Question

Modern Trading LLC is considering the introduction of some incentive scheme of wage payment for increasing the labor productivity to cope with the increased demand. Company feels that if the proposed incentive scheme could bring about an increase over the present earnings of the workers, it could act as enough incentive for them to produce more. The increase in productivity has been observed as revealed by the following figures for the current month: Page 4 of 4 Mr. Ali and Mr. Aleem are workers working in Modern Trading LLC company and their output during a day after working for 8 hours is 810 units and 785 units, respectively. Based on previous recorder company decided standard rate that is paid to workers is RO 185 per hour and standard time taken for producing 5 units is 3 minutes. The actual time take by Mr. Ali is 5 hours and Mr. Aleem is 6 hours. Assume that you are an Accounts Manager and requested to calculate the earnings using: a. Halsey incentive schemes for Mr. Ali and Rowan incentive schemes for Mr. Aleem. b. Merrick Differential Piece Rate System for Mr. Ali and Mr. Aleem. c. Modern Trading LLC want to implement incentive scheme for low performance worker to increase productivity. So, in this regard suggest Modern Trading LLC which incentive scheme they should implement to increase the productivity of the worker. (300 words)

Answer 1

a) Computation of Earning of Mr Ali using Halsey Method:

Total output of Mr Ali is 810 units

Standard time taken to produce 5 units is 3 mins. Therefore Standard time taken to produce 810 units is

=3/5*810= 486 minutes i.e 8.1 hours

Rate is RO 185 per hour

Actual time taken is 5 hours.

Therefore S=8.1; R=185; T=5

Incentive under Halsey scheme= R*T+(50%(S-T)*R)

= 185*5+(50%(8.1-5)*185)

= 925+50%(3.1*185)

= 925+50%*573.5

= 925+286

= 1211.75

So earnings for Mr Ali under Halsey incentive scheme will be RO 1,211.75

Computation of Earning of Mr Aleem using Rowan Incentive Scheme:

Total output of Mr Ali is 785 units

Standard time taken to produce 5 units is 3 mins. Therefore Standard time taken to produce 785 units is

=3/5*785= 471 minutes i.e 7.85 hours

Therefore S=7.85; R= 185; T= 6

Incentive under Rowan scheme= R*T+ ((S-T)/S)*T*R

=185*6 + ((7.85-6)/7.85)*6*185

=1110+(1.85/7.85)*1110

=1110+(0.236*1110)

=1110+261.96

=1371.96

So earnings for Mr Aleem under Rowan incentive scheme will be RO 1,211.75

b) Merrick differential piece rate system for Mr Ali & Mr Aleem

Under Merrick differential piece rate system differential incentive is given for different efficiency level i.e low piece rate for low performance workers and high incentive for high performance worker.

In the above question standard output is 5 units per 3 minutes. So in 8 hours time the total standard output is = 5/3*60*8= 800 units.

Ali has produced 810 units in 8 hours hence his efficiency is 101.25% of standard

Aleem has produced 785 units in 8 hours hence his efficiency is 98.13% of standard

The standard piece rate is RO 185*8/800= RO 1.85 per piece

Assuming 80% of piece rate is being paid for not achieving the standard and 120% is being paid for exceeding the standard:

Ali will get: 1.85*120%*810= RO 1,798.20

Aleem will get: 1.85*80%*785= 1,161.80

C) Incentive scheme to be introduced for low performance workers:

For Modern Trading LLC Merrick's differential piece rate system of incentive would be the best incentive scheme for increasing the productivity of the Low performance worker.

Under the Merrick's differential piece rate system low performance workers are penalized and high performance worker can get rewarded with higher piece rate system. Hence the low performance worker will always have an additional motivation to perform at a higher efficiency at least to achieve the standard. Under Merrick's differential piece rate system if an worker is unable to achieve the standard output he is penalized with a lower percentage of his piece rate. Hence the worker get penalized two ways, once getting lower peice rate and earnign less due to lower put put. Therefore at least to maintain the standard piece rate the low performance workers will try to achieve the standard output. It also works as a motivation for them because as soon they exceed standard output their piece rate increases by certain % giving them an opportunity to earn at a higher rate.

Also This system is directly linked with the output. So if management wants to increase its output it can help the management to clearly define and set goals for the workers which the workers can work towards to earn the additional incentive.

So Modern Trading LLC should implement Merrick's differential piece rate system.