## Premium Bonus Plans — The Concept
Premium bonus plans are a hybrid of time rate and piece rate:
- Workers are guaranteed their time rate (minimum earnings even if output is low)
- If they finish a job faster than standard time, the time saved is shared between the worker (bonus) and the employer (efficiency gain)
This protects workers from loss while incentivising efficiency.
---
## Halsey Premium Plan
Mechanism: Worker receives 50% of the wages of time saved as bonus.
Formulas:
```
Time Wages = Actual Time × Rate per hour
Bonus = 50% × Time Saved × Rate per hour
Total Wages = Time Wages + Bonus
Time Saved = Standard Time − Actual Time
```
Key feature: Bonus is capped at 50% of time saved — employer retains the other 50% benefit.
Advantages:
- Time rate guaranteed — workers feel secure
- Employer benefits proportionally from efficiency improvements
- Equitable — rewards productivity without creating runaway wage costs
Disadvantages:
- Weaker incentive than pure piece rate — workers only get half the benefit of extra effort
- Some workers resent the 50/50 sharing as unfair
---
## Rowan Premium Plan
Mechanism: Bonus is a proportion of time wages — the proportion equals the ratio of time saved to standard time.
Formulas:
```
Time Wages = Actual Time × Rate per hour
Bonus = (Time Saved ÷ Standard Time) × Actual Time × Rate per hour
Total Wages = Time Wages + Bonus
```
Equivalent form: Bonus = (Time Saved / Standard Time) × Time Wages
Key insight: As time saved increases, the bonus rate per hour actually decreases after time saved exceeds 50% of standard time. This makes the system self-correcting — workers cannot double their earnings by doubling speed.
Advantages:
- Fool-proof against loose rate setting — workers cannot double earnings
- Better rewards for moderately efficient workers than Halsey
- Stable labour costs even with rate-setting errors
Disadvantages:
- More complex to calculate than Halsey
- Weak incentive once time saved exceeds 50% of standard time
- Workers may perceive the declining marginal bonus as unfair
---
## Critical Comparison: Halsey vs. Rowan
| Aspect | Halsey | Rowan |
|---|---|---|
| Bonus formula | 50% × Time Saved × Rate | (Time Saved ÷ Std Time) × Time Wages |
| At 50% time saved | Bonus = 25% of std wages | Bonus = 25% of std wages (same!) |
| Beyond 50% time saved | Bonus keeps rising | Bonus starts declining |
| Risk of rate-setting error | Higher | Lower (self-correcting) |
| Complexity | Simple | More complex |
| Exam favourite | Both plans compared at same data point |