Incentive Wage Plan. Morac industries is a rapidly growing 10-year-old company specializing in plumbing supplies. The company employs 100 persons. There are 25 salaried employees in office and manage¬ ment positions. The remaining 75 employees perform various production line functions and are paid on an hourly basis. Sales for 19A are forecasted at $3 million. LO3 Management has been so preoccupied with its goals of growth and financial stability that employee relations have been virtually ignored. Many hourly employees do not believe their wage adjustments have kept pace either with industry standards or inflation. Additionally, these same employees do not believe they have been adequately rewarded for their contributions to the com¬ pany’s increase in productivity and performance.

Tien Li, president of Morac, believes wage incentive programs can be developed to deal with current discon¬ tent. Li, along with the company controller and manu¬ facturing vice-president, developed a new wage incentive plan she hopes will meet the hourly employ¬ ees’ concerns. It would apply to workers once they have completed the company’s 6-month training program. Currently, unskilled workers are hired at $5 per hour and immediately are put through the training program. At the end of the training program, the workers are assigned to specific jobs and awarded wage increases of about $2 per hour. Under the proposed plan, subse¬ quent merit wage increases would be approved by fel¬ low employees and would work as follows:

(a) Employees who believe they deserve merit wage increases would file a wage increase request form. This form would indicate the current wage rate, the amount of the requested pay increase, and the justi¬ fication for the increase.

(b) Each employee’s request would be posted for one week, giving the employee’s peers ample time to study the request and observe performance. During this week, records of the employee’s history, pro¬ ductivity, and job responsibilities would be avail¬ able to the other employees.

(c) Fellow employees would vote on each individual’s merit wage request by secret ballot. If the majority vote is favorable, the request for a merit wage increase would be approved.

Required: Discuss the advantages and disadvantages to Morac Industries of the new plan for approving merit wage increases. Specifically address the following issues:
(1) Employee motivation.
(2) Employee productivity.
(3) Goal congruence between employee and company.
(4) Administration of the plan. (ICMA adapted)