WAGE PAYMENT METHODS OF THE FUTURE1
| DOI | http://doi.org/10.1111/j.1467-8543.1963.tb00989.x |
| Published date | 01 October 1963 |
| Author | Robert B. McKersie |
| Date | 01 October 1963 |
WAGE PAYMENT METHODS
OF
THE FUTURE'
ROBERT B. MCKERSIE*
INTRODUCTION
THE
central focus
of
this paper can be phrased in terms of a question:
What are the important trends affecting the choice
of
wage payment
methods and which methods are likely to be most appropriate in the
future?
Existing methods of wage payment present important variations and
alternatives between primary reliance on direct financial inducements,
on the one hand, and the use
of
non-financial techniques for motivating
employees, on the other hand. Individual
or
small group incentives
represent one end
of
the continuum and measured daywork the other
end. Plant-wide productivity schemes and profit sharing plans come
somewhere in between.
A few clarifying words are in order about the four methods which
have been chosen for analysis. Individual or small group incentives
need no explanation.
The plant-wide productivity approach is best illustrated by the
Scanlon and Rucker plans.
Both plans are group incentive systems which provide for workers
and the company to share the gains arising from cost reduction
and increased efficiency, through the payment of bonuses on a
formula basis. However, they differ in some key respects. The
Rucker formula is engineered and more precise and takes into
account savings in materials and supplies, in addition to savings in
labour costs.
It
also permits other incentive plans to operate at
the same time. The Scanlon Plan, on the other hand, places
primary emphasis on employee and union relations, and relies on
the willingness and ingenuity
of
employees to contribute ideas to
aid management in increasing production and reducing costs.1
To simplify the discussion, attention will be focused on the Scanlon
approach to cost reduction. However,
it
should be remembered that we
+
Assistant Professor of Industrial Relations in the Graduate School of Business, University
of Chicago.
1
I
would like
to
register
m
appreciation for the counsel
of
several colleagues: Professors
Maurice Kilbridge,
E.
Roiert Livernash, George P. Shultz and Arnold R. Weber; and
for the help of
my
research assistant, Carroll
F.
Miller.
In particular,
I
would like to acknowIedge the inteIIectua1 contribution that
Professor Shultz has made
to
the development of this article. Many of the ideas that
I
have used in this article took form several years ago when we studied the feasibility
of
installin different incentive systems.
a
Group
%age
Incentives; Experience with the Scanlon Plan,
Industrial Relations
Counselors, Inc.
(1962).
'9'
192
BRITISH
JOURNAL
OF
INDUSTRIAL RELATIONS
are interested in plant-wide incentives as a broad approach, and not in
just one particular formulation.
Profit sharing needs little explanation, except for one point, we are
primarily interested in the cash rather than the deferred type. The
latter is more of a fringe benefit (most often a pension plan) than a wage
payment system.
The term, measured daywork, is being used in its more up-to-date
connotation. The worker receives time wages, yet management
establishes, and in varying degrees, discloses and enforces production
standards. Some people have referred to this approach as controlled
daywork.
Several developments highlight the necessity for taking a fresh look
at
wage payment methods at this time. The current emphasis on cost
reduction has provided an important impetus for overhauling wage
payment systems3 In part, the attack on costs has been triggered by
higher wage rates and the resulting profit squeeze which many com-
panies have experienced. But management also has been seeking ways
of cutting costs in order to meet competition from foreign products and
alternate products.
The gradual waning of certain historic incentives represents another
important development. During the past ten
or
fifteen years important
changes have taken place in wage and salary structures which have
removed powerful motivational tools from the hands of management.
These changes, which have created what might be called a ‘motiva-
tional gap,’ are well known and can be quickly summarized.
The effectiveness of the promotional incentive has been greatly
reduced
:
the streamlining of classification structures has eliminated
many promotional increments; the contraction
of
employment in many
companies has reduced promotional opportunities; the compression in
wage and salary structures has reduced the motivation to get to the top;
and the emphasis on seniority has completed the debilitation of the
promotional incentive.
The importance of rate or salary ranges has also been reduced. Merit
systems have either vanished or given way to the emphasis on seniority.
The growth
of
fringe benefits has been another influence. Most
fringes are paid on a basis unrelated to performance. Many are not
graduated
by
wage level and do not even exert an indirect influence.
Besides being less able to relate compensation to accomplishment,
management has lost other motivational tools. The use of discipline
and layoff to
‘
weed out
’
inefficient employees has been constrained
by
the pressure
of
the unions, the limitations of the collective bargaining
agreement and the decisions of arbitrators.
3 In the recent Brookings stydy the authors devote a full chapter
to
‘
Problems and
Policies in Hi
h
Cost Plants. See
S.
H. Slichter,
J.
H. Healy, and
E.
R.
Livernash,
The
Impact
of
Coflictive Bargaining
on
Management
(Washington, D.C.
:
The Brookings
Institution,
1960),
pp.
530-558.
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