13.40 Performance measures and incentive schemes; behavioural issues: manufacturer
13.40 ' M Performance measures and incentive schemes; behavioural issues: manufacturer ABC Tubes Ltd manufactures aluminium cylinders that are used in a variety of products. such as scuba 1.0133 diving equipment and fire extinguishers. The company has just introduced a performance-related pay \"'9 system in their smallest manufacturing plant. Employees will receive bonuses. based on their work team 13-10 exceeding team performance targets. At this stage only three of the four work teams will participate in 13.11 the scheme. If this system works well. it will be introduced into all of the company's plants. era are our teams in the plant. and each team has been given monthly performance targets far cycle time. material usage and production output. Two of the work teams are organised sequentially. that is, the output of Team A becomes the input for Team B. Teams C and D both manufacture their product independently of the other teams; however. teams C and 1) do share some equipment with Team B. Team D is not participating in the new performance-related pay scheme. as this team has just introduced some new production technology, which would make it difficult to achieve any performance targets at this stage. A bonus pool of $10 000 is set aside each quarter to be shared among the members of the three participating teams if they each achieve their targets. The employees are excited by the new scheme. They can oniy gain by such a system. However. at the end of the second month. tempers start to fray. Frank Smart. a member of Team B. takes his complaints to the production manager. Amos Bennett: Frank: This new system is just not working. Team A is sabotaging our performance. How can we meet our performance targets when Team A gives us faulty product to process? They have skimped on material. so it takes us much longer to complete our part of the manufacturing process. This is made worse when the purchasing department orders our material far too late. so we have to wait around for deliveries. And someone has been leaving the calibrator machine in such a mess. so we waste valuable time resetting the gauges before we can use it. I am sure it is a member of Team C. The system is not fair. The other two teams are making their targets and we are notand it is not our fault! Also, Jack Scratt. a member of our.team, is clearly not working to capacityand his rewards will be the same as ours! Bennett was not sympathetic. He has just had to deal with a delegation from Team D. who are upset because they cannot share in the performance bonuses. Bennett: Calm down. Frank. I am sure that you are exaggerating These problems will iron themselves out over the next few months. It is up to each team to manage its performance. Go away and deal with these problems. Required: 1 2 Explain the features of the performance-related pay system that are causing problems? Are the three performance measures appropriate for assessing performance and awarding bonuses? Explain your answer. Can you suggest some changes that could be made to improve the system? Consider other forms of incentive schemes that may be suitable for the company
