Principles of Management PRODUCTIVITY LINKED INCENTIVES IN SERVICE SECTER FORMULATION

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					 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.