Comment on the fixed salary system that Andrew adopted from his former employer. Why was this system not effective for motivating the plant workers?
Do you think that scrapping the fixed salary system and replacing it with the piece rate system was a good idea? What are some of the strengths and weaknesses of the piece rate system?
Why was Andrew unsuccessful in his efforts to improve product quality? Do you think that a system of demerit points and wage deductions of the quality control workers would have been effective? Will more supervisors in the quality control department and shipping products to Singapore for final inspection solve the problem? What do you think would be an effective way to improve product quality?
Were cross-cultural differences a factor on the effectiveness of the salary system? How effective do you think each system would have been if the plant was located in North America?
Discuss the potential effects of implementing an MBO program in the plant. Do you think it would improve productivity and solve some of the problems?
Are there any conditions under which the piece-rate system might have been more effective?
What are some alternative ways to use pay to motivate the workers at the plant? Are there alternatives to the piece-rate system and how effective are they likely to be? What does this case say about using money as a motivator?
What should Andrew do now? What would you do?
The system was not effective for a number of reasons. It did not link pay to performance. Workers were paid a fixed salary based on the number of hours worked. This system does not take productivity into account as workers are paid the same amount per day regardless of the quantity produced. There is no incentive to reward workers for higher productivity and quality under this payment system.
Another reason why the fixed salary system did not work was that it did not take cultural differences into account. Andrew imported an American business model that suited American employees who tend to have a highly individualistic culture. This is where workers perform their job based on what is required of them and do not care so much about other worker salaries but place more precedence over their own. The Chinese tend to have a culture of collectivism where each worker looks out for the best interests of their co-workers. Employees tend to place their collective goals ahead of those of the company and if both do not agree, a situation of lack of goal congruence results.
Andrew adopted the same salary system as he seen used by his former employer and paid his workers a fixed salary based on the number of hours worked. The results of his actions were low productivity rates, and the workers demonstrated very little commitment to meeting the company’s goals. Providing salaries for everyone changes labour cost from variable to fixed with serious employment security implications. The success of a fixed salary system requires stable, mature, responsible employees, a cooperative union, willing supervisors, and a workload that allows continuous employment.
Based on the case it is evident that the fixed salary system adopted by Andrew was not successful hence we think that scrapping the fixed salary system and replacing it with the piece-rate system was a good idea but it must be implemented with strict quality control programs.
Piece-rate system usually works like this: An employee is guaranteed an hourly rate (probably the minimum wage) for performing an expected minimum output (the standard). For production over the standard, the employer pays so much per piece produced.
Some of the strengths and weaknesses of the piece-rate system are as follows. Compared with a fixed salary system, the introduction of a piece-rate system usually leads to substantial increase in productivity. This system is a form of extrinsic motivation to employees. This means that the piece-rate pay, which stems from the work environment external to the task, motivates employees. According to the case, if workers produced at or below the minimum production standard for the day, they received additional money for each extra piece produced; hence they are motivated to produce above the rate in other to receive additional money.
The piece-rate system may be designed to affect output other than performance. For example, employers may use the system to lower absenteeism and turnover. The system also allows employees to monitor the performance of individual employees, compare them and take the necessary actions based on the results and reduces non-value added activities which in turn lower cost.
Along with the many strengths of the piece-rate system there are also some weaknesses. The use of the piece-rate system does increase output. Although production increases, other performance criteria may suffer for example quality. As mentioned in the case, after a short period of introducing the piece-rate system customer complained about low quality of the goods they were receiving from the company. Some employees are more inclined to perform better than other, since people have varying motivation to work. Employees may be dissatisfied if they have to work harder or if they feel manipulated by the system. And finally a piece-rate system that rewards individual productivity might decrease cooperation among workers.
Andrew’s efforts were unsuccessful mainly because of the culture of the workers. The Chinese culture is one of collectivism which explains why the quality control inspectors chose to ignore products of poor quality. An implementation of a demerit system and wage deductions of quality workers may have worked but may have also had an adverse effect on the workforce’s motivation and their morale.
The employment of additional supervisors and the shipping of final products may have also eased the situation but the question of whether the benefits outweigh the costs should be of major importance to Andrew as the chance of the company facing losses increases. Again, considering the culture of the workforce, there is a great possibility the most of the new supervisors can adopt the same attitude as the current ones.
Presently, the method used by Andrew is a reactive one; an effective way to improve quality may be to have a more proactive system. Along with training the quality staff, Andrew should also train the production workers. The use of this preventative method will save a lot of resources that would otherwise go to waste. Andrew should also explain to all workers the true and long term cost of allowing product of poor quality to reach the market, which would be the loss of customers, the closing of the plant and their dismissal.
Cross-cultural differences were a factor in the effectiveness of the salary systems. According to Hofstede’s study, work-related values differ across culture. The North American culture is more individualistic whereas the culture in Asian countries such as China and Singapore is more collectivist. As a result, salary systems that emphasize individual initiative may not be successfully implemented in China as it would be in America. The collectivist culture in China emphasizes interdependence and loyalty to one’s work group.
If the plant was located in North America, the fixed salary system may not have been successful in increasing productivity because there in no incentive for employees to exert extra effort. In other words, the fixed salary system can be seen as unsuitable to the manufacturing industry, where improved productivity is important to the success of the firm. On the other hand, the piece-rate system can be effective if the plant was located in North America because given the country’s individualistic culture, employees would be more willing to exert individual effort to earn extra money. The company would benefit from increased productivity and highly motivated employees. In addition, the problem experienced with the quality control workers may not have been present if the company was located in North America. Given their individualistic nature, quality control employees in North America would not have accepted poor quality output from the production employees because it would not matter to them whether or not the production workers received a reduction in compensation.
Management by Objectives (MBO) is a systematic, continuous management program designed to facilitate the establishment and accomplishment of goals as well as promote employee development. With an MBO program, objectives and goals for the organization are developed by top management and filtered down to the lower hierarchal levels.
Chang Koh Metal Ptd Ltd is located in China, a country that values a high power distance between top management and other organizational members. As a result of this culture, employees value the goals of top management as it diffuses down the hierarchy. This would empower and motivate employees as they would feel as though they are part of the organization and therefore be more committed to serving it.
When the goals are passed down to employees, they feel that they are pursuing a common objective, one that is shared by their coworkers. As a society that values collectivism among employees, the workers would feel that, by working towards common objectives, they are working towards the betterment of the company. Workers at Chang Koh Metal Ptd Ltd are however not committed to the objectives and goals of the organization but hopefully through the MBO program they would realize the impact of their actions on others and on the organization as a whole.
MBO programs aim to develop employees’ skills through training and employee interaction. At present, Jian Wei’s hiring practices allow people who do not have the skills necessary to perform a job to be hired for the job. By training the workers, Chang Koh Metal will benefit from increased productivity as skilled workers can be more efficient and effective in the workplace.
Training will also solve the problem of poor quality as, through an MBO program, quality goals for both production and quality control employees can be set and adhered to. Employees can be trained to reduce internal and external failure of products while increasing prevention and appraisal procedures. This will result in financial savings to the organization. Periodic meeting can be held between workers and managers to monitor employees’ progress in achieving goals and review problems.
An MBO program if implemented at Chang Koh Metal Ptd Ltd will solve the problems of lowered employee motivation, lack of skilled workers and lack of commitment towards the organization. Andrew Teo will be supportive of such a program because of his previous experience with American organizations but Jian Wei’s attitude will need to be changed. Jian Wei’s attitude is pro-collectivism as he seeks the best interest of the workers.
However this attitude does not support the objectives of the organization as it hinders the effective quality control of products as well as aids in the violation of company rules and regulations against moonlighting and the use of company equipment to do so. The culture of the Chinese which includes high power distance and collectivism make it easy for the MBO programs to be implemented but attitude changes need to be made by the management before the program can be successful in Chang Koh Metal Ptd Ltd.
The implementation of the piece rate system at the company did increase the productivity of the workforce but at the expense of quality, so therefore, the conditions that may have made this pay system more effective should be focused on the maintenance of high quality with regards to the products.
Firstly, the piece rate system may have worked better if the production workforce were properly trained to detect poor quality during the production process as this would minimize the proportion of the factory output that is below quality standards.
Secondly, employees should be made aware of their task significance; this is impact of their job on others. By seeing the importance of what they do the workers may feel more needed which could increase their commitment to producing high quality products.
A next and very important condition to be considered is the development of a quality circle within the organization. Involvement in this group can give employees a sense of empowerment. The quality circle would develop ways to improve quality; this may prove effective as it would be in compliance with the collectivist nature of the workers,
Lastly, the use of total quality management in the factory can greatly improve the piece rate system. TQM is a systematic attempt to achieve continuous improvement in the quality of an organization’s products and/ or services.
This type of management encompasses aspects such as an obsession with customer satisfaction, a search for continuous improvement of processes, the prevention of quality error and high employee involvement and teamwork just to name a few. Top management must develop an atmosphere that is conducive to quality improvements. Workers must also be encouraged to provide feedback and to make suggestions. This, along with the aforementioned conditions should have a significant impact on the effectiveness of the piece rate system.
Alternative wage incentive plans to link pay to performance at the production plant include Profit sharing, Employee stock ownership programs, Gain sharing and Skilled based pay. Profit sharing is a group-oriented incentive system whereby when the firm makes a profit, some of the profit is returned to employees in the form of a bonus. This bonus can be paid in cash or in a deferred retirement fund. For Profit sharing to be considered, the firm must be profitable in the first place. Chang Koh Metal Ptd. Ltd. is not profitable currently. The general manager Andrew Teo could propose the profit sharing plan to the workers to motivate them to become more committed to the company’s goals. Profits are only shared when the company makes a profit; however, profit sharing has some disadvantages associated with it that may cause Andrew to overlook this alternative completely.
The problem with profit sharing is that there are too many factors beyond the control of the workforce that can affect profits no matter how productively workers perform their jobs. Such factors include the cost of raw materials, the state of the general economy such as a depression or slump, competition and other environmental factors the firm has no control over. Another disadvantage is that in a large firm, it is difficult to see the impact of one’s work on profits, especially where the labour force is large.
A second alternative to a piece rate system is Employee Stock Ownership Plans (ESOPs). This is an incentive plan that allows employees to own a predetermined portion of the company’s shares and provide employees with a stake in the company’s future success. By increasing employees’ stake in the company, employee stock options may increase employee loyalty and motivation due to workers becoming more aligned with the company’s goals and interests. However just as with profit sharing, ESOPs have the problem of external factors affecting it. In Chang Koh Metal Ptd. Ltd., it may be difficult for employees to see the connection between their efforts and company profits. Also various factors can influence the value of a company’s stock beside employee effort and performance.
Unlike the previous alternatives, Gain sharing rewards workers’ performance based on factors the worker can control to improve productivity. External factors that the worker has no control tend to be overlooked. An example of a common gain sharing plan is the Scanlon Plan whereby managers and employees work together to solve problems and pay is used to reward employees for cooperative behavior. At Chang Koh Metal Ptd. Ltd., gain sharing can be considered a good alternative to the piece rate system.
Gain sharing builds trust, commitment and loyalty through extensive workforce participation. It can align employee goals with those of the company due to increased participation and teamwork by employees, who in turn learn more about the organization and focus on organizational objectives. One disadvantage of this incentive plan is that it focuses only on productivity and may neglect other important objectives such as quality. Andrew can overcome this by perhaps combining gain sharing with other programs such as Total Quality Management (TQM) to make it more effective.
There are many adjustments in which Andrew can adopt. Firstly, Andrew and Jian Wei should have a meeting and discuss their differences, in order to solve or work out their problems. This is an important issue, because in order to manage a company effectively managers need to be able to work together.
Secondly, it is clearly stated that the company’s recruitment and selection process was inefficient. The employees were hired, based on an informal basis. Andrew has a fairly good idea on how to adopt this strategy that is, selecting the right people with the right qualifications in the right position. Most of the employees in the company were unqualified and did not have the appropriate skills to perform the tasks. By implementing an effective recruitment and selection program the problems of low productivity and morale will be solved.
Furthermore, instead of training the quality control supervisors, Andrew also needs to train the production workers. He should emphasize the long term problems of not producing quality goods through quality control programs. In order to alleviate the problem of the technicians using the “in maintenance” machine to do moonlighting work, Andrew should have regular meetings with the employees. This would ensure that employees know about the rules and regulations of the company.
These are some of the steps in which Andrew can put into place in order to improve the level of productivity and quality of the employees.
As a manager, I would try to work out the differences with Jian Wei, in order to ensure a smooth flow in operations, throughout the company. The culture of the organization and employees would also be important. Analyzing the culture of the employees would help in establishing an effective and efficient workforce within the organization. Implementing this strategy would aid the other managers in preparing and analyzing strategies that will best suit the culture of the workforce. Furthermore, understanding the culture and attitudes of the employees would also help the human resource managers of the organization design specific motivational strategies to increase the morale of the employees. They would be able to distinguish whether the workers are intrinsically or extrinsically motivated within the plant.
Another strategy that I would consider is to encourage cohesive teamwork amongst the workers throughout the plant. This action would increase the benefits of the piece-rate salary system. Also, since the employees would be working in groups, more collaboration will be taking place, as well as the workers will feel more committed within the organization.
One of the main reasons why Chang Koh Metal Ptd. Ltd. is experiencing a number of quality problems is because of the recruitment of unqualified workers. As a manager I would recommend, that despite the lower operating costs of employing cheap labour qualified and skilled workers should be selected. One has to remember that in order for an organization to be successful it relies on the output from the employees. These are some of the things that I would implement as a manager in Chang Koh Limited.
Courtney from Study Moose
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