| The system of economic incentives makes provision for the formation of a special source of incentive payments above and beyond centrally established wage rates. The profit created at an enterprise is this source. It has been recognized that the amount of deductions paid from profits into the incentive fund depends on the fulfillment of the plan for increased sales or profits and on the profitability level contemplated in the annual plan (provided that the prescribed mix of key products stipulated in the plan is observed). In those instances when an increase in sales volume is not advisable, the size of the material incentive fund is determined as a function of increased profit.
Three economic incentive funds are formed on this basis : the production development fund, the material incentive fund, and the fund for sociocultural measures and housing construction.
The production development fund serves as a supplement to centralized sources of capital investment. It is formed through deductions from profits as well as through the use of a certain amount of the amortization deductions earmarked for the total renovation of fixed capital.
The material incentive fund is created solely from profit. The size of the deductions from profits paid into the material incentive fund is determined according to norms depending on the increase in the sales volume (or the amount of profit) and the profitability level stipulated in the annual plan. Norms are established as percentages of the wage fund: for every percentage point of increase in sales volume in comparable prices (or amount of profit) stipulated in the plan for a given year as compared with the previous year ; for each percentage point of profitability stipulated in the annual plan.
Norms are envisaged as stable for a number of years and are differentiated by branch (and, where necessary, by groups of enterprises within a branch). Limits on deductions paid into the material incentive fund are not established.
Payments of an established amount are made to the material incentive fund when the enterprise fulfills the profit and sales plan for the product-mix stipulated in the plan. When an enterprise overfulfills the profit and sales plan, additional payments are made to the material incentive fund. When an enterprise fails to fulfill the profit and sales plan for the established product-mix, payments are made to the material incentive fund at a lower rate. The product-mix is assigned to enterprises by higher-echelon organs in the process of confirming the indices of the yearly plan, and, if it is not fulfilled, payments to the material incentive fund are reduced. Other restrictions on deductions to the material incentive fund are not established.
The formation of the incentive fund is connected with the quality of planning at the enterprise. In order to eliminate, or at least diminish, the striving to conceal reserves in the elaboration of plans at enterprises so as to make these plans easier to fulfill, resources are paid in full into the incentive fund only if the production growth plan is fulfilled. But in the event the plan is overfulfilled, the rates are reduced by approximately 30 % for that part of the increase in output which represents overfulfillment. The idea is to make the deliberate lowering of plans disadvantageous, since the enterprise will thereby lose one-third of the incentive it would otherwise receive for the increase in sales which is overfulfillment.
On the other hand, the plan should not be unduly high. Therefore, if the plan is not fulfilled, the incentive payment is also reduced by the same amount compared with the established normative rates. The procedure for reducing rates of payment for the overfulfilled and unfulfilled part of the plan concerns not only the increase in sales (or profits) but also incentives for the profitability level, and such incentive is established without discounts for the level of profitability actually attained on the basis of normative rates solely within the framework of the plan.
The same methods have also been adopted for the formation of the third incentive fund, which is earmarked for sociocultural measures and housing construction.
Of basic importance is the fact that enterprises are not regulated by strictly centralized instructions in the matter of distributing the incentive fund among production participants. Enterprises may elaborate one or another provision on the procedure for awarding incentives on the basis of standard recommended methods in accordance with the specifics of their production. The only point that has been established is that bonuses to workers under presently existing statutes will be awarded from the wage funds in the future as well. But in addition to this, workers may also be paid bonuses from the material incentive fund formed from profit. Furthermore, these bonuses may be paid under special provisions, for example, for improving the quality of production, for economizing on materials, for mastering new products or processes, as well as on a one-time basis for individual attainments on the job.
The awarding of bonuses to managerial, engineering, and technical personnel and employees is also regulated by special provisions. In addition, certain sums in the incentive fund are reserved for one-time assistance. An important feature is that part of the material incentive fund is earmarked for rewards to personnel based on their performance for the year, depending on their length of service at a given enterprise.