David Kelley is considering the implementation of an incentive wage plan to increase productivity in his small manufacturing plant. The plant is nonunion, and employees have been compensated with only an hourly-rate plan. Julie Phelps, Vice President–Manufacturing, is concerned that the move to an incentive compensation plan will cause direct laborers to speed up production and, thus, compromise quality.
Required:
1. How might Kelley accomplish his goals while alleviating Phelps’ concerns?
2. Does the compensation have to be all hourly rate or all incentive?
3. Can incentive compensation also apply to service businesses?