PRODUCTIVITY LINKED INCENTIVES IN SERVICE SECTER FORMULATION,MEASUREMENT AND IMPLEMENTION DEFINITION OF PRODUCTIVITY Productivity is the amount of output per unit of input. Input element in an organization consists of resources used in the product creation process,such as labour,material,energy. Output consists of a given product, service and the amount of both. In case of service sector the output has two aspects quantitative and qualitative aspects. Therefore definition of productivity in service sector Quantity of output and quality of output Productivity = PRODUCTIVITY ASPECTS OUTPUT AND INPUT MEASUREMENT Output Measurement Measure of the aggregate value of goods or services sold. Gross Output - Intermediate Outputs Involves using information on the relative prices of the goods and services as weights. While measuring productivity value measures of output are then transformed into volume measures using price indices. ………CONTINUED Input Measurement The main input is labour, and the total hours actually worked(THAW) is the preferred measure of labour output. Based on the assumption that the mix of different kinds of job is much the same at different time examined. A possible approach to capture the differences in the productivity is given by the indicator of THAWCP. ………CONTINUED The weighting scheme adopted is of simplified method to capture the quality of input of labour. TECHNIQUES FOR MEASURING PRODUCTIVITY Productivity is typically measured relative to some benchmark. Productivity measures include single factor productivity and multifactor productivity measure. ………CONTINUED A non- parametric technique Includes Data Envelopment Analysis. Takes data on organizations outputs and inputs and measures the efficiency of a particular organization by its distance from the ‘outer envelope’ of the data. The technique relies on the use of extreme observations in the data. 5 WAYS TO IMPROVE PRODUCTIVITY CONSEQUENCE OF PRODUCTIVITY IMPROVEMENT PRESENT REMUNERATION SYSTEM The present wage system may be in the form of Salary scale Salary range Minimum and maximum annual increment Collective bargaining PRODUCTIVITY LINKED INCENTIVES IN AIRLINES • INDIAN AIRLINES WEAKNESS IN PRESENT REMUNERATION SYSTEM The general trend of wage increase is rapid and not related to productivity improvement. Annual increments are pre-determined and are given automatically to all workers regardless to the level of performance. Remuneration is not related to company performance. REASON FOR LINKING PRODUCTIVITY WITH REMUNERATION Linking productivity with remuneration make the following thing possible Higher wages for worker and higher profits for companies Greater competitiveness for companies PRODUCTIVITY LINKED REMUNERATION SYSTEM PRODUCTIVITY MODEL In the productivity linked incentive model the wage has two component. They are Fixed component Basic wage Annual increment Variable component linked with Productivity and Performance FORMULATION T=A+P Where T= Wage increase A= Annual increment P=Variable productivity payment. EXAMPLE If basic wage is equal to Rs.2500 pm, A= 5%, P=4% Basic wage + A = Rs.2500 + 5% of Rs.2500 = Rs. 2625 per month P = 4% of Rs. 2500 12 = Rs.1200 per annum Total increment = Rs. 225 per month. PROFITABILITY MODEL In this model, the fixed component includes the basic wage and an annual increment. The variable component will be determined using a profit- sharing formula where: The formula is to be agreed upon between the management and union and reviewed periodically. Wage incentive is paid if profits exceed a pre- determined or threshold level which can be calculated based on absolute or relative form or average profit earned over a number of years as follows: CONTINUED…….. Absolute form : Trading or operating profit Net profit before tax Profit after tax Relative form : Return on sales Return on equity Return on assets MEASUREMENT OF INCETIVES Incentive schemes in Public Sector Budget based reward system, where the reward is calculated on the bases of the comparison of objectives and results. …….CONTINUED FACTOR FOR SUCCESSFUL IMPLEMENTATION Satisfactory labour management relationship. Realistic annual increment. Challenging and equitable variable payment. Wage system should be Specific Measurable Achievable Realistic. VII PILLARS OF PRODUCTIVITY IT Move from analog to digital processes Open information access Empower the employees Use merit based incentives Invest in corporate culture Recruit the right people Invest in human capital PRODUCTIVITY LINKED INCENTIVES IN INDIAN AIRLINES Staff of Indian Airlines getting PLI, the increase in its fleet size will improve the aircraft-employee ratio. Under this scheme employees are paid monthly incentives depending upon the performance of the airline. ………CONTINUED Parameters Firstly, timely availability of aircraft for flying. Secondly, time taken by aircraft for major maintenance purposes. Thirdly, number of passengers carried and on-time performance. PRODUCTIVITY MEASURES OF BANK Increase Of Productivity through strategic delivery assessment:- 1. Increase customer satisfaction. 2. Effectively manage production and service delivery to exceed customer needs. ….CONTINUED 3.To keep up with increasing technology so as to remain competitive. 4.Identify overall and line of business objectives and keep them in order. 5.Position people,process and technology to achieve results. Increase of productivity through performance improvement:- 1.Identify line-of-business improvement initiatives to increase productivity and efficiency. 2.Compare functional level performance to institutions of similar asset size. ……CONTINUED 3.Develop industry performance indicators that are specific,actionable and measurable. 4.Reduce cost and improve income through evaluation of alternatives. 5.Implement changes and measure their success. 6.Ensure tasks are completed on-time and within budget. Increase of productivity through sales force development:- 1.Develop measurement-reporting structures to track employee performance. 2.Develop measures,thresholds and weights that clearly indicate expected performance levels. …………..CONTINUED 3.Balance sales and service. 4.Ensure systems properly reward top performers. 5.Improve and standardize work processes. 6.Balance staffing required and service expected with predictive models and routines.
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