Monthly Archives: March 2015

CHANGING THE METHOD OF PAY: Assessing the Change to Time Rates at Big Foot 4

Posted by Kathryn Schwartz on March 21, 2015
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Implementation of the CFM process began in April 1990 in one factory, but it took roughly two and one-half years before all of the plant’s lines shifted to CFM, and began in July 1994 in a second factory. Coincident to introducing the CFM process, Big Foot negotiated a new, and on average much lower, hourly wage system for all new hires. Finally, under the new system BF was able to eliminate six intermediate inspector jobs in each Midwestern plant.

Making the transformation was difficult. The company told supervisors that the ultimate result of CFM would be to eliminate supervisors, with the result that many supervisors did not support the CFM initiative and some actively worked against it. Thirty-three percent of the company’s supervisors and a number of senior managers took early retirement. Some members of the management team believe that the company is still recovering from this loss of shoe making expertise. While the company tried to prepare the production workers for the change, many employees feared the loss of seniority and job rights and reduced pay.
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CHANGING THE METHOD OF PAY: Assessing the Change to Time Rates at Big Foot 3

Posted by Kathryn Schwartz on March 20, 2015
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Piece rates seemed too high: Table 6 shows that in the mid to late 1980s, workers made on the order of $20 per hour on bases of $10 to $11 per hour — a huge differential far in excess of what the firm desired — the signature of a piece rate system that has become outmoded. And seemingly similar jobs were paid at widely variant rates, some easy jobs received high rates while harder jobs, where it was almost impossible to meet the standard rate, were valued at a lower rate.

Employees filed many grievances complaining about the piece rate for each unit and for different processes. Figure 2 shows that the variation of wages within major job categories was much greater under piece rates than under the time rate system that the firm later introduced, where variation is measured as the deviation of the highest and lowest wages from the average for the job category. The finding that dispersion of pay is higher under piece rate than time rate modes of production is ubiquitous (see Seiler (1984); Lazear (1996); Shearer (1996)).
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CHANGING THE METHOD OF PAY: Assessing the Change to Time Rates at Big Foot 2

Posted by Kathryn Schwartz on March 19, 2015
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The paternalistic link between the firm and the community also created a conservative business culture that made BF one of the last group of firms in the industry to scrap its piece rate mode of compensation. While most other domestic shoe firms have opted for time rates of pay and cutting edge technologies and production processes to offset labor costs, Big Foot did not start planning to change its mode of compensation and organizing production techniques until the mid-1980s and did not begin the shift to piece rates in its Midwestern facilities until 1992.

The Decision to Change

The decision to change mode of operating and paying workers was motivated by cost pressures from imports. In the mid-1980s, the company developed a three-pronged strategy for cutting costs and maintaining its U.S. production base: (1) to improve workplace safety and reduce workers’ compensation costs; (2) to transform the production and compensation process; and (3) to expand U.S. production at lower labor costs by purchasing southern facilities.
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CHANGING THE METHOD OF PAY: Assessing the Change to Time Rates at Big Foot

Posted by Kathryn Schwartz on March 18, 2015
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What factors contributed to survival in the shoe industry?

We do not have information on the mode of compensation for firms in the LRD, so our analysis is limited to examining the relation between survival in the sector and the share of labor costs. Table 5 presents linear probability and logistic equation estimates of the probability of survival for the 1967 cohort of establishments as functions of labor’s share of costs and sales per employee and earnings as of 1967. Column 1 shows that firms with greater labor productivity had a better chance of surviving than other firms.

Column 2 finds that firms with higher earnings also had only a slightly higher chance of survival, possibly because higher earnings are associated with labor skills and niche production of higher quality shoes. Column 3 shows that combining the productivity and earnings figures together, establishments with high labor costs are most likely to have exited the industry. Column 4 shows that establishments with more nonproduction workers were also more likely to close down; this may reflect piece rate systems of pay in which firms needed relatively many supervisors or monitors to maintain quality of production.
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