Piecework Plan and Merit Pay

Programme Title:Management of Human Resource and the Practice of Management Batch No:ABMEM 0962B =============================================================== Written By: Deadline: 26-Dec-2009 Table of Content No.

| Topics Headings in Project| Pages| 1| The usefulness and limitations of Piecework plan and Merit Pay| Pg 3 – Pg 10| 2| Identify and explain 5 reasons as to why incentive plans fail| Pg 11 – Pg 13| 3| How are you going to implement the incentive plans? | Pg 14 – Pg 15| Question 1It was Frederick Taylor who advances the arguments for adopting financial incentives as a motivation tool. Critically examine the usefulness and limitations of the two following incentive plans: a) Piecework plans b) Merit Pay a) Piecework plans Under the straight piecework plan, the employee is guaranteed a minimum hourly rate for meeting a pre-established standard output. For output above this standard, the employee earns a specified amount for each piece produced. Under differential piece rate plans, there are two rates.One rate is for the performance up to the standard.

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The other is used when the employee exceeds the standard. The latter rate is higher than the former. It is simply to encourage the employee to exceed the standard. Following stated two type of Piecework pay: Straight piecework is a fixed sum is paid for each unit the worker produces under an established piece rate standard. An incentive may be paid for exceeding the piece rate standard. Standard hour plan is worker gets a premium equal to the percent by which his or her work performance exceeds he established standard (Dessler.

G, 2005) Following are several benefits applying of piecework plans in organization or factories: Boost Productivity Motivating employee’s more productivity and enhanced. This plan is suitable apply on certain field i. e. ; farms crew and textile factories in order to raise output to meet customer orders or improving on time shipments. From theory of Scientific Management Frederick Winslow Taylor, workers are paid according to the number of items they produce in a set period of time- piece-rate pay.

Workers are encouraged to work hard and maximize their productivity. (tutor2u, motivation theories) Opportunity Earn Higher Pay Piecework plans is an opportunity for employees to earn more or above their hourly rate. Employers may obtain the most productive workers since piecework motivates employees to producing more in order to receive a higher wage. This also encourages employees to become as efficient as possible to produce more because time is precious for them to earn money. Equity, employees paid depend on how much they could produce.Suitable apply on individual piecework plan .

Best way to avoid laziness and absent happen in the workplace. However, the followings are limitations faced by employers when applying piecework plan: Supervision Needed The limitations of Piecework Plan are it requires constant administration as well as industrial engineers and industrial engineering technicians, supervisors to maintain the system. Decrease in the cost of waste, spoilage, rejects, and rework. As Frederick Winslow Taylor said, ‘workers do not naturally enjoy work and so need close supervision and control’.Quality vs.

quantity If the quality of the product suffers due to the fact of increasing quantity, then it is counter- productivity. Frequent errors, defective products due to employees rushing to produce or cut corners and quality suffer. Quality control is needed to avoid all of these problems occur frequently. Affect to employee’s health Due to the fact of long working hours, it will affect the health of the employees as they would want more income means long hours working without sufficient rest given thus employer would make use of this ,becoming as an act of ill treatment.This abuse of labor gave piece work a negative connotation. For examples, crew workers were involved in multiple jobs such as cutting, picking, sorting, sweeping and knocking for harvest, removing leaves, suckering, grafting, covering grafts, digging roots and planting posts.

Conflicts among Employees Those who are able to help company produce more product would be jealous by those who can’t thus conflict will rise between them due to the fact that they are afraid of retrenchment by their superior.A published in August 13, 1921 by The New York Times articles about railroad shops using piecework plan as base pay for workers are unjustified. It shows evident of unjustification of the plan is, and workers are unhappy about piecework plans brings about . The article also stated that, efficiency of the workers are dropped due to the effects of piecework plan, “sincerity and honesty are undermined by piecework system “induced shop workers to hastily and inefficient repairs in order to complete job quickly.Another article which is Published, October 27, 1921 by The New York Times which is about a strike of the 55,000 members of the international ladies garment workers union in the city against the piece work system to be established.

In the article it also stated that the workers are underpaid and working long hours. From the above issues, we could conclude that companies do not always use a suitable method but may use one that gives inaccurate result. Nowadays, piecework plans may obsolete for new generation and modern day.Technology or machinery changing and improving from time to time, some of the factories work should be replace by machinery. For example harvesting work in farm may replace by high-end machinery. b) Merit Pay Bacal & Associates (2005) defined Merit Pay is performance-related pay it is also determining as employee’s compensation which is base on salary or bonuses.

The reward is depends on how well an employee perform in the workplace. Merit pay is monetary reward included annual salaries increases, bonus program or system, direct compensation for quantified production.Business theorist Frederick Winslow Taylor was a great supporter of this method of payment, which is often referred to as PRP. He believed money was the main incentive for increased productivity and introducing the widely used concept of ‘piece work’. Merit pay is a motivator and attractor for employees in an organization.

Below stated benefits obtained by employers obtained using merit pay. Encourage Sales Volume Merit pay or commission plan suitable apply for sales people, Car salesmen, production line workers, for example, may be paid in this way, or through commission. By Wikipedia, Performance-related pay). From sales perspective, money reward or commission is one of strong motivation for sales person to achieve and exceeding sales targets; it does really reward and encourage super performers. It is great method motivated employees to hit the organization’s sales target.

The Notion of Equity or Fairness From summary from CIPD, 2009, there is more widespread acceptance of the effectiveness of merit pay in this respect – that it is right and proper that employees who perform better at work should be rewarded more highly with fairly and accurately evaluated or measured.Retain Employees On management point of view, employers adopt merit pay to drive their employees to continue contribute in an organization. Employees who are able to perform outstanding, he or she gets a higher pay. This is one of the best ways to retain existing employees in an organization. Additional Income for Employees Merit pay provides employees the opportunity for increased earnings especially for the employees’ desire stability in jobs and merit pay could sustain their families and living expenses.

However, there is some of the opposition applying Merit pay in organization, employers facing some undesired problems from employees. Pay for performance plans erode the spirit of cooperation between teaching professionals Merit pay systems force teachers to compete, rather than cooperate. They create a disincentive for teachers to share information and teaching techniques. This is especially true because there is always a limited pool of money for merit pay. Thus, the number one way teachers learn their craft – learning from their colleagues – is effectively shut down.If you think we have turnover problems in teaching now, wait until new teachers have no one to turn to.

Pay for performance plans have not been shown to make a difference in teacher performance and student achievement: A 1994 Urban Institute study (Issues and Case Studies in Teacher Incentive Plans) reviewed studies of merit pay and found “little evidence from other research, including the evaluation literature that incentive programs (particularly pay-for-performance) had led to improved teacher performance and student achievements. ” Fragment team behaviorPoor objective setting can lead to undesired behavior changes for example a focus on short-termism or unwillingness to engage in team working, as employees try to achieve their individual performance related pay awards for the year. The aim should be to design objectives carefully to avoid such effects, for example by ensuring that they encourage high performance in the long term. Undesired impacts on employee behavior Pilbeam ; Cobridge in their book (2002) showing that individual may focus on the specified objectives to secure enhanced payments, but may neglect other important features of the job.For examples, employees may use unethical methods to met targets or goals.

Feeling of Inequity Selvaraj ; Devi (2002) defined in some organization; non-sales personnel do not entitle commission but receive only salary. However, while most of these non-sales people feel that they receive a good salary for the work they put in and their salary is competitive in the market place, some of them seem a little disappointed in the inequity in remuneration between them and the sales people. What people value today?From the above viewed, we could conclude that certainly money is important for very employees but sometime not everyone is motivated by the same way. Because different people have different types of needs, desires, and goals. Merit pay or money may not attractive and fulfill to all employees. Question 2 Despite wide spread use of incentive plans, majority of the employees are not satisfied with the incentive plans offered by their organization.

a) Identify and explain 5 reasons as to why incentive plans fail. Different Types of NeedsIncentive plans fail when the structure is targeted too widely and not focused on individual people or teams because different people have different types of needs, desires, and goals. That is the reason why sometime incentive plan fail apply in organization. According to Maslow Hierarchy of needs, human beings always look for higher order needs. In an organization some of the employees may search for higher esteem needs when they have achieved physiology needs, safety needs and social needs. They may pay attention on satisfaction, recognition; challenges and career development opportunities.

Differences Emerged and Education Level Incentive fails because difference aged employees have different expectation. Higher education employees may search for job satisfaction. Monetary incentive may unattractive for them, employees aged between 20 and 29 valued career advancement, training and involvement in major decisions. Mid-career individuals from aged 30 to 49 valued paid time off, challenging work and regular performance feedback, while established employees who are aged 50 or above wanted involvement in important decisions. Pickford, 2003, p199) Rewards Create Stress. Forcing people to compete for rewards causes them to see each other as obstacles to their own success.

(tutor2u, Motivation Theory) Employees will feel stressful working in competition environment; their behavior will change, appearing unhelpful or selfish among colleagues. In fact, lot of employees prefers to working in a harmony and team work environment rather than having implemented incentive plans on them. Rewards discourage risk-taking.If a reward is attractive, people will do exactly what they are asked to do. This is a problem as they become less inclined to take risks or explore possibilities thus kills creativity.

Telling people that their income will depend on their productivity or performance rating will result in them to focus on the numbers. Sometimes they will manipulate the schedule for completing tasks or even engage in unethical and illegal behavior. People may also work for rewards hence trying to minimize challenge.People tend to lower their sights when they are encouraged to think about what they are going to get for their efforts. Hence this motivates peoples to get rewards, rather than motivates them to work their best. Rewards rupture relationships especially in business; rewards are often associated with competition, such as employee-of-the-month and cash prize for being top-performer.

This motivating applies only on short-term. As there are just so many prizes to go around, one may come to see their co-workers as obstacles in the way of their success.Reward-based recognition systems, with their emphasis on scarce and limited prizes will impact positive working relationships and interfere with the process of collaboration-building and cooperation. How are you going to implement the incentive plans? Before deciding on an incentive plan, an organization must have a strategic need identified. Depending on the size of the organization some key reasons for creating incentive plans include; attracting new employees or retaining existing ones, reduction of taxes, or planning for retirement. Good plans are easy to implement and to follow.

The employees need to know what they can do to earn an incentive and what exactly that incentive will be. Incentive plans should be installed only when production has reached 60 percent of the rated capacity, care should be taken to provide a suitable gestation mechanism n the scheme on a time bound basis so that incentive payments at a lower level of the performance are allowed only for limited time period, the quantum of incentive paid at the low levels of production are efficiency should be such as to ensure that earnings continuously increase when the targets are raised.Secondly, management needs to have clear goals and expectations. Employees need to have a clear understanding of what is expected for average performance and what actions they can take to help the company exceed the basic business goals and thus earn an incentive. The plan should not undermine cooperation amongst the workers, it should rather stimulate cooperation with a view to achieving the common objective of increasing the well being of the business and therefore of the workers in general. Performance level of the employee, i.

e. hey should not be too high nor too low, such performance standards should be set as are within the control of employees, the adoptions of objective assessment procedures and the use of functional responsibility are to be advocated in addition to such indices of productivity as wages cost per until sale or salary saving on inventory etc. Be creative. Today’s employees look beyond money for other rewards. They are looking for challenges, recognition and empowerment.

Non-cash recognition awards are a very effective way to reinforce the agency’s values.For example, employees who provide outstanding customer service receive special awards. One way is for employees to be nominated as the top performer of the month or quarter. Management needs to think about the types of awards that make sense for employees. References Subject: People, Topic-Motivation-Theories, achieve Results with Nancy, Clinical Hypnotherapist http://tutor2u.

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pdx. edu/faculty/marcian/ppt12. pt (Accessed 11 Dec 09) Incentive Program, modified on 10 November 2009 http://en. wikipedia. org/wiki/Incentive_program (Accessed 11 Dec 09) Performance Management ; Appraisal Help Center by Bacal ; Associates http://performance-appraisals.

org/faq/meritwhat. htm(Accessed 6 Dec 09) Performance-related pay At from Wikipedia, the free encyclopedia http://en. wikipedia. org/wiki/Performance-related_pay (Accessed 6 Dec 09) Performance-Related Pay by CIPD Revised February 2009 http://www. cipd.

co. uk/subjects/perfmangmt/perfrelpay/prefrelpay. tm (Accessed 7 Nov 09) The New York Times: published august 13, 1921[Copyright the New York Times] [articles: Road Urge Economy in Piecework Plan] The New York Times: published October 27, 1921[Copyright the New York Times] [articles: Threatens Strike on Piecework Plan] Pilbeam S. ; Corbridge M. , (2002),People Resourcing HRM in Practice,England: Harlow Selvaraj N. ; Devi S.

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