Chapter 17

Wage Payment

Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
 Ch.17 – Wage Payment

Key Points:
• Set simple but fair incentives
• Guarantee basic hourly rates
• Provide individual incentives above base
rates
• Tie incentives to the quality of the product
• Avoid offsetting productivity gains with
increased injury costs
Ch.17 2
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
 Wage Incentives
• Can workers be motivated?
– Blue-collar:
– White-collar:
• Direct financial plans =
pay proportional to output
• Indirect plans:
– Fringe benefits
– Vacations, promotions
– Can be taken for granted!
• Basis – cost-output
– Minimize unit costs
– By increasing output
Ch.17 3
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
 Worker paid
17.1 same hour rate,
Day regardless of
performance
Work
Plans

Ch.17 4
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
 Pay in proportion
17.2 to performance

Flexible
Comp-
ensation
Plans

Piecework

Ch.17
5
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
Standard
Hour Plan

Day work <100% perf + piece work >100% perf.

Ch.17
6
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
%Participation
Gain Sharing
Plans

Ch.17 7
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
 Other Schemes
• Measured day work – worker’s performance
over one pay period sets base pay for next
pay period
perf = actual output / expected output
new rate = base rate × perf
• Group incentive schemes – group output
determines pay for each group member via
standard hour plan
– Greater flexibility
– Less direct incentive
Ch.17 8
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
 Ex #1 – Standard Hour Plan
Job Hrs Std. Actual Hours Exp. Perf.
(min) (min) Out Earned Out (%)
A 1(60) 1 30 30×1/60=0.5
B 3(180) 4 80
C 2(120) 3 30
D 2(120) 2 72 120

Ch.17 9
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
 Ex #2 – Compare Two Plans
Plan #1: p=50%

Plan #2: 20%

kicker, p=20%

Kicker →

Ch.17 10
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 Ex #3. Compare two plans:
1) 50% participation
2) 10% kicker, leveler
to 150%, then piecework

11
Ch.17
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
Ex. #4 – Another
tricky plan
#1: Std. hour
#2: 20% kicker at
110%, then 50% part.

Ch.17 12
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
 17.3 Implementing Wage
Incentives - Failure of Plans
• Standards not kept up to date (e.g.
changes in methods, materials)
• Cheating by employees
• Poor measurement of performance
• _________ in quality
• Plan costs more than it benefits
• Unfair standards
• ________ in CTDs (a real tradeoff!!)
Ch.17 13
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.
 Ch. 17 Summary

• Set simple but fair incentives

• Guarantee basic hourly rates
• Provide individual incentives above base
rates
• Tie incentives to the quality of the product
• Avoid offsetting productivity gains with
increased injury costs

Ch.17 14
Copyright {c} 2014 by the McGraw-Hill Companies, Inc. All rights Reserved.