Payment Systems and Productivity

330 Pages·1986·26.589 MB·English

by  Angela M. Bowey, Richard Thorpe, Phil Hellier (auth.)

PAYMENT SYSTEMS AND PRODUCTIVITY
PAYMENT SYSTEMS AND
PRODUCTIVITY
Angela M. Bowey and Richard Thorpe
with Phil Hellier
Foreword by A. W. J. Thomson
Macmillan Education
ISBN 978-1-349-18108-7 ISBN 978-1-349-18106-3 (eBook)
DOI 10.1007/978-1-349-18106-3
© Angela M. Bowey and Richard Thorpe 1986
Softcover reprint of the hardcover 1st edition 1986 978-0-333-39482-3
All rights reserved. For information, write:
St. Martin's Press, Inc., 175 Fifth Avenue, New York, NY lOOlO
Published in the United Kingdom by The Macmillan Press Ltd.
First published in the United States of America in 1986.
ISBN 978-0-312-59925-6
Library of Congress Cataloging in Publication Data.
Bowey, Angela.
Payment systems and productivity.
Bibliography: p.
Includes index.
I. Wage payment systems. 2. Wages and labor
productivity. 3. Incentives in industry. I. Thorpe,
Richard, 1951- . II. Hellier, Phil. III. Title.
HD4926.B72 1985 658.3'225 85-8360
ISBN 978-0-312-59925-6
Contents
Foreword by A. W. J. Thomson vii
List of Tables ix
List of Figures xi
List of Appendices xiii
Acknowledgements XV
Preface
I INTRODUCTION 1
2 PAYMENT SYSTEMS AND PERFORMANCE
IMPROVEMENT 5
3 PRODUCTIVITY MEASUREMENT 36
4 PAYMENT SCHEME DECISION CHOICES 66
5 PAYMENTSCHEMEPERFORMANCE 91
6 PAYMENT SCHEME PROCESSES 149
7 DEGENERATION OF PAYMENT SYSTEMS 215
8 CONCLUSIONS 254
APPENDICES 262
References 301
Subject Index 310
Name Index 313
v
Foreword
Pay as an issue is rarely far from the national consciousness. It is the
issue over which many of our social conflicts are fought, our class
divisions recognised, our personal self-esteem gratified or diminished.
Yet almost all of the national consciousness of pay relates to its level,
usually in comparison with other people or groups. Little public
attention is given to the operation of payments systems. This is seen as
the realm of the technical specialist, concerned with wage administ
ration, work study or job evaluation, not in themselves functions which
are redolent of grand principles or passions. Yet in terms of the
provision of job satisfaction, of productivity, of the elements of
motivation at work, pay systems are probably at least as important as
the level of pay, and they assuredly do generate a great deal oflow level
conflict. It is therefore highly desirable for the importance of payment
systems to be identified and researched, and books such as the present
can add much more to our knowledge of the real operation of industry
than the frequent pontification in print about the fairness or otherwise
of a particular group's comparative pay.
The fact is that payment systems are a much maligned and underesti
mated subject of analysis. The reason for this is not only that it is not an
outwardly exciting area of analysis, but also because it is a very
complex one, and indeed it is an area which can all too easily suffer
from superficiality. The tragedy of too many proponents of particular
payment systems is that they claim too much for their particular system
in terms of motivation, productivity enhancement and felt fairness so
that they encourage a shift from over-enthusiasm to cynicism when all
does not go well. It is certainly the case that pay systems often do
produce side effects which tend to become more important as time goes
on, so that there is a growth in the number of appeals or the amount of
manipulation or the cost. Indeed there is a pervasive view amongst
personnel managers that there is a built-in decay factor in payments
systems and that they need replacing after perhaps five years. The result
is resigned acceptance of a cyclical change, with an eye kept open for
the next fashion in payments systems. The problem with this approach
vii
viii Foreword
is that it tends to detach the payments system from the broader goals
and operations of the organisation and exacerbate the problem of
decay. It is not surprising to learn from a recent European-wide survey
of employees' views of their company's management that British
managements score least well in the areas of pay and communications.
It may be impossible to avoid these problems of decay and renewal
but one important step in doing so is to achieve a better understanding
of the nature of payments systems. This is why books such as this one
by Angela Bowey and Richard Thorpe are to be greatly welcomed.
They have a wealth of experience of investigating pay issues over many
years and recently carried out a very substantial project which is used to
learn lessons of how pay systems should be conceived, introduced and
operated. They emphasise that the way in which this process is carried
out is as important as the substantive dimensions of the system, that
time spent in reconnaissance is time well spent, that the system should
be integrated into organisational policy rather than being taken off the
peg and that consultation and communications are the key to accepta
bility. Equally practically, they examine the effectiveness of different
types of scheme, take up the often vexed issue of productivity measure
ment, and discuss the process of system design. This is the most
comprehensive book of its kind and it deserves a wide readership.
A. W. J. Thomson
Dean
Scottish Business School
List of Tables
2.1 Percentage of employees in Britain receiving incentive payments 6
2.2 Types of incentive bonus schemes in the UK, 1968-77 25
2.3 Calculating added value 26
2.4 Simple example of an added value bonus scheme scheme calcula-
tion 28
2.5 Added value bonus scheme calculation 29
2.6 A simple example of a Scanlon plan 30
2. 7 Aspects of the effort-reward bargain 34
3.1 Uses of productivity measurement at the level of the firm 38
3.2 Alternative perspectives and appropriate measures for produc-
tivity/performance 54
4.1 Senior managers' priorities for organisation success and payment
scheme objectives 80
4.2 Most common interviewee perceptions of payment scheme objec-
tives 81
4.3 Questionnaire responses indicating each payment scheme objec-
tive 84
4.4 Payment scheme objectives as indicated by men and women in
joint white collar or blue collar payment schemes 86
4.5 Blue and white collar employees' and supervisors' job satisfaction
requirements 87
5.1 Summary of dates of negotiation and implementatim. of the
schemes in the survey 93
5.2 Comparison of objectives and achievements: a management
evaluation 101
5.3 Priorities for organisation success compared with the improve-
ments achieved by payment schemes 103
(From management questionnaire responses)
5.4 Anticipated reductions in manpower: questionnaire responses
(Bowey, 1980) 104
5.5 Organisations that experience labour force changes as a result of
the payment scheme (Bowey, 1980) 105
5.6 Selected performance variables 109
5.7 Composite performance indices (questionnaire and interview re-
sponses) 110
5.8 Correlation coefficients between selected scheme effects and
selected features of the schemes 112
5.9 Payment scheme classification based on inherent motivational
assumptions 114
5.10 Payment scheme classification based on mechanics of operation 115
ix
X List of Tables
5.11 Correlation coefficients between four types of schemes and
selected independent performance variables 116
5.12 Correlation coefficients between four types of scheme and compo-
site performance indices 118
5.13 Payment scheme classification based on cluster analysis 120
5.14 Correlation coefficients between six cluster types and composite
performance indices 121
5.15 Effects of contextual variables upon scheme type performance
correlation coefficients 124
5.16 5th order partial correlation coefficients for type of payment
scheme with performance variables 130
5.17 Variables which measure features of the organisation and its
situation 132
5.18 Correlation coefficients between selected contextual features and
selected independent performance variables 134
5.19 Associations between consultation and performance factors 138
5.20 Correlation coefficients between composite implementation
indices and composite performance indices 140
5.21 Effects of contextual factors upon scheme implementation-perfor-
mance correlation coefficients 141
6.1 Questions asked to determine the effect new schemes had on the
way work is organised 161
6.2 Coalbridge Engineering Ltd: payment schemes, 1975--80 176
6.3 Coal output per year, 1970--76 195
6.4 Face incentive option 199
6.5 Output and bonus at Hillend Colliery 204
7.1 Stages of payment scheme effectiveness 216
7.2 Aspects of degeneration of payment systems in 6 organisations 226
7.3 Annual averages for bonus payments from old and new incentive
schemes at Coalbridge 227
7.4 Coalbridge Engineering: shortfalls in target production hours -
new product line 231
7.5 Group financial performance over 5 years 233
List of Figures
2.1 Types of financial incentive payment scheme 7
2.2 Actual recorded frequency of different effort scores 12
2.3 Motivation patterns of senior executives 18
2.4 Dimensions of participation 21
2.5 Pay norms and wage increases, 1965---82 24
2.6 Areas of activity which could contribute to improved performance 32
3.1 How manufacturing time is made up 41
3.2 Gold's hierarchy of performance ratios 44
3.3 Stages of organisational development 52
4.1 Determinist or positivist contingency theory 67
4.2 Simple model of motivation action by organisation members 68
4.3 Contingency model based on action theory 68
4.4 Positivist or deterministic model of contingency theory applied to
payment systems 70
4.5 Normative model of contingency theory applied to payment
systems 71
4.6 Key influences on payment system design 72
4.7 Alternative methods of assessing organisation performance 73
4.8 A normative contingency model of payment scheme design and
implementation 79
5.1 Model of processes and factors influencing the outcome of a new
incentive scheme 94
5.2 The analysis of payment scheme design as it affects performance 108
5.3 The analysis of contextual effects upon specific design-perfor-
mance relationships 123
5.4 The analysis of context- performance relationships 132
5.5 The general analysis of context, implementation and performance
relationships 139
6.1 Significant factors of incentive payment scheme success 149
6.2 The impact of contextual, design and implementation factors
upon payment scheme performance 151
6.3 Normative contingency theory related to payment systems 152
6.4 The role of consultation in relation to objectives 154
6.5 Management bonus scheme perception 163
6.6 Employee bonus scheme perception 166
6.7 Model of the supervisor's dilemma 184
6.8 Modification and interpretation of policy in the main subsidiary
company 187
6.9 The dynamics of payment scheme implementation 191
xi