Visakhapatnam Steel Plant (VSP) was reported to BIFR as a potentially sick company in the year 2000 with more than 50% of its capital eroded through accumulated losses. It made a turnaround in 2002-03 by registering a net profit of Rs. 521 cr. One of the major contributing factors towards turnaround of Visakhapatnam Steel Plant is its incentive scheme.
The purpose of introducing an in-centive scheme in an organization is to motivate employees to higher levels of performance. Empirical studies conducted by the Scientific School of Management suggest that an employee can improve his level of performance by a third more than his normal level, if suitably motivated. Financial incentive schemes are designed keeping this purpose in view. Research in the field of motivation has also shown that it is not the promise of money alone that motivates employees. Broadly speaking, an incentive scheme is a system of Payment by Results (PBR) as against guaranteed time wage, which is a system of Payment by Time. Under guaranteed time wage, the proposition is to pay Fair Day's Wage as against Fair Day's Work; the components of guaranteed time wage are basic pay, dearness allowance etc. These are paid against time and are more or less fixed except DA, which has been introduced in developing countries to protect real wages against inflation.
The Classical authors put forward different sharing principles while suggesting payment under incentive schemes. Some of them are Halsey's scheme, Berth's Variable scheme, Rowan's scheme etc. Some schemes suggest that savings in labour cost above the standard performance level should be paid to the labour as their incentive. Some suggest that a part of savings on fixed cost may also be given to the labour. While deciding the threshold level, care has to be taken that incentive payment is not made at very low level of capacity utilization. |
