CHANGING THE METHOD OF PAY: Assessing the Change to Time Rates at Big Foot 2

Posted by Kathryn Schwartz on March 19, 2015
CHANGING THE METHOD OF PAY


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.

For the purpose of this study, the critical decision was to move to time rates of pay and continuous flow manufacturing. The decision followed the report from a major consulting firm that highlighted several problems for Big Foot’s survival: high workers’ compensation expenses; an inflexible production process; a huge work in-process and storage expenses; and a demoralized compensation system. The consultant argued that the company’s dependence on the piece rate system of production undergirded each of these problem areas.
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Under the piece rate system, a production worker’s seniority gained him certain job rights within the production process, that approached ownership of a machine and set of activities. Workers in certain areas of the plant had an incentive to work rapidly and produce many units, which resulted in many injuries and accidents. Under the union contract, the injured worker retained a right to his or her job even when injured, so that a production worker could not be readily moved to another production job because that would compromise the job rights of another. Thus, Big Foot not only lost a valuable production worker but also lost that production job while that employee remained unable to return to their job.

Under its existing mode of operation, Big Foot produced a large number of a few lines of shoes regardless of whether or not a demand existed to meet that production. It purchased large quantities of materials and employed a group of workers to push around and maintain a large number of racks for work in-process which were waiting for the next job. The company purchased warehousing space for its materials and finished product until demand caught up to production.

The piece rate system with which the company operated had, according to management, become largely outmoded. The piece rate pay consisted of a low base near the minimum wage in the plant and variable pay based on the individual units produced and approved by BF, with some deduction for material wastage. Originally, the rates were set by a time-motion study, but over the years process innovation and negotiation with the union made management unhappy with the plan.

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