Slay Steel is a company facing an important dilemma in an industry in decline. They continue to experience a 400% employee turnover, constantly have 3 employees missing during each of the 2 shifts, and generally low productivity level. Now Slay Steel has to determine whether they should implement a new payment structure of $20 per piece produced in an attempt to boost productivity or keep to the same compensation level. After examining each side of the dilemma, it is recommended that Slay Steel takes certain measures to improve employee retention and productivity. In the proposal, Greg Slay presented several arguments in favor of the piece rate. The first argument presented for in favor of implementing the piece rate method to pay employees
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While piece rate method had several benefits, it is not financially the best option for the company to take. While the company is paying employees a low wage rate, increasing to $20 per unit is too expensive for the business to support at this time. Increasing employee pay by $1 will raise costs by $13% [(8.7/7.7)-1]. The extent of possible productivity increase or payroll savings by decreasing employee turnover cannot be determined at this time. If payroll savings and productivity equal 13%, then the company should increase pay. To reduce the low productivity, managers must be enforcing that employees be preforming at their optimal levels. Many employees have reach optimal production efficiency according to the learning curve but produce less than 20 units because managers allow it. These employees should be held to the standard that they need to produce 25 units ($40/1.6hrs), and face possible reprimand if they fail to make quota. Another recommendation would be creating additional benefits for employees like personal days or additional vacation days or etc. that can only be acquired by employees working at the company for a minimum of a year. To make it even more desirable, give an additional amount if they meet or exceed their quota. The company can start with a small amount and increase it each year an employee is with them as way to keep costs
While piece rate method had several benefits, it is not financially the best option for the company to take. While the company is paying employees a low wage rate, increasing to $20 per unit is too expensive for the business to support at this time. Increasing employee pay by $1 will raise costs by $13% [(8.7/7.7)-1]. The extent of possible productivity increase or payroll savings by decreasing employee turnover cannot be determined at this time. If payroll savings and productivity equal 13%, then the company should increase pay. To reduce the low productivity, managers must be enforcing that employees be preforming at their optimal levels. Many employees have reach optimal production efficiency according to the learning curve but produce less than 20 units because managers allow it. These employees should be held to the standard that they need to produce 25 units ($40/1.6hrs), and face possible reprimand if they fail to make quota. Another recommendation would be creating additional benefits for employees like personal days or additional vacation days or etc. that can only be acquired by employees working at the company for a minimum of a year. To make it even more desirable, give an additional amount if they meet or exceed their quota. The company can start with a small amount and increase it each year an employee is with them as way to keep costs