Incentive schemes

Helping to make competition Irrelevant

Incentive Schemes

What Really Motivates People at WORK!!

Is it Money

Is it Position

Is it Recognition

Is it Job Satisfaction

Piecework has been there for years and

years

People are Highly

Motivated and skillful

under piecework

No obligations

for employer,

Historical system- Piecework

Cost effective systems…

No work, No employees

Virtually no supervision is needed

Make through – One person

makes the whole garment

Batch System -Group of

operators working together

Piecework Systems- 3 types

Line system- Every

operation has a rate

Labour Rate per piece Lower Up to 46% Higher

Cost Per pc depends on Work Content Market Rate

Attrition Rate Lower Higher

Compare Salary Piece Rate

Cost depends on SAMCost depends on

Present labour demand

Quantity can be forced by incentive Scheme

More production more money. Quality is not mandatory

They stay with the companyThey move wherever the pay is

higher

polo shirt polo shirt -LS

round neck T shirt

fleece pant Men's Brief Ladies Short Tank

Hood Shirt Pillow cover

Fitted Sheet

Flat Sheet Pillow cover

Quilt cover0

5

10

15

20

25

30

salary system piece rate

Studies show labour rate is higher in piece rate system

Operators focus on Quality Quantity

Labour Rate per piece Lower Up to 46% Higher

Cost Per pc depends on Work Content Market Rate

Operators focus on Quality Quantity

Attrition Rate Lower Higher

Compare Salary Piece Rate

They stay with the companyThey move wherever the pay is

higher

Product Change No problem Price negotiation

Advanced Technology Welcome Resisted

Capacity Fixed Varies with labour availability

Company can hire and fire as they want.

Labour may not be available when needed.

Will help them work Will reduce earning opportunity and piece rate

Will reduce work Will reduce earning

Work study and Method Improvement Welcome Resisted

Fixed number of employees in the company

Product Change No problem Price negotiation

Advanced Technology Welcome Resisted

Capacity Fixed Varies with labour availability

Work study and Method Improvement Welcome Resisted

Labour Rate per piece Lower 46% Higher

Cost Per pc depends on Work Content Market Rate

Operators focus on Quality Quantity

Attrition Rate Lower Higher

Compare Salary Piece Rate

Will reduce work Will reduce earning

Challenges of Piece work system

Most factories do not have the systems to

establish proper methods and Standard

times

Hence the Rate is decided by a mutual

negotiation

Until rate is settled there is huge loss of

productivity

To decide a fair rate is most critical step

Things are changing

Number of Pieceworkers are

reducing Industry is expanding Margins are very

tight

For a complaint factory disciplined labour is a MUST!!

Pieceworkers earn less annually, hence “Piece work earns more” is a myth..

The solutionIncentives Adds benefits of piece rate to Salary System

• Focus on Quantity• Capacity increases with efficiency• Less cost incurred

• Option to earn more money• No price negotiation problem• Less Troubles

Company

Operators

Convert from Push to Pull

• Easy for Managers• Easy for the Supervisors• Quality will improve • Motivated workforce• Downtime will reduce• Operators will demand better services:

– Supply of work– Better Planning– Line Balancing– Mechanic’s service

Quality ?

Pre-requisites of a structured Incentive Scheme

The company Must Establish best methods and fair standard times

Fool proof tracking of operator performances

Easy to understand, Must be fair to all

Mutual agreement required

No limits to earnings

Supervisors , IE’s and indirect Must be included

The carrot should be worthwhile going for..

WIP Progress levels must be controlled

Few Suggestions for a suitable Incentive scheme

Example :

Jump Start Bonus Rs. 350

Efficiency Start level = 50%

Must achieve monthly average of 50% to earn Rs. 350

Example:Attendance Bonus Rs.400

No absent 4001 day absent 3002 days absent 1503 days or more 0

Attendance Bonus

Jump Start Bonus

Individual Bonus

Group Bonus

400

350

•Quick pace builder and motivator

•Start level Must be achievable

•Everyone achieving this level is eligible

•Helps to establish trust between

management and workers

Example:

Based on attended daysRules of deduction to be made for• One day absent• 2 day absent• 3 days or more

Attendance Bonus

Jump Start Bonus

Individual Bonus

Group Bonus

Bonus Scheme

400

350

1500 @100%

1500 @100%

Based on Individual performance

Will be paid only if the group is earning bonus

No limits to earnings

Promotes Self motivation

Example

Group Bonus @ 100% Rs.1500

Payment start level

50%

Approx. Rs.30 for every 1% increase in

group efficiency.

All operators are allocated to groups.

A Groups can be subsections or Line

Group must achieve the start level efficiency

Bonus are paid on the collective efficiency of the group

Peer pressure will create group loyalty

Efficiency Bonus

To be paid Only if the

group reaches the set

level

Establish the

incentive to be paid @100%

Decide the share of

individual and Group

bonus

Individual Bonus @

100% Rs.1500

Payment start level 50%

No bonus if group efficiency < 50%

Approx. Rs.30 for every 1%

increase in individual efficiency

Example

Attendance Bonus

Jump Start Bonus

Individual Bonus

Group Bonus

Objective of each Bonus

• Reduces Absenteeism• Motivates to come on time

• Make it easy to achieve• Once achieved instills confidence in bonus

system

• Boosts individual efficiency

• Boosts group efficiency• Builds team spirit

Operators come to work each day on time and earn Rs. 400

Attendance Bonus

Jump Start Bonus

Individual Bonus

Group Bonus

What can the operator get?

1500 @100%

1500 @100%

Reach just 50% efficiency and earn Rs. 350

400

350

900 @80%

900 @80%

Operators take home Rs. 2550

This is achievable

There is no limit…☺

80% efficiency is achievable Earn Rs. 900

80% efficiency is achievable earn Rs. 900

0 10 20 30 40 50 60 70 80 90 1004000

5000

6000

7000

8000

9000

10000

6350

6950

7550

8150

8750

9350

Bonus SchemeBased on Rs 6, 000 basic

No Bonus paid below 50% Jumpstart paid at 50%Bonus increases with efficiency

Attendance Bonus

Jump Start Bonus

Individual Bonus

Group Bonus

Some important points

1. Bonus is paid for total hours work including

overtime

Win-Win Situation

• More Capacity• Less Absenteeism• No work no bonus• Reduced cost/piece• Improved Quality• Higher Production• Happy Owners.• More Money

• More Efficiency• Higher Motivation• More work more bonus• Increased earnings• Fewer Repairs• Higher Output• Happy Employees• More Money

Company Operators

Who Earns Bonus?Everyone can earn more.• Operators • Line Helpers• Other Helpers• Supervisors• IE’S• QCs

&THE COMPANY

People who do not have tickets (Supervisors, helpers, QC)

Their earning is dependent upon the performance of the group they work for.

If group achieves high efficiency they earn more.

Important Information

Start on a 3 month

trial

Explain benefits

to operators

Highlight best

operators

Encourage low

efficiency operators

No bonus for off-

standard time

Benefits of Bonus to the Company

• Average Salary Rs. 6000• Operators 200• Present Efficiency 40%• Present Production 40000/month• Overhead 150%• Absenteeism 10%

35% 40% 45% 50% 55% 60% 65% 70% 75% 80%0

1000000

2000000

3000000

4000000

5000000

6000000

Salary Overhead BonusTotal Cost Profits

Basic Salaries remain the sameOverheads remain the sameBonus increases with efficiencyOperators earn moreThe company earns Much MORE!!

Bonus Scheme increases efficiencyEverybody Wins!!

Bonus System

The Key to future increased

Profitability

Basic rules of the scheme

• No individual bonus unless the group is earning

Bonus

• Define a start level for the Bonus earnings

• The start level – At this level the company must

cover all the overheads and should make a certain

amount of profit.

• Jump start amount in terms of overtime hours • Jump start bonus amount = 14 hrs of overtime

pay• If you were