Paying for Skills
in Two Food Processing Plants
Gerald E. Ledford,
Center for Effective Organizations
General Mills, Inc.
Center for Effective
Graduate School of Business
University of Southern California
Los Angeles, CA 90089-1421
In recent years, General
Mills has adopted pay-for-skills (PFS) plans in several
food processing plants. Two plants with pay-for-skills
are relatively new facilities manufacturing a product
called Squeez-it. Squeez-it is a ten percent fruit juice
drink that comes in several flavors. The drink is packaged
in plastic squeeze bottles that appeal to children,
the target consumers. General Mills has built two plants
to produce Squeez-it The smaller West Coast plant began
operations in 1986 The East Coast plant began operations
the innovative pay-for-skills system at the Squeez-it
plants, it is important to understand the key organizational
characteristics that provide a context for the pay plan.
Then, we will review the goals of the pay system and
the pay plan itself.
The Squeez-it business
was new for General Mills. To minimize the risks of
entering the business, the new plants were designed
to be lean, low-cost producers. This is reflected in
three key aspects of the organizational context: the
self-design approach, the work system, and the technology.
We will consider these in turn, and suggest why pay-for-skills
was relevant to each one.
Both Squeez-it plants
were designed using a "self-design" approach (Mohrman
and Cummings, 1990). This approach emphasizes an open,
participative, value-based design process; a view of
organization design as a continuing experiment; and
mini-mat specification of the design rather than an
overly restrictive blueprint at the beginning.
One consequence of
this approach is that Division line and human resource
man- agers generally set only broad design parameters,
such as the technology and type of work system that
would be used. Division management left to the plant
employees the task of fleshing out the skeletal parameters
with a detailed organization design. The two Squeez-it
plants share many design features, which is not surprising
because they are in the same business, use roughly the
same technology, use similar work systems, communicate
with each other, and attempt to learn from each other's
experiences. However, there is no management mandate
that the plants evolve in similar ways, and in fact
the two plants differ on many operational and design
There are, for example,
many operational differences between the pay systems
of the two plants, even though both facilities employ
the pay-for-skills concept. The two plans differ on
the design of the skill blocks, how skill blocks are
priced, how training is handled, and other details.
For simplicity, this paper focuses on details of the
pay plan at one of the two facilities, namely the East
Coast plant. This plant was chosen because the second
author was much more heavily involved in the design
process at the East Coast plant. The West Coast plant
is equally interesting, but somewhat different. Later
in this paper, we will review the specific design differences
and look at outcomes common to both plants.
Performance Work System
Senior line and human
resource managers at the Division level determined early
that a key to meeting business objectives was a "high
involvement" or "high performance" work system at the
plants. This type of organization design assumes that
a high degree of employee involvement is a key to performance,
and systematically moves decision making power, rewards
for business performance, training, and information
to the lowest possible level.
The senior line and
human resource managers who designed the parameters
of the work system believed that pay-for-skills was
simply one of the many design elements that were important
to the system. Because the PFS system is custom tailored
to support a particular high involvement organization,
we will next consider several key elements of the design.
These elements define the essential character of the
social system, and reflect the core values of members
of the plant.
Team Structure. The
plant gives new meaning to the term "lean structure."
The plant manager is the only line manager at the plant.
Four self-regulating production teams and a small support
staff report to the plant manager.
Each production team
performs all production operations on its shift. The
four production teams rotate between the two twelve-hour
production shifts and time off. No managers work regularly
on the night shift. There is a Coordinator on each team,
but the Coordinator is not a surrogate foreman; the
position is rotated among team members. Originally,
there was 15 members per team. The number has been increased
slightly as a result of plant expansion.
The production teams
are highly involved in managing the enterprise. They
determine job assignments, conduct training, perform
needed setup and maintenance operations, participate
in the hiring process, and even discipline fellow team
members if necessary. The teams are given extensive
operating data as well as information concerning marketing
and business strategies and plans. Each day there is
a plant staff meeting attended by the team coordinators.
This permits communication and coordination of activities
Practices. Management practices and the physical layout
reinforce the lack of hierarchy and status differences
in the plant. All employees are salaried. There are
no time clocks or even individual time cards, no separate
dining or locker facilities for management personnel,
and no reserved parking spaces for management.
There is only one
job classification at the plant. All non-exempt production
employees are hired as "operator/mechanics." There is
no separate maintenance group or classification. Routine
maintenance is handled by the teams. Maintenance work
that is beyond the skill of the teams is contracted
Special effort was taken to recruit employees who represented
a strong fit with the desired culture of the organization.
The hiring process included state job services screening
interviews, test batteries, open house information sessions,
in- depth panel interviews, and physical examinations.
Potential hires were given enough information about
the organization so that they could make informed choices
about becoming plant employees. They were told specifically
that the plant would be adopting some kind of pay-for-skills
This pattern of hiring
is important when considering the success of pay-for-skills
plan at the plant. Employees were hired specifically
because the culture of the organization appealed to
them. Employees in traditional organizations may not
respond in the same way to pay-for-skills and the other
innovations at the Squeez-it plant.
Relevance of PFS to
the Work System. Pay-for-skills is a key element of
the overall work system. PFS gives employees an incentive
to learn the technical skills that make them effective
team members, and promotes flexibility within the team.
PFS also gives employees a broader understanding of
the production system, since it gives incentives for
learning each stage of the production process. Since
every employee can rise to the top of the system, it
is consistent with the lack of status and hierarchical
distinctions within the plant.
The pay system is
custom tailored to the technical system as well as to
the social system. Next we consider the technical system.
Figure 1 depicts the
four basic work areas corresponding to different steps
in the production flow. A material handling function
is responsible for receiving and staging raw materials
and shipping finished product. At the mixing stage,
employees combine the raw materials for the fruit juice
drink and the plastic bottles. The filling stage is
the most sophisticated step in the production process.
At this stage, machines blow-mold bottles, fill them
with juice, and seal the bottles. The final stage is
packaging. Even though the level of automation is fairly
high, packaging is by far the most labor-intensive step
in the process. Workers operate machines that successively
package the bottles into 6-packs, cases, and pallet
loads, and also monitor machines that perform quality
This is a continuous
process technology, similar in many ways to the technologies
used to produce chemicals, make paint, or manufacture
paper. The technology is relatively capital intensive
and the different steps in the production process are
highly interdependent. In such technologies, the most
important role of employees is to monitor and control
the production process; physical effort is secondary.
Workers at every stage of the production process need
to be able to detect production and quality problems
as they arise and to communicate promptly and directly
with those controlling the source of the problems, even
if the problems are in work areas other than their own.
a natural fit with continuous process technologies.
By giving employees incentives to learn the entire production
process. PFS increases the ability of the work force
to control the process and to respond quickly to quality
and production problems.
The compensation strategy
at the plant was based on the following goals:
and retain a talented workforce.
a salary structure competitive in the beverage industry
- Ensure that
the pay system reinforced the values of the organization
and supported the work system and technology
The PFS was selected
as the appropriate pay system for all employees at the
plant except those in administration and quality control.
Most of the work of
designing the pay system was done by a plant PFS Design
Committee, which represented all production teams, manufacturing
support, the Plant Manager, and the Human Resource Manager
who serviced the plant. The Design Committee was created
in June 1988, about five months after initial plant
startup and about a month after the first product was
The team visited other
plants with PFS systems, discussed PFS with employees
from the West Coast Squeez-it plant, and received some
consulting input from the first author. The Design Committee
did not, however, simply borrow a pre-existing plan
or blueprint. The PFS plan at the plant was very much
the product of the Design Committee. The committee kept
continuously in touch with the production teams on the
group's progress and deliberations, and production team
input also helped to shape the final plan. A plan was
approved by senior Division management in the fall of
1988, and was implemented on November 1, 1988. Thus,
the design process lasted about five months, and was
completed about 11 months after the first employees
OF THE PLAN
Each production area
shown in Figure 1 represents a skill block. There are
three skill levels representing increasing degrees of
knowledge and skill within each skill block. Thus, there
are a total of twelve skill levels in the plant (four
blocks times three skill levels). All skill levels are
defined in terms of "performance required," "area knowledge."
and "technical knowledge" (such as operating principles
in the area). The three levels of skill within blocks
are differentiated as follows. Level 1 indicates limited
ability, such as knowledge of basic facts and ability
to perform simple tasks without direction. Level 2 indicates
partial proficiency, such as the ability to apply technical
principles on the job. Level 3 signifies that the employee
is fully competent in the area; for example, the employee
can analyze and solve production problems, perform preventive
maintenance, and conduct some major maintenance such
as rebuilding a machine.
A new employee may
be assigned initially to any skill block. Job rotations
can occur as often as every three months for training
and skill maintenance purposes. Employees cannot receive
pay increases any faster than every three months. Employees
who are unable to pass the certification for a particular
skill level within three months may be forced to wait
until another opportunity arises to rotate back into
the area. After completing certification in Level 1,
an employee begins working on Level 2 within that skill
block. The process is repeated at Level 3. If an individual
is unable to master Level 3, or chooses not to pursue
Level 3, he or she can move to a new skill block when
an opening becomes available.
Employees are required
to achieve at least Level 2 within each skill block.
Employees who are unable to achieve at least Level 2
in each skill block are subject to dismissal. However,
so far no employees have been dismissed for this reason.
Dismissals have been avoided primarily because a high-caliber
work force has been recruited through the selection
system. Very few employees who were unlikely to meet
the minimum requirements of the PFS system have been
hired, and those employees left the work force long
before the minimum requirements of the pay system became
Under the PFS plan,
all twelve skill levels are considered equal in value,
training time, and compensation. Implicitly, this suggests
that there are no differences in the degree of skill
between levels. In reality, some skill levels may be
harder than others, despite attempts to balance the
degree of skill in different levels. However, equalizing
the skill levels encourages a sense that all skill blocks
are of equal value to the operation, and facilitates
The PFS system was
intended to be competitive in the local community and
in the beverage industry. It was not easy to set competitive
wage rates, however, because no other employer in the
area or industry used PFS. The skill blocks at Squeez-it
did not correspond closely to the job classifications
in traditional organizations. At a more general level,
however, the plant required semi-skilled employees,
rather than unskilled or highly skilled employees. This
permitted some use of local pay data.
The plant's entry
rate was pegged at the low end of semi-skilled rates
in the community, as determined by an analysis of job
descriptions and wage rates. The top PFS rate was set
at the low end of the skilled worker wage rate for premium
employers in the community. Management accepted those
rates as top and bottom pay levels after checking them
against available data on industry pay rates. The difference
provided a spread of 50 percent between the entry level
and top skill level. The salary structure is evaluated
at least annually in order to insure that the overall
structure is competitive.
Management left to
the local PFS Design Committee the task of apportioning
the available pay increases to the skill blocks. The
team allocated equal pay increases to each production
block. Payment for each block was further divided to
provide increases of one-third of the block total for
each level within the block. Employee compensation is
determined by the total number of skill levels achieved,
regardless of the skill blocks in which they were earned.
Training has been
a key to the success of PFS. Training at the plant is
linked closely to the requirements of the PFS plan.
In addition to training that is generic to the entire
plant, training is available for each PFS skill level.
Considerable training is required to advance through
the entire pay system. Clearly, employees are keenly
interested in receiving the training they need to advance
in the pay system, and the training they receive is
The overall PFS training
process is managed within the production teams. More
specifically, an employee who is certified (see below)
for a given skill level is responsible for training
the next employee who rotates into the position.
The short-run need
to manufacture the product efficiently can conflict
with the long-term benefits of training to the plant
and to employees. Training is delayed when production
demands require skilled employees to remain in place.
Employees must wait for openings in new areas before
they can rotate and begin to train. There are as few
as two positions in some skill blocks, while packaging
has many positions; the imbalance creates rotation bottlenecks.
The practical limitations on training and job rotation
opportunities extend the time required for an employee
to reach the top pay rate. A new employee typically
reaches the top plant rate within four to five years,
rather than the two to three years estimated originally.
Employees recognize that training is a means to improve
production, not an end in itself, but nevertheless limited
training opportunities have been a source of frustration
Each skill block and
level is broken down into a detailed list of specific
tasks, general knowledge, and trouble-shooting knowledge.
These sets of skills and knowledge are organized into
checklists. The employee acting as trainer used the
checklists to determine whether the trainee employee
has acquired the skills and knowledge relevant to each
level in the skill block. Upon attainment of a skill
level, the employee's entire team must approve the advancement.
is less formal than in some PFS plans. For example,
there is no specific time at which an employee must
pass a written test and/or demonstrate the range of
skills for which he or she is being certified. Because
employees train and certify each other, it is always
possible that employees might "go easy" on each other
to avoid conflict and to make their own certification
easier. There are no ironclad protections against such
subterfuge, but three provisions in the pay plan reduce
the risk. First, if an employee is unable to perform
skills for which he or she has been certified, both
that employee and the trainer/certifier lose their next
pay increase. Second, individuals requalify for each
skill level when they rotate back into a skill block.
Third, the entire team must approve all pay increases,
and each team reviews its training and certification
activities monthly to insure that such activities are
conducted appropriately. Since the teams are relatively
small and rotation is frequent, shortcomings in employee
skills become obvious to other team members. Finally,
the Plant Manager gives final approval for certifications,
and on very rare occasions has turned down pay increases
that he felt were not merited.
So far, it appears
that employees do learn the skills for which they are
paid. However, some have misgivings about the lack of
systematic checks and balances in the certification
process. Clearly, this certification process depends
on an exceptional level of trust between employees and
During the PFS design
process, the Design Committee kept team members informed
about its deliberations through oral reports to the
teams, written progress reports, and PFS plan outlines.
Each team met to discuss the plan before the Design
Committee recommended a pay system to management.
After management approved
the PFS plan, the Design Committee compiled a PFS manual
that it distributed to all employees. The manual describes
the philosophy of the plan, plan rules, and salary progressions,
and provides detailed checklists for each skill level.
The manual is a communication tool and also a study
guide, since it helps employees keep track of what skills
they must learn to advance. The plant committee amends
the manual as needed to reflect changes in the pay system.
In general, implementation
of the plan went smoothly. However, two problems arose
First, the pay system
and skill blocks were repriced even before the PFS plan
was implemented. The compensation strategy called for
matching the semi-skilled labor rates of local premium
employers. The junior author discovered, in response
to employee comments, that the first blocks in the pay
system were not high enough to meet this standard. The
pay system was recalibrated in combination with another
change, which was redefinition of skill blocks. The
original pay system used to hire the work force provided
pay increases for two levels of a "startup block." The
startup block included general skills useful to the
organization, an introduction to a specific area of
the plant, and helping with the installation and checkout
of equipment. The startup block was eliminated, and
the skills it involved were folded into the four production
blocks, before the PFS plan was implemented.
Second, and more important,
was a problem arising because management prematurely
made statements during the hiring process and in the
early days of the startup that were interpreted by employees
as commitments concerning employee advancement. The
initial hires - a majority of the work force at the
plant - expected that they would be able to reach the
top plant rate within two to three years under the PFS
plan. This estimate turned out to be too optimistic;
four to five years would have been a better estimate.
The initial management
estimate was not out of line with the total amount of
time required to learn all the jobs in the plant. However,
the estimate did not take into account the practical
difficulties of training and job rotation. The teams
had to avoid a "musical chairs" scenario in which employees
were always rotating from one training situation to
another without being proficient at any of the tasks
they were performing. Also, there were inevitable bottlenecks
in the rotation schedule.
Out of respect for
management's initial promises, which were a factor in
the decision of some employees to take jobs at the plant,
the Design Committee and management agreed to a "grandfathering
scheme." All those hired after the initial round of
hiring would progress according to the PFS plan that
has been described in this paper. The first group of
42 hires, however, would be "grandfathered" so that
it would be possible for them to progress to the top
rate within three years. This group was given time to
make up for skills they "owed," that is skills for which
they were being paid but for which they had not yet
been certified As part of the scheme, grandfathered
employees lost pay for skill levels if they rotated
into an area but could not pass the certifications.
have progressed as hoped in the training and certification
process. Within 18 months of adopting PFS, less than
half of the work force was being paid based on the grandfathering
arrangement. In part, this is because many original
hires have been able to sustain an accelerated training
schedule, largely because startup conditions provided
them with wider experience than would be the case in
normal operation. Also, a few of the original hires
have left the organization. Obviously, it would have
been better for management to have avoided a premature
commitment in the first place. Under the circumstances,
however, the grandfathering arrangement has worked satisfactorily
Evolution of the PFS
The plan has evolved
over time in minor and major ways. More or less routine
modifications occur periodically in the skill levels
and skill blocks to take into account changes in the
production process. For example, as new steps in the
process are added or the machinery changes, the pay
plan must change as well. A major change was the addition
of a "training group." This group met several needs.
Hiring replacement workers was a source of frustration
because the hiring process is so thorough and time-
consuming. Hiring a replacement worker typically requires
six to eight weeks - a long time for a short-handed
team to wait. The solution was to create the training
group, a set of two to four people who are the pool
from which replacements are drawn. The training group
works full-time on the day shift, helping with special
projects, replacing long-term absentees, and working
in the storeroom. They are on the skill-based pay system,
and they can receive credit for any skill levels they
learn. However, they have limited opportunities to advance
until they become regular team members.
In the future, additional
skill blocks may be added to the PFS system. The design
Committee has discussed adding skill blocks concerned
with maintenance skills and administrative/office skills.
Because not every employee needs to have such skills,
there may be limitations on the number of team members
who are eligible to receive compensation for these skills.
Comparison of PFS
at Both Squeez-it Plants
We have focused on
the PFS plan in only one Squeez-it plant for illustration
purposes. It is useful to review the major differences
between the two pay plans, before reviewing the effects
of PFS in both plants.
The West Coast plant
uses similar skill blocks, but has no distinct levels
within the blocks. This means that each pay increase
received by an employee is worth more but is received
less frequently than in the East Coast plant. Also,
there was less effort to balance the degree of skill
in each block, and the higher amounts are paid for attaining
more difficult skill blocks. The West Coast plant also
uses a permanent "team leader" position that includes
a small pay premium. Both plants successfully used a
grandfathering scheme, although the specifics of the
plan and its dynamics differed in the two plants. Finally,
the West Coast plant is further ahead in defining possible
new skill blocks beyond the four main production blocks.
Despite these differences,
the two plans are much more similar than different.
This follows from the way in which both plans were tailored
to essentially the same technology and work system.
Both use a similar skill block structure, similar training
practices, a heavy dose of employee participation in
pay design and administration, and so on.
THE PFS PLAN
It is difficult to
prove that pay-for-skills plans benefit the organization
in a high involvement startup like the Squeez-it plants.
This is because many innovations are adopted at startup,
including work teams, extensive information sharing,
heavy training, and so on. It is difficult to attribute
positive results to any particular innovation, rather
than to the overall system. Nevertheless, the plant
manager and the human resource manager responsible for
the plant are convinced on the basis of their personal
experience that the PFS system has led to a number of
positive effects, including greater employee flexibility,
a reduction in the number of job classifications, support
for other innovations such as training and work teams,
and so on. A special benefit relevant to startups is
that employee labor costs did not reach a peak for several
years as employees moved through the PFS system. The
ramp-up in production levels during this time created
the resources to fund employee pay increases on the
It is clear that both
Squeez-it plants are highly effective organizations,
even if it is difficult to know how much PFS has contributed
to their effectiveness. On every key measure of internal
performance, these plants are among the most effective
in their Division. Staffing is lean because of the absence
of hierarchical levels and job classifications. Overall,
Division managers estimate that the two Squeez-it plants
operate with 20 percent fewer exempt and non-exempt
employees than would have been the case if a traditional
organization design was used. The two plants also are
among the best performers in the Division on ratings
of productivity (measured by throughput efficiency),
quality (measured by customer complaints per million
units), sanitation measured by inspection ratings),
and lost-time accidents. Another indication of effectiveness
was the success of the production startups in meeting
startup commitments and production requirements. This
was especially true of the East Coast plant, which was
able to avoid some of the technical glitches initially
experienced by the West Coast plant. The most pessimistic
conclusion one could draw from this bright picture is
that the PFS plan did not stand in the way of superior
performance at either plant. Management and employees
generally believe, on the other hand, that PFS is one
important element in a larger pattern of practices that
generate high performance.
PFS to Employees
The benefits of the
PFS system have accrued to employees as well as to the
plants. The average employee in both organizations earns
higher wages than would have been the case if the plants
used traditional pay systems. Employee attitude data
also indicates that the employees endorse the pay system
and see it as in their interest.
Employee Attitudes Toward Pay-For-Skills
And Related Issues 1
|Change in Pay
|Equity of PFS
in PFS System 2
|Fit of PFS
1. Data is from 36
respondents in 1987 (88 percent response rate) and 41
respondents in 1988 (91 percent response rate).
2. All measures used
seven-point response scales except participation in
PFS System and Fit of PFS with the Organization Design,
which used five-point response scales. Higher means
are more favorable except on Turnover Intention.
data is available from the West Coast plant. An employee
survey was administered at the plant by the first author
just after adoption of the PFS system in 1987, and a
second survey was conducted by the Center for Effective
Organizations 14 months later, in 1988. Figure 2 presents
a summary of relevant measures from a larger study of
attitudes at the plant.
The data reveals that
a majority of employees have positive attitudes on various
traditional survey measures, such as pay satisfaction,
satisfaction with pay administration, and measures of
pay equity. Consistent with the ongoing efforts to develop
the pay system, most employees were optimistic that
change in the pay system was moving in a positive direction.
Attitudes on these measures are favorable but not exceptionally
Attitudes about the
PFS system specifically are conspicuously favorable.
Sixty to 90 percent of employees express a preference
for PFS over traditional pay systems, indicate they
understand the plan, believe the plan is equitable,
believe that certification is done fairly, and believe
that PFS fits the overall work system design. Participation
in pay system design and administration was more limited,
although there was a sharp increase in involvement by
measures confirm that there is a very high quality of
work life at the plant. Approximately 90 percent of
employees indicate that they are satisfied with their
job, satisfied with opportunities to meet their growth
and social needs, and committed to the organization.
A small minority indicate that they intend to quit the
Most employee attitudes
were stable from 1987 to 1988. Statistical analyses
of attitude change are not reported here. However, a
useful rule of thumb is that survey changes of .3 or
greater and a shift in percent positive of 10 percent
or more probably are meaningful, while smaller changes
may be due to random variation. Using this rule of thumb,
all meaningful changes are in a positive direction during
the first year of experience with PFS. This is especially
true of attitudes directly concerned with the PFS system.
For example, preference for PFS, ratings of the fairness
of certifications, and employee participation in pay
design and administration all rose sharply.
Comparison data was
collected by Sue Mohrman and Peter Kreiner of the Center
for Effective Organizations in 1988 from all plants
in the Division except for the East Coast Squeez-it
plant. The data indicates that all five attitudinal
outcomes are considerably higher in the West Coast Squeez-it
plant than in the Division as a whole. Indeed, the West
Coast plant had the highest average of any plant in
the Division on four of the five measures. The Squeez-it
plant was close to the average of all plants on pay
satisfaction, overall pay equity, and equity compared
with coworkers, and was above average on satisfaction
with pay administration. However, the second survey
administration was conducted after only a little more
than a year's experience with the pay system, and no
employees had vet reached the top pay rates. Prior research
on pay suggests that employee pay satisfaction and possibly
other pay attitudes should become more favorable over
time as pay levels increase under the PFS system.
The survey was not
conducted in the East Coast plant. However, based on
in- depth interviews with employees and the second author's
experience, the general profile at the West Coast plant
appears to fit the East Coast plant reasonably well.
This case suggests
several lessons about PFS systems.
is a long-term investment. Both for employees and for
the organization, PFS plans represent a long-term investment.
Employees must progress through the system over a period
of several years in order to reach the top pay rate.
In order for this to be possible, management must maintain
its commitment to providing training and other resources
needed to make the pay plan work. Management must continue
to support this non-traditional system during a period
in which employees may insist on involvement in pay
administration, a sensitive area traditionally reserved
for management. Such a plan is likely to fail if it
is viewed as a quick fix.
2. Change in the pay
system is inevitable, and should be expected and planned.
No pay system can remain static and still meet business
objectives unless the technology, the work system, and
the business are all stable. Few contemporary organizations
enjoy such stability. Rather than resisting change in
the pay plan, change should be embraced and in fact
orchestrated periodically. Periodic changes need not
threaten the system as long as employees understand
and accept the changes.
3. Employee involvement
in PFS design is practical and can be very effective
in gaining acceptance and understanding of the plan.
In both plants, employees did most of the pay design
work themselves with only general guidance from management
and outside consultants. Those involved in the design
process clearly learned a great deal about reward systems
as a result. There is no doubt in our minds that the
high level of support for PFS at these facilities results
partly from employee involvement. Employees see it as
their plan to a large degree.
Several factors seemed
helpful in making employee involvement successful. Clear
parameters, set from the beginning, are very useful.
The Design Team found it helpful to have a top and bottom
pay rate from which to work, for example. Some initial
training for the team on reward systems and PFS probably
It is important for
management not to make premature commitments that lead
the participative design process astray. The grandfathering
arrangement, for example, as inconsistent with the logic
of the PFS plan, and was adopted only as a compromise
solution to a problem created by premature management
commitments. However, if management had allowed for
the possibility of practical difficulties in job rotation
and training, the problem need not have arisen. Fortunately,
the grandfathering compromise worked at both plants,
but it would have been better to have avoided the problem
in the first place.
4. PFS is not a complete
pay system. PFS is a base pay system: it does not directly
tie pay to performance. It is desirable to combine PFS
with some of pay for performance. One particularly promising
combination is PFS and gainsharing. Gainsharing provides
plant-wide bonuses to employees when the organization
as a whole exceeds performance targets. Gainsharing
is attractive to the two Squeez-it plants because the
highly interdependent production technology makes identification
of group performance far easier than the identification
of individual performance, and because gainsharing is
a natural fit with the team system. Both plants are
actively considering the adoption of gainsharing plans
for the future.
Mohrman, Susan A.
and Thomas G. Cummings, Self-Designing Organizations,
Reading, MA, Addison-Wesley, 1990.
Reprinted by permission
of American Compensation Association - copyright 1994
ACA, 14040 N. Norhtsight Blvd., Scottsdale AZ 85260