Premium Bonus Scheme of Payment

Premium Bonus Scheme of Payment

Under piece-work system, the wages charge per unit in the costs remains constant, but labour’s reward depends on the number of units produced, and output has a definite tendency to increase. The premium bonus schemes introduce a different principle; in that a bonus is given having regard to time saved over a pre-arranged time allowed per job. Employees have an incentive to give their best efforts and save time on production orders, and the employer, knowing that he reduces his costs, seeks to maintain a sound organization and efficient plant to ensure maximum production.

The various systems of premium bonus schemes differ chiefly in the method of computing the proportion of saving which is to be paid as bonus to the employees.

There is a reduced charge per unit for overhead, due to the spread of total shop expense over a greater number of units produced. The sum of the savings on all the units or jobs is the "fund" to be divided between the employer and his employees. There is thus a limit to the amount available for bonus. This limit is flexible, as it is determined by the extent to which production is in excess of normal production based on standard or allowed-times for jobs.

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