The textbook, page 567, describes a study of the Safelite Auto Glass Company by

Question

The textbook, page 567, describes a study of the Safelite Auto Glass Company by Edward Lazear. Worker productivity and profits both increased when the firm abandoned a straight-time pay system in favor of a piece-rate system. Lazear found different results for Levi Strauss when the clothing company changed its compensation scheme in the opposite direction. Levi Strauss abandoned a piece-rate pay system in 1992. Under this system, the firm paid workers based on their performance on specialized tasks. The new system called for groups of ten to thirty-five employees to work together on shared tasks, with their pay based on the work the groups completed. But this system failed. Rather than motivating workers, the quality of work fell as skilled workers feuded with slower colleagues. Threats and insults were common. Labor and overhead costs rose by 25 percent. But Lazear found that a %u201Cteam incentive%u201D approach worked very well for British Petrol and Exploration (BPE). A team incentive approach rewards workers based on the output produced by a group of workers. BPE had an oil field in Prudhoe Bay, Alaska, with about 300 workers. Six months after introducing its team bonus approach, productivity increased more than 12 percent.

1. Why was the team incentive approach at Levi Strauss a failure but a success at BPE?

B. 2. Under what circumstances are piecework systems and team incentive approaches likely to be successful?

Explanation / Answer

(a)    The team incentive approach failed at Levi Strauss because producing jeans does not require teamwork. As was true with production at Safelite, each task is easily performed by individual workers and can be monitored. When the team incentive approach was used there was a tendency for some workers to be %u201Cfree riders%u201D %u2013 to not work very hard, let others do most of the work but still get paid the same. At BPE%u2019s Prudhoe Bay field, output could not be produced by one worker. Teamwork at BPE was necessary to produce oil. Team-based pay was effective because production was truly a team based effort.

(b)   Piecework incentive programs work because they give the opportunity for the worker to earn over and above their hourly rate. Incentive systems usually have higher productivity levels than measured daywork systems. Generally, piecework systems will generate about 125% productivity levels compared to measured daywork systems that usually generate about 80% of normal productivity.Piecework incentive systems are declining in popularity due to the fact that it requires constant administration as well as industrial engineers and/or industrial engineering technicians to maintain the system.

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