A New Transfer Pay Scheme is Not The Answer

"...We are currently investigating various transfer [pay] methods for production operators. Would you please explain a transfer method for short term transfers in lieu of [our 4 week] average." J.D.F., Georgia

Don’t make the mistake of trying to patch a tire that has no tread. Piecework is traditional, it has outgrown its intended purpose and is passé. Transfer pay methods – of any type – are a byproduct of piecework and were one of the first indicators that piecework would eventually fail. You cannot get piece rates to do what they were never designed to do and that is manage people. So when you transfer experienced operators and they earn less than you expected, newer forms of guaranteed wages are not the answer.

Companies traditionally use earnings guarantees to offset machine operator’s resistance to change. These guarantees range from giving operators (who switch jobs) their "average" up to and including base pay or average plus a percentage or all of the earned production. These Band-Aids are an attempt to defuse operators who might otherwise state, "When I change I lose everything I made. . . I do not want to change jobs!" In the final analysis, I believe even the most sophisticated job transfer pay schemes fail to provide motivation. My suggestion therefore is beyond conventional wisdom.

Everything is changing including how firms deal with job transfer. For example, modules, team-based manufacturing and cross-training programs do away entirely with issues surrounding piece work and job transfer. Based on all the ramifications (legal, ethical, psychological, etc.), traditional supervisory styles can no longer determine what is "fair" transfer pay for any of their people. If you chose to cling to piecework then you need to be sure you have fair and equitable written incentive pay policies that are continually reviewed to ensure legal compliance. Without well designed written pay policies there will be subjective interpretations which unknowingly cause a loss in the motivational effect of piece rates.

I will now cover and explain the logic of a solution I used in a recently completed company-turnaround. It may be applicable to your needs. My assignment was much broader in scope then just the job transfer issue I will discuss now (as as matter of fact, the entire subject is covered, in-depth in my "Improving Your Incentive Systems" Manual).

When I entered this company they had about 600 incentive operators in three facilities. One of the things management believed was that they had an effective job transfer policy in place. My initial survey investigation revealed they did not. Transfer pay policies were not specific (or in writing) allowing supervisors to administer their perceptions rather then what their management really desired. As in your case, the excessive job transfer labor losses they were experiencing disqualified their informal approaches as being meaningful or effective.

As I understand your question, you wish to know how to make transfer pay fairer for your direct labor workers to get them more motivated to produce. Consider this: if your rates are fair and your people are guaranteed their average (when they transfer jobs) what incentive do they have to produce? They are guaranteed their earnings regardless of how much they produce so nothing could be fairer. Yet, they do not produce what you expect of them. The issue therefore is obviously not one of money. No, something else reduces their motivation.

I’m sure that if your customers gave you the choice, you would love to keep machine operators on one job or product all the time. However, customers with their shifting demands and today’s competitive work climate makes this an ambitious goal.

I believe there are too many managers who very often get blinded by their belief that it is too hard to attract and hold good people. So they continue to make matters worse by . . .

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