CHANGING THE METHOD OF PAY: Assessing the Change to Time Rates at Big Foot 3

Posted by Kathryn Schwartz on March 20, 2015
CHANGING THE METHOD OF PAY

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)).

Finally, management felt that to meet market demands it had to introduce more styles and produce higher quality products, which a time rate mode of pay and new way of organizing work could facilitate. Company documents indicate that profits per pair were higher for lines of shoes than for existing lines. A 1996 national survey of stores and consumers reported that the number of BF styles are important/very important for over two-thirds of their customers, franchise shoe store owners, and company store managers.
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In fact, BF greatly increased the number of shoe styles it produced from 106 in 1985 to 187 in 1996. The number of new styles introduced per year was from six during the piece rate period to 13 in the time rate period. As a result, from 1990 to 1997, the percentage to total shoe sales due to the top 10 styles dropped by 20% as new styles grabbed a larger part of the companies overall sales. Furthermore, the transition to time rates allowed BF to produce smaller “runs” of differentiated shoes, and quickly replenish them at their retail stores to meet customer preferences.

The Change

To remedy the problems outlined above, Big Foot sought to introduce a continuous flow mode (CFM) of manufacturing with workers paid time rates instead of piece rates. The CFM plan included the introduction of a number of new lines of shoes based on market demand, a modular form of production in which workers would be cross-trained and days in-process would be cut dramatically, and a change to a just-in-time method of supplying materials to the lines. Essential to the success of the CFM initiative was replacing the piece rate method of compensating production workers with time rates.

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