"...In order to further meet our customers needs we
are contemplating a change in our incentive pay plan, changing from individual incentives
to a group. Can you compare these different incentives in key areas, such as earnings
potential, planning, supervising, etc.?" JG, Texas
THE INDUSTRY ADVISOR
HERE'S WHAT YOU NEED TO KNOW ABOUT INDIVIDUAL OR GROUP INCENTIVE SYSTEMS AND WHICH IS BEST FOR YOUR BUSINESS.
By Gene Levine - www.genelevine.com
Because manufacturing processes are undergoing continuous change,
forward thinking companies are looking for new incentives to motivate labor. Companies are
learning that they can no longer cling only to individual incentive pay plans. Just as an
artist relies on a whole pallet of colors, the future success of incentives is having and
using many different pay plans, each tailored to achieve a desired effect. There are many
incentive plans for you to consider. Some even de-emphasize money and appeal to employees
higher needs. I even discussed one plan, Merit Pay, in a previous Industry
Advisor article. Now I will compare individual to group incentives – in
certain key areas and provide highlights of the differences. Be aware that I am an
advocate of group incentives.
PERFORMANCE
Individual Incentives
Since each direct labor employee – who is motivated by money – is theoretically in "business for him/her self" there should be a strong inducement for high performance. A piece work operator could care less about a fellow operator’s performance. The relative productivity of each individual can be readily determined. Likewise, actual time spent on specific jobs is also easily determined and standards set. Individual incentives work best on singularity of product and long runs. They lose their effectiveness and are usually costly to maintain in a high style, fast in-process turnover environment.
Group Incentives
Groups attempt to empower people and tend to have a leveling effect on labor’s performance. Rather than restrict production, the group pressures the superior producer to handle more job assignments. Group pressures may likewise have an upward leveling effect upon the operator who would be satisfied with relatively low individual earnings. Therefore, average group output often is higher than average individual output.
EARNINGS
Individual Incentives
If the rates are "fair" each individual is rewarded according to his/her own output. Low earnings on the part of one operator does not affect the earnings of others. Earnings by the day, order, or lot are readily determined. Individual piecework plans traditionally employ an "engineering" staff of to keep the pay plans balanced and current.
Group Incentives
Peer pressure is harnessed and earnings are vote consistent, since all members of a group share equally in the bonus. Objective records of individual production are often not readily available. Individual hourly rates may be adjusted on the basis of periodic merit ratings by the group leader, individual records for temporary periods or work-sampling studies, or excessive goal attainments. Meeting various production criteria forms the basis for Merit pay plans. Empowered groups tend to offer more valid suggestions on ways to overcome production issues and usually pressure management continuously until the issues are resolved. Another added benefit is that companies who have successfully moved towards various group incentives have ultimately been able to downsize their overhead labor.
QUALITY
Individual Incentives
Frustrated and unknowing employees like to try to beat the system and see what sub-standard work they can pass though and not get caught. When found. defective work penalizes only the person responsible. If however, several persons are performing the same operation and necessary identification controls are lacking, quality may be difficult to enforce and the company may have to absorb the cost of rework.
Group Incentives
Peer pressure will rapidly straighten out any employee’s bad attitude. The group only gets paid for quality production at the end of the line. Defective work penalizes all members of the group causing all group members become inspectors. Quality standards are simpler to enforce since it is usually easier to identify the group responsible for defective work than to fix responsibility upon an individual.
MORALE
Individual Incentives
Significant inconsistencies in earnings; supervisors who distribute "good" work to their picks or favorites; "good" versus "bad" piece rates etc. lead to controversies, lowered morale and . . .
To obtain the highly informative balance of this valuable, timely and authoritative paper there is a small recompense fee of $10.00 payable by credit card – using our secure server. Upon notification of your payment, the ENTIRE PAPER will be E-mailed to you.
Copyright © 2010 Gene Levine Associates, All Rights Reserved
CLICK HERE TO PAY ON-LINE
USING OUR SECURE SERVER
