The manufacturing manager of Company X had installed a wage incentive program.

She happily reported six months later that the system was a success because production was up and unit costs were down. A quality control manager said, however, that the percentage of rejects had increased markedly and that this was creating a backlog of rework requirements. An industrial engineering manager reported that the expenditures for industrial engineering studies in the department were up by 50%. An industrial relations manager said that arbitration fees resulting from incentive grievances had tripled.

Discuss your observations in this case. What should be done to correct the situation in this production department?