Incentive_Pay

Case study 7-2 talks about incentive pay. Incentive pay is a form of direct compensation where employers pay for performance beyond normal expectations to motivate employees to perform at higher levels. In structures incentives, workers understand ahead of time the precise relationship between performance and the incentive reward. When companies have an incentive pay plan, employees tend to work harder and still be satisfied and content with their job. But, when companies decide not to have an incentive pay plan, employees are not encouraged to give the best of them at the job. They will do what they are entitled to do, not going beyond their duties, which is not beneficial for the company. A great example is what happened in case study 7-2. The company had an incentive pay rate in place that could increase the employees’ pay by 30 percent over the base pay. Employees where satisfied with this plan until the employer eliminated the incentive pay for one department. According to the agreement established, the company had the right to establish new incentive rates or to adjust existing incentive rates only under certain conditions. Those conditions included changes, modifications, or improvements made in equipment involved in an incentive pay area; new or changed standards of manufacturing; and changes in job duties of those affected by incentive pay. Other than that, Article V of the agreement established wages to be paid and specifically continued during the term of the agreement “all incentive rates” in existence at the time of the agreement. The company decided to eliminate the incentive pay because a new mechanical device had eliminated the need for fracture tests of a furnace. The employees in the department were reduced from 6 Head Operators, 22 Attendant Carburizing, and 4 Recorder Optical Pyrometers to 3 Head Operators and 4 Attendants. The duties of Recorder Optical Pyrometers were no longer needed; therefore it was eliminated. Question number one asks: did the changes made in the department satisfy the circumstances cited in the agreement that would allow the company to eliminate the incentive pay' On section B of Article V (New and Changed Rates) said that the company, at its discretion, might find it necessary or desirable from time to time to establish new incentive rates or to adjust existing incentive rates because of any of the following circumstances: 1. Changes, modifications, or improvements made in equipment, material, or product. 2. New or changed standards of manufacture in (a) processes; (b) methods; and (c) quality. 3. Changes in the duties of an occupation covered by incentive rates that affect the existing incentive standards. According to this section, the changes made in the department satisfy the circumstances cited in the agreement, which would allow the company to change or adjust the existing incentive rates, not to eliminate it. The company needs to take into consideration the remaining employees, there are only a few employees left in the department in need of motivation to work harder now that their duties are doubled. Did the affected employees have a legitimate grievance under the CBA’s language' I must say yes. As I mentioned before, the company had the right to establish new incentive rates or to adjust existing incentive rates, not to eliminate it completely. Instead of eliminating the incentive pay, the company must have given the remaining employees a higher incentive pay to motivate them to perform at higher levels even with the double responsibility that they gathered due to the reduction of employees in that department. If I were an arbitrator, I would definitely not allow the company to eliminate the incentive pay. I believe that motivation is a key to success in a company. If employees are not motivated, happy, comfortable, and satisfied in their job, there is no way that an employer would expect them to perform beyond normal expectations. An October 1997 survey of 427 companies found that almost every company was using some kind of positive-incentive bonus plan to motivate employees to raise output to meet customer orders. Of the 427 companies surveyed, 103 were machine-tool producers that used a variety of incentive plans to boost productivity and quality. One of the incentive pay plans was gain-sharing, which is a pay for performance bonus plan. It has gained wide popularity, and is now used by 22 percent of producers, as compared with only eight percent 20 years ago. Some use gain-sharing bonuses not only for motivating employees to improve productivity and quality, but also for eliminating lost time accidents, improving on time shipments, etc. The plan is reported to be popular among major manufacturers of machine tools (e.g., Cincinnati Milacron, Dover Corporation, Eaton, Klein Tools, and TRW). Typically, such a plan pays short-term group bonuses for production exceeding a base level. It produces a 10­17 percent annual increase in productivity and a similar decrease in the cost of waste, spoilage, rejects, and rework. In conclusion, incentive pay plans play a major role in a company’s success. Motivated employees leads to performance beyond normal expectations, high productivity, therefore, major annual increases in profit. It might be an extra expense at the short term, but at the end of the year, employers will see the difference.