Stray Thoughts on
PROSPERITY SHARING
– An Unsolved Issue
– H.C. Parekh
THIRD ALL-INDIA PERSONNEL
CONFERENCE
OCT, 10-11-12, 1984
– 1 –
PROSPERITY SHARING
– an Open Question
It is a manner in which all the
employees of the company share in the prosperity of the company in an equitable
manner which takes into account (accounts for),
- Intergroup differences of Contribution
- Intergroup differences of Productivity
- Interlocation differences of
Contribution/Productivity
- Interlocation differences of wage-structure
- Interlocation differences of cost-of-living
- Interlocation differences of type of
business/Industry/Product or services
- Interlocation differences of unions
- Interlocation differences of Regional Practices
- Salary level of an individual
- Years of service with L&T
PRINCIPLES OF EX-GRATIA
It is a manner in which employees
share that part of company’s profitability which has accrued, during the course
of the financial year, exclusively from the improvement in productivity of the
resources and it shall take into account
- Productivity-increase at Corporate level
- Productivity-increase at Group level
- Productivity-increase at Unit level (PSW Vs. MSW
Vs. FSW Vs. ASW)
The Productivity-increase shall
be worked out for the following resources,
- Manpower
- TP (at cost price)/person
- SP (at cost price)/person
- Finances
- Contribution (at const. price)/person
- ROI (at current prices)
Is this possible to work-out
unitwise/groupwise?
Q. Is it possible to
segregate from the company’s overall profitability, that part which is
exclusively due to the improvements in
“Productivity of Resources”
that have taken place during the
course of the year?
Q. Even if this was
possible to do at the overall company-level, is it possible to split-up this
improvement between the
- groups &
- locations
What about “non manufacturing”
locations?
- Bonus component to be linked to the Company’s
profitability, inelastically.
- Bonus component should be relatively small,
since profitability can go up and down from year to year. Even in such
events the bonus-component should not fluctuate widely. Hence it should be
small and relatively insensitive to the company’s profitability although
linked to profitability.
- “Ex-gratia” component should be linked to the
“productivity-improvement” during the course of the year.
- “Productivity-improvements” are unlikely to be the
same, in the different Groups/Units/Depts./Sections of the company. There
is bound to be considerable variation in PII (Productivity-Improvement
Index) from
- group to group (Intergroup)
- location to location (Interlocation)
- within a group (Intra-group)
- within a location (Intra-location)
- In large/majority percentage of our operations, we
have no direct and identifiable measurement of “Productivity”.
This is true even in case of
“direct shop-floor workmen” (some parts of PSW and almost all of PGW).
When it comes to “Indirect
Shop-floor workmen”, productivity measurement does not exist at all. Concepts
however do exist in text-books and theories.
This gets worse when we come to
the unionised office staff such as, clerks, typists, stenos, draftsmen etc.
As we keep climbing up the ladder
to Supervisory and Officers and Covenanted Staff and managerial staff, the
concept of productivity tends to become fuzzier and fuzzier! We start talking
of extremely “difficult-to-quantify” concepts such as
- Initiative
- Creativity
- Team-building
- Leadership etc. etc
All of the foregoing boils down
to a simple fact. Out of over 10,000 employees of the company, the jobs of no
more than 1000 lend themselves for any measurement of their “output” – and
therefore of their “productivity”.
If for a moment, we decide that
the “contribution” made by each group is, in someway, a measure of the
group-productivity and should therefore, form the basis for an “ex-gratia”
amount to be distributed within that group, the following questions arise:
a) What about
“external/uncontrollable” factors’ influence such as
- Government policy/decisions (price control,
protection, wage awards)
- Competitors actions
- Union action (strike)
b) What about new groups/units
which may have long gestation-periods or which need heavy fixed/working capital
which may suppress their “contribution”?
c) What about product/process
profile which may dictate an adverse “make buy” ratio, suppressing
contribution?
d) What about ‘locations’ which
enforce setting up of infra-structure which, we would not set-up in a normal
course everywhere,
e.g.
- Housing (Utmal/Chandrapur)
- Power station
- Roads
- Transport
- Communication
- Health Care etc.
We could list dozens of reasons,
why
- Contribution of a group may be stagnant or
slow-to-rise
- Contribution of a group may widely fluctuate from
year-to-year (if the order-booking/production itself fluctuates from
year-to-year)
- even though the amount of hard-work put-in by the
employees of the group is quite significant.
Now, for the payment of
“ex-gratia”, if these employees are declared “ineligible” based on the
“contribution” of their group, there is bound to be wide-spread
“dis-satisfaction”. The question that may be asked is
“Why should hardworking employees
be denied ex-gratia for no fault of their own, when the decision to enter that
particular business/product/location was a Management decision?”
(The contribution may not have
improved even if the Supervisors/Officers/Workmen were a party to such a
decision).
If the “ex-gratia” payment is
likely to be based on a group-contribution, who (which employees) will
voluntarily come forward
- for intergroup transfers
- for starting new groups
- for shifting to a new location
- for continuing in such groups
Today there are not many opinions
- Opinions
- Consents
- Dissents
regarding any decision of the
Management to
- start a new activity
- close-down an existing activity.
This is because such corporate
decisions do not affect an individual in so far as
- his earning potential
- his job-security
is concerned.
Today, the system works like an
undivided, Hindu joint family. All earning members contribute to the “common
kitty” and everybody shares and shares alike – even those who earn less and
those who do not earn at all.
Very often, one man earns and
rest all eat. The head of the family bears the burden and shelters the “weak”
members of the family from the exposure of the cruel, competitive world. The
bonds of flesh and blood and love and filial piety prevail. The principles of
self-sacrifice and self-negation and renunciation and NIRVANA prevails.
But very often, the head of the
family breaks down!
Very often, parasites
proliferate.
Very often non-ambition becomes a
rule rather than exception.
None of these are welcome things
for a family. And these are definitely undesirable in a company.
PARAMETERS OF PROSPERITY-SHARING
|
Profit (Margin /
Contribution) |
Productivity |
Entire Company / Divisions |
Locations (Mfg. / Mkt.) |
All employees |
|
Sales Turnover / Order Booking
/ Order Backlog |
TP Resource Utilization
Index |
Confirmed |
Cov |
|
|
- Manpower |
Probationer |
Off |
||
|
- M/c |
Trainees |
Sup |
||
|
- Inventory |
Temporaries |
Non-Sup / Non-Union |
||
|
- Space |
Contract |
e.g. Terro techn. |
||
|
Casual |
Unionised |
|||
|
Retainership |
MR |
|||
|
Honouraries |
DR |
|||
|
Consultants |
||||
|
Salaried only |
Salary + Commission |
TP = Transfer Price
(i.e. Price at which manufactured goods are transferred by a factory to its
Sales Dept.)
Material Cost
→ (flow diagram)
Inputs into Product Cost:
- Manpower Cost
- Services Cost
- Material Cost
- Money Cost
- Energy Cost
→ Product Cost
→ Ex-Works Cost (TP)
Further additions:
Left Side:
- Advertising Cost
- Expenses
- Packing/Freight
Right Side:
- Marketing Cost (Divisional Selling + Despatch,
etc.)
↓
Next stage:
Left:
- Corporate Expenses
Right:
- Dealers’ Commission (Distribution Cost)
↓
→ Total Cost
↓
→ Gross Profit
↓
→ Sales Revenue
(Table: Parameters for
Measurement & Deflation)
|
Weightage |
Input |
Units of Measurement |
Deflation Indices to bring
to “constant” value |
Alternate Physical Unit of
Measure |
|
20% |
Manpower |
a) Salary/Wage + Benefits
(Rupees) b) Number of men |
C.P.I. Manpower Rise Index |
a) No. of men b) Mandays c)
Man-hours |
|
66% |
Material (incl. bought-out
components) |
Material Cost (Rupees) |
a) DSP’s Index b) RBI’s Indices
of Raw Materials |
a) Tonnage of incoming
materials b) Tonnage of F.G. stores credited |
|
2% |
Money |
Interest Cost (Rupees) |
a) “Weighted average cost of
Capital” Index b) RBI Bank-rate |
– |
|
1% |
Energy/Services |
Rupee Cost |
a) Energy Cost Index (Ave. cost
of KWH purchased + generated) |
– KWH – Litres of diesel |
|
11% |
All other Inputs |
Rupee |
C.P.I. |
– |
|
100% |
T.P. |
Rupee |
a) RBI Index of Elec./Non-Elec.
Machinery |
– |
(Diagram: Lever concept of Inputs
vs Output)
Inputs ↓ ————▲————
Output
Inputs ↓ ————▲———— Sales
(at current prices) (at current prices)
Gross profit
The lesser the inputs the longer
is the “Gross Profit Lever”
(for same value of output)
OR
the more “productive” an
organisation
This relationship can also be
expressed as,
Sales – Inputs = Profits
(Gross)
If we measure “Sales” &
“Inputs” at constant prices, we will get the “real” or “physical” increase in
“profits” over the years. This can be considered as real or physical increase
in a Company’s “Productivity of Inputs”.
Thereafter once again, if we
wish, we can calculate
Profit (at constant prices)
Employee
To reduce Sales to a constant
price, we simply take the relevant RBI Index (or several indices and then
average out) and deflate the Sales.
To reduce Inputs to a
constant price, we have two choices:
(1) As in case of Sales, simply
take (Sales – Gross Profit) and deflate by one or more Indices (e.g. C.P.I.)
OR
(2) Take separately each
constituent of input
e.g. Material,
Manpower,
Money, etc.
give each the necessary weightage
and thereafter deflate each by its own appropriate “Deflation Index” (See Table
I). Add up the “weighted” values to obtain the “overall deflated Input value.
Now subtract deflated overall
“Input” amount from the deflated “Sales” amount to obtain the gross profit at
“constant” prices. The increase in the value of this profit-at-constant prices
will be a better measure of the improvement of the overall organisational
productivity over a “base” year.
Having figured out the
improvement in the physical productivity of an organisation, the next question
is –
“How to work-out the annual
Productivity Improvement Reward?”
At this stage, we need not bother
about the individual productivity improvement contribution of each element of
input.
Viz:
- Productivity Improvement of Material Input
- Productivity Improvement of Money Input
- Productivity Improvement of Energy Input
Since all inputs are managed by
men (employees), we will accept that all “constituent” productivity
improvements have come about through employee productivity although different
groups of employees may have managed different “inputs”. So we will use a single,
universal measure of
Gross Profit (at constant
prices)
Employee
But question still remains “What
portion of this improved physical gross profit should be returned to the
employees in the form of PIR (Productivity Improvement Reward)?”
Before this question can be
answered, we must ask ourselves,
“Who are the legitimate
claimants to a share in an organisation’s improved productivity?
I believe the following have a
claim:
- The Employee
- The Government
- The Share-holders
- The Customers
- The Society at large and last, but not the least,
- The Company’s “Future”
As far as the Government’s share
is concerned, the Government does not give much choice to a Company. It
collects its share of the Gross Profit by way of Income-Tax which, for most of
the large Companies, is around 57% of the Gross Profit. It is true that some
Companies, by making large capital investments for future growth, have managed
to reduce the Government’s share to a small percentage of the Gross profit. In
effect they have managed to legally deprive the Government, of its nominal
share and managed to give it to the Company’s Future by ploughing-back large
portions of Gross Profits into expansion.
As far as the customer and the
society at large, is concerned, hardly any company has done anything worthwhile
in terms of their share to the company’s gross profits. But time has come when
these claimants cannot be ignored (out of even self-interest) and a percentage
of gross profit must return to them.
As far as share-holders are
concerned, not only must they get a fair return on their investment consistent
with alternate investment opportunities, but they must also get an appreciation
of the book-value of their investment through adequate additions (out of the
gross profit) to the “Reserves”. Part of these “Reserves” will be utilised from
time to time to issue “BONUS” shares to the Shareholders. It is worth noting
that the word selected to convey the meaning of this “profit-sharing”
relationship is also “BONUS”.
So,
Employees get a BONUS for the
productivity of their investment viz. time/effort/intelligence.
and
the share-holders get a BONUS for
the productivity of their investment viz. Money.
I have purposely stated that the BONUS
SHARES come out of only a part of the reserves created. To me a major part
of the reserves created is meant to ensure the continuity (i.e. survival) and
expansion (i.e. growth) of the enterprise. These, obviously are the ultimate
objects of any organisation (or for that matter even any living organism). It
is a recognised fact, all over the world that depreciation and initial
investment allowance are woefully inadequate by themselves to fulfill the
ultimate objectives. A major portion of the reserves must, therefore, be used
for regeneration/rejuvenation of an enterprise even though these are
(mistakenly according to me) considered to be “Share-holders’ Funds”.
PRODUCTION FUNCTION
Materials + Machines + Money +
Manpower → Saleable Goods & Services at Profit
MGMT. OBJECTIVE
MIN
- Materials
- Machines
- Money
- Men
→ MAX → Profit
EMPLOYEE OBJECTIVE
→ MAX → Wages
EMPLOYEE CONTRIBUTES
- Physical efforts
- Skills
WANTS IN RETURN
- Minimum living wage + share in profit
PROFIT HAS MANY CLAIMANTS
- Shareholders
- Ploughback (Reinvestment)
- Government & Society
- Employees
VICIOUS CIRCLE
TRADITIONALLY IN L & T AND
ELSEWHERE
Employee share is by → Bargaining
↓
Increased costs → Passed on to
customer as increased prices
THIS HAS LED TO A VICIOUS
CIRCLE
Cycle:
- Increased Wages
- → Increased Costs
- → Increased Prices
- → Reduced Purchasing Power
- → (back to) Increased Wages
ONLY WAY TO BREAK THIS VICIOUS
CIRCLE IS
▶
TO INCREASE TOTAL WEALTH
EXAMINE FOLLOWING FIGURES:
RICE OUTPUT (100 kg /
Hectares)
- Korea — 67.8
- China — 35.5
- Indonesia — 27.6
- India — 18.7
STEEL (Tonnes / Man-year)
- Japan — 200
- France — 150
- India — 60
TEXTILE (Tonnes / Man-year)
- Japan — 10
- India — 3
SUGAR (Tonnes / Man-year)
- U.S.A. — 430
- Philippines — 119
- India — 24
L & T vs UNELEC – FRANCE
MANPOWER RATIO
- A.C.B. → 1.6 : 1.0
- M.C.C.B. → 5.0 : 1.0
PRODUCTIVITY LINKED WAGES IS
AN ATTEMPT
TO CORRECT THIS SITUATION
TWO MAIN APPROACHES:
(1) Neutralization of
AGREEMENT EFFECT
by PRODUCTIVITY RISE
(e.g. AMCO, Public Sector)
(2) PRODUCTIVITY INCENTIVE
SCHEMES
- Productivity Linked Bonus (Annual)
(e.g. I.T.C.) - Productivity Based Incentive Payment (Monthly)
(e.g. Siemens; G.K.W.; Mukand; Metal Box)
AMCO BATTERIES
AMCO BATTERIES
1000 Workmen — INTUC UNION
1-1-81 SETTLEMENT
- Production prior to Charter of Demands:
340 batteries per week
Mgmt. proved Co. unable to accept
burden of demands.
4 months “go slow”, violence → referred to arbitration
- Internal leaders offered to raise productivity
Within 6 weeks output increased to 510 batteries/week
- Based on profitability at new level, settlement
reached giving:
Average Rs. 215/- per month per workman
- In addition, INCENTIVE BONUS SCHEME INTRODUCED
- Upto 25% above → Rs. 4 per % / month
- 26 to 45% → Rs. 5
- 46 to 60% (ceiling) → Rs. 6
Present production ≈ 800/week
PRODUCTIVITY LINKED BONUS
(OTHER COMPANIES)
PRODUCTIVITY LINKED BONUS –
OTHER COMPANIES
I.T.C.
- Cigarettes / Manday
- Roomnights / Manday
- Loose tobacco ≡ cigarettes
8 – 20.5% of Basic + D.A.
In lieu of Bonus Act
INDIAN AIRLINES
Route–Tonne Km / No. of
Employees
Aircraft Weightage:
- AB
- 707
- 737/CAR
- H.S./FOKKER
Ratio: 7 : 6 : 4 : 1
- Moving average of previous years = Base
- Bonus = % increase in productivity
OR allowable surplus as % of pay
Whichever is lower
BHILAI STEEL
Capacity Utilisation + Tonnes
of Saleable Steel / Man-Year
- 80% Base
- 25 T / M.Y.
81 to 95% → Rs. 90 to 150
(min.)
- 5 to 8% of Basic + D.A.
Flat Rs. 3/T ≤ 50T
95 to 99% → Rs. 90 to 150
(min.)
- 10 to 16% of Basic + D.A.
Rs. 5/T > 50T
I.T.C. LIMITED
I.T.C. LIMITED
Introduced 1970–71
In place of Annual Bonus
INDEX – CONVERTED CIGARETTE /
MAN-HOUR
Hotel Division:
Room-nights occupied / Man-day
BONUS:
9% (Min.) to 20.5% (Max.)
POINTS IN FAVOUR:
- No annual bonus negotiation
- Attendance given weightage
- Total bonus as % of total wages
→ 19.7% to 21.1% in 10 years
Other cigarette companies → 8
to 10%
TELEPHONES (PRODUCTIVITY
FORMULA)
TELEPHONES
Where:
for 1970–77
for 1977–78
for 1978–79
Best of previous 5 years taken
as BASE
Conclusion:
👉 In all above cases,
this Productivity Linked Bonus replaces Statutory Bonus
INCENTIVE SCHEMES
INCENTIVE SCHEMES
SIEMENS INDIA
Measure P.I. =
For Indirects:
Factor ‘F’ × P.I. of related department
- ‘F’ = Productive hours of time booked
Base Levels:
- 60 P.I. for Switchgear (Std.)
- 45 P.I. for Switchboards
Average Earnings:
Rs. 225 per month
- Lowest Grade → 15 – 240
- Highest Grade → 25 – 384
BHARAT BIJLEE
- Same as above, but also for first line
supervisors
- Base: 45 P.I. Std.
For Staff:
- Both relate incentive to:
👉 No. of Man-Hours Present
DISTRIBUTION INSIGHT (VERY
IMPORTANT)
MK 1 – 106 MEN
- 90 → 6
- 80 → 11
- < 30 → 1
- < 40 → 7
(Graph shows bell-shaped
distribution centered around P.I. = 60)
M.C.C.B. – 41 MEN
- 90 → 6
- 80 → 9
- < 30 → 4
- < 40 → 5
(Graph shows lower average
(P.I. ≈ 58) and flatter curve)
ACC PRODUCTION BONUS SCHEME
ACC PRODUCTION BONUS SCHEME
LINKAGE TO ATTENDANCE
Attendance per Month (26 days)
→ % of Bonus Payable
- Less than 21 days → NIL
- Minimum 21 days → 60%
- Minimum 22 days → 75%
- Minimum 23 days → 90%
- 24 days and above → 100%
Direct vs Indirect
- Direct → 100%
- Indirect → 75%
ACC PRODUCTION BONUS SCHEME
Capacity Utilisation → Bonus
Rate
|
Capacity Utilisation |
Bonus Rate |
|
85% to 94% |
Rs. 15 per tonne of production
above 85% |
|
95% to 100% |
Rs. 20 per tonne of production
above 95% |
|
101% or more |
Rs. 30 per tonne of production
above 101% |
Example
For 10,000 tonnes of extra
production above 85% utilisation:
POLICY DIRECTIVE (PUBLIC
SECTOR)
BUREAU OF PUBLIC ENTERPRISES
HAS NOW DIRECTED ALL PUBLIC SECTOR UNITS THAT:
(a) All wage settlements
to be linked to productivity
(b) Ceiling of 10%
increase
(12.5% for profit-making units)
(c) FACT – Kerala (first
case):
12.5% increase linked to 20% increase in saleable output (physical terms)
Key Principle:
👉 Disbursals of
increase to allow output increase — NOT in anticipation
MUKAND (IMPLEMENTATION
CHALLENGE)
MUKAND
- Detailed listing of standard output
(in Nos./Kgs. for each operation) - Incentive limits:
Rs. 110 – 400 per month - Incentive also expressed as:
Rs. per day attended
Critical Constraint Identified
👉 Difficult to adopt
these in L&T
Reason:
- Many departments do not yet have productivity
indicators
FORMULAE FOR MEASURING
PRODUCTIVITY IN L&T
FORMULAE FOR
MEASURING PRODUCTIVITY IN
L&T
FORMULAE BASED ON ANNUAL
REPORT DATA
FORMULAE BASED ON DATA
PUBLISHED IN ANNUAL REPORTS
Years:
1976–77 | 1977–78 | 1978–79 | 1979–80 | 1980–81
1. Value Added / Pay Roll Cost
- 3.55 | 3.24 | 3.53 | 3.13 | 3.96
2. Value Added / (Pay Roll +
Benefit)
- 3.25 | 2.94 | 3.31 | 2.87 | 3.62
3. Value Added / Staff
Expenses
- 2.96 | 2.66 | 2.89 | 2.54 | 2.93
4. Sales / (Pay Roll +
Benefit)
- 6.52 | 6.51 | 7.13 | 7.00 | 7.14
5. Sales at 1973–74 Prices /
Employees
- 0.89 | 0.79 | 1.03 | 0.93 | 0.98
6. Profit at 1973–74 Prices /
Employee
- 0.20 | 0.15 | 0.20 | 0.18 | 0.21
7. Value Added / Conversion
Cost
- 1.48 | 1.40 | 1.40 | 1.20 | 1.49
Source: L&T’s Annual
Reports
LIMITATIONS OF VARIOUS
PRODUCTIVITY RATIOS
Productivity Ratios →
Limitations
1. Value Added / Pay-roll Cost
- (a) Company-wide
- (b) Artificially improves due to increased
overheads
2. Value Added / (Pay-roll +
Pay-roll related benefits)
- (a) Company-wide
- (b) Artificially improves due to increased
overheads
3. Value Added / Staff
Expenses
- (a) Company-wide
- (b) Artificially improves due to increased
overheads
4. Value Added / Conversion
Cost
- (a) Company-wide
- (b) Artificially improves due to increased
overheads
5. Sales / (Pay-roll +
Pay-roll related benefits)
- (a) Company-wide
- (b) Effect of change in Make–Buy ratio ignored
6. Sales at 1973–74 Price per
Employee
- (a) Company-wide
- (b) Effect of overtime ignored
- (c) Effect of change in Make–Buy ratio ignored
7. Real Profit per Employee
- (a) Company-wide
- (b) Effect of overtime ignored
8. Output at Current Price per
Employee
- (a) Artificially improves due to increased
overheads
- (b) Effect of overtime ignored
- (c) Effect of change in Make–Buy ratio ignored
- (d) Figures taken from costing records
- (e) Effect of inflation built-in
9. Output at 1973–74 Price (as
computed)
- (a) Effect of overtime ignored
- (b) Effect of change in Make–Buy ratio ignored
- (d) Figures taken from costing records
10. Output at 1973–74 Prices
(using RBI indices) per employee
- (a) Effect of overtime ignored
- (b) Effect of change in Make–Buy ratio ignored
- (d) Figures taken from costing records
1. Value Added
= Sales + Servicing − Excise Duty
- Closing stock of WIP, Manufactured & Trading
goods
− Opening stock of WIP, Manufactured & Trading goods
− Materials consumed (Raw materials, Components, Stores, Spares, Sub-contracts)
2. Pay-roll Cost
= Salaries, Wages, Bonus (as per
Schedule ‘K’ of Annual Accounts)
3. Pay-roll + Benefits
= Pay-roll cost + PF + Pension
Fund + Superannuation Fund + Gratuity Fund
4. Staff Expenses
= Total staff expenses (as per
Schedule ‘K’)
5. Sales
= Sales + Servicing − Excise Duty
6. Sales at Constant Price
= Sales + Servicing + Commission
+ Compensation + Service fees + Other income
→ Converted to 1973–74 price level using RBI indices (electrical &
non-electrical machinery)
7. Employee
= Yearly average number of
employees
8. Profit at 1973–74 Price
Level
= Inputs & outputs converted
to constant prices using indices:
|
Item |
Index Used |
|
Sales & other income |
Avg. for electrical &
non-electrical machinery |
|
Material cost |
Basic materials |
|
Staff expenses |
Consumer Price Index |
|
Depreciation & obsolescence |
Not deflated (constant rate) |
|
Other expenses |
Consumer Price Index |
FORMULA BASED ON INTERNAL
MANAGEMENT REPORTS
Output at 1973–74 Cost per
Employee
Definitions
Output (at 1973–74 cost level)
= Cost of total inputs at factory
→ Deflated using RBI indices
→ (Average for electrical & non-electrical machinery, base year 1973–74)
Employee
= Average number of employees
attached to:
- Factories
- Service departments
- Including LTCCS employees
Excluding:
- Trainees
- Sales personnel
- HO (Head Office) employees
GRAPHICAL REPRESENTATION OF
INCENTIVE SCHEMES
🔷 GRAPH – A
- Incentive increases sharply (convex curve)
with increase in output
👉 Strong motivation for higher productivity
🔷 GRAPH – B
- Incentive increases gradually (linear / mild
slope)
👉 Moderate, steady encouragement
🔷 GRAPH – C
- Incentive decreases sharply (concave downward)
with increase in output
👉 Discourages excessive output (cost/control focus)
🔷 GRAPH – D
- Incentive decreases gradually with output
👉 Soft control mechanism
These 4 graphs represent:
|
Graph |
Type |
Behaviour |
|
A |
Progressive (accelerating) |
High-performance push |
|
B |
Linear / mild progressive |
Balanced growth |
|
C |
Regressive (steep) |
Output control / fatigue
management |
|
D |
Mild regressive |
Soft moderation |
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