonus but an incentive to improve) Example If the standard time taken to produce 10 units is 240 hours and the actual time taken is 250 hours, with average wages of Rs 4 per hour and 50 % bonus. What is the wage rate under Rowan plan? 959.83

14. Differences & Comparisons Advantages Disadvantages • Simple and easy to understand • Focus of Productivity • Satisfaction to efficient and fast workers • No quality focus • No job security • No compensation for breakdown or sickness • No guarantee of minimum wage • Discourage group effort Straight Piece Rate • Encouragement for higher production • Efficient methods can be adopted to increase production • Easy to prepare quotation estimates and budgets • No pay for idle time • Less supervision cost • No standardised basis for minimum guarantee • Beginners and average workers cannot earn enough due to inability to work faster • Quantity will be overemphasised than quality (unless there is close supervision • Overwork and health concerns • Not suitable for intermittent work • Not suitable when jobs are unstandardised Straight Piece Rate with minimum guarantee

15. Differences & Comparisons Advantages Disadvantages • Simple • Beneficial for efficient worker • Causes no harm to trainee, new or slow worker • Benefits sharing • Minimum base-wage guaranteed • Workers get a small percentage of return over their achievement • Quality may suffer due to over-achievement • Management gets a wrong picture of worker’s ability Hasley premium Plan • Checks over-speeding overstrain by workers • Assured minimum base-wage • Efficiency is rewarded • Discourages workers to over-achieve • Difficulty in ascertaining wages as it requires large data processing • Sharing of profit for over-achievement may not be liked by workers Rowlan Plan

16. Wages in India • Three types of wages: Minimum wages, Living wages, Fair wages • Minimum wages (Revision every 5 years): • 3 consumption units for 1 earner • Minimum food requirements of 2700 calories per average Indian adult • Clothing requirement of 72 yards per annum per family • Rent corresponding to minimum area provided for under Government’s Industrial Housing Scheme • Fuel, lighting, etc expenditures that constitute to 20% of the total minimum wages • Children education, medical requirement, minimum recreation, etc that constitutes to 25% of the total minimum wage • Local conditions and other factors affecting wages

17. Wages in India (Contd…) • Minimum wages (Revision every 5 years): • Maharashtra state has devised minimum wages in agriculture as follows *Scheduled employment means an employment specified in the Schedule or any process or branch of work forming part of such employment Variable Dearness Allowance: To protect minimum wages from inflation (CPI)

18. Wages in India (Contd…)

19. Wages in India (Contd…) • Living Wage • More than the minimum wage • Considers national income • Paying capacity of industrial sector • Fair wage • Above minimum wage (lower-limit) and below living wage (upper-limit) • Factors: labour productivity prevailing wage rate, level of national income and its distribution and capacity of industry to pay

20. Components of Employee Remuneration Financial Non-Financial Basic Wages Incentives • Job context • Challenging job • Responsibilities • Growth prospects • Supervision • Working conditions • Job sharing etc. • Fringe Benefits • Provident fund • Medical care • Accident relief • Health and group insurance • Car and its maintenance • Club membership • Paid membership • Furnished house • Stock option scheme

21. Process of managing compensation • Organisational Strategy • Compensation policy • Job analysis and evaluation • Analysis of contingent factors • Design and implementation of compensation plan • Evaluation and review

22. Job Evaluation …is a process of determining the relative worth of a job. Aims at… • Reduction in inequalities in salary structure • Specialisation • Selection in employees • Harmony between employees and manager • Standardisation • Creating relevance for new jobs

23. Job Evaluation: Pre-requisites • Job content – job description and specification • Top management support • Cooperation of union and individual workers • Comparison of Jobs • Involvement of expert in job-evaluation techniques

24. Job Evaluation Methods Non-Analytical Methods Analytical Methods Ranking Method Classification Method Factor Comparison Point Method Methods designed on the basis of the jobs as a whole Methods designed on the basis of the requirements and elements of the jobs

25. Ranking Method • Worth of a job based on: • Judgement of skill • Effort (physical and mental) • Responsibility (supervisory and fiscal) • Working conditions • Ranked in descending order from best to worst • Processes: • Identify and place in order a number of clearly differentiated and well-defined benchmark jobs at various levels. (benchmark jobs as in producers, maintainers, administrators, etc) • Jobs are perceived to be the ones with the highest and lowest value; selecting a job mid-way and finally choosing others at lower or higher intermediate points. The remainder of the jobs are grouped as key jobs and ranking is complete • Divide the ranked jobs into grades and an initial estimate (based on common features among groups to bring about distinction between groups)

26. Ranking Method (Contd…) • Presentations and continuous iterations • Simple, quick and inexpensive only if agreement of the jobs and ranks are reached easily • LIMITATION: • Highly subjective. • Not diagnostic to point the specific areas of weakness and strength of a worker. • Existing jobs must be re-ranked to accommodate new position • Requires detailed knowledge of every job for evaluation and ranking and difficult when a large number of jobs are under consideration

27. Email: bhaktij@gmail.comWebsite: www.headscratchingnotes.net