Payment by results
One of the earliest and best examples of this is the Rucker and Scanlon plans introduced in the USA in the depression of the 1930s. Joseph Scanlon was a union officer in the Penn Steel Mill which, as a result of the depression, was on the brink of extinction.
The aim of the plan was to reduce waste and increase efficiency with consequent increase of productivity and profits.
The savings and surplus resulting from implementation of the suggestions of the group are shared. For equitable distribution, a committee has to administer the plan and the company has to disclose (McBeath (1974)) a considerable amount of financial data and be also prepared to share profits.
Development of the concept of payment by results
As a result the plan has not always been successful. In a survey (Gruneberg & Oborne (1982)) of 44 cases, 30 were reported to be successful. Thus success has been achieved in some companies and in some situations. But the concept is sound. The plan gives the participants a real sense of participation and self-esteem, and the group cohesion and motivation are increased in anticipation of the reward. Other methods of payment by results include:
- time saved;
- daily work measurement;
- productivity index;
- added value.
In each case, the savings or increased production are quantified in monetary terms and sought to be shared amongst the concerned people. Earlier schemes were based on individual effort which could be appropriately rewarded.
However, modern technology and production methods are quite often based on a team approach, hence new schemes for payment by results have to be tried and implemented, if found effective. In this case individuals do not get rewarded as a result of their own effort and it is the group performance which counts. This requires a change of attitude of the workers, as also of the management.
Like the Scanlon plan, the management needs to be prepared to discuss openly with the workers / unions the real change / improvement in the relevant indices and this requires disclosure of otherwise confidential financial and production data.
In the long run, such an open attitude will benefit both.
Which scheme is best?
There is no such scheme! Each situation must be studied in depth and a suitable scheme 'tailored' for the specific situation. Also important is the history and culture of the organisation concerned. Anything radically different and without active participation of all concerned is bound to fail. It is advisable also not to introduce drastic changes suddenly. The system must be properly formulated and after full and frank discussion with the concerned people tried out on a 'mini' scale and refined in the light of the experience gained.
The main factors involved in selection of a suitable scheme are:
- micro versus macro level;
- problems of implementation; and
- maintenance over a sustained period.
The micro versus macro aspect has been briefly touched on earlier in this section. Both have their pros and cons and an ideal system may well be a combination of the two. It is good to reward individual performance since it could act as an instant motivator. On the other hand certain benefits result only from a group action and therefore must be shared among the entire group or even across the entire company.
Implementation of any scheme is the most important phase and it should not be rushed through. Sufficient time should be allowed for discussion and suggestions from the concerned group. At this stage all problems that may arise during implementation stage cannot be foreseen, but some of the obvious ones certainly can be anticipated.
Once implemented, both sides should be willing to modify the scheme in the light of the experience gained. There should be no hesitation to refine the scheme until found completely satisfactory. It will require full cooperation and complete honesty.
Money is certainly a motivator and a major one at that. Success of companies such as of Microsoft, IBM and other such tech companies is certainly, at least to some extent, a result of such motivation. There are, of course, other factors particularly job satisfaction as shown in the previous section.
Rewarding employees financially does improve levels of employee motivation and thus improves productivity, which ultimately shows up in the 'bottom line', and part of the increased profits must be circulated back to the workforce responsible for it.
Some of the schemes for reward systems and payment by results have are briefly discussed. The novel Glacier project and the Scanlon plan are briefly described. There is no such thing as the 'best scheme'. It must be formulated and 'tailored' to each specific case.
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