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

Posted by Kathryn Schwartz on March 21, 2015
CHANGING THE METHOD OF PAY


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.

To assuage wage fears, the Company agreed to “red circle” the wages of all current production workers. They would base their new hourly wage on their piece rate earnings for the 26 weeks previous to their department’s shift to CFM, rather than at some multiple of the lower hourly wage scale for new hires—creating a two-tier wage system. In addition, management did not appreciate that there would be as sizeable a drop in pairs of shoes per hour produced by production workers.10 As a result, management did not hire as many new production workers as it needed and had to schedule its production workers for as much as 10 hours a week overtime work.11 Finally, BF was not able to fully implement the modular production that is so important to the optimal performance of the CFM process, and many workers do not move from job to job during the day.
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But errors and problems notwithstanding, by the end of the 1990s decade, BF operated and paid workers in a very different way than it did at the outset of the decade, which allows us to analyze the effects of the change on productivity and profits using internal company data. With the switch from piece rates to time rates,, the number of grievances per employee dropped on pay-related issues, indicative of a new pay and work regime.

To assess the effects of the change from piece rate to time rate production, we use two strategies. First, we use time-series regressions to estimate the effect of the changeover on key variables. In these regressions, we include a monthly (or yearly) time trend, and two time dummy variables: one for the transition period when the plant was making the switch and one for the “after” period when it was paying workers time rates. The coefficients on these dummy variables provide us with estimates of the effect of transition and of the introduction of time rates on the outcome variables, conditional on other factors in the regressions.

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