Every one of us has the desire and ability to be entrepreneurs; to be in control of our own lives. In its own way, the piece rate system of compensation allows an employee to be just that – an innovator and an entrepreneur in control of his/her performance and pay. The piece rate system not only rewards high-performance but it also empowers employees.
Establishing a direct correlation between performance and reward offers the best motivation for work. For many years now, from the 1980’s, Bluff Manufacturing has been employing the piece rate system successfully to compensate employees for their efforts and reward performance.
Bluff’s inspiration came from Lincoln Electric and Nucore Steel in the 1980’s – Lincoln Electric was even featured in the CBS show “60 Minutes” for its successful implementation of the piece rate compensation system. “We adopted this system at Bluff, but our final product was a little different. We conducted time and motion studies, hired above average workers selected based on tests at the time of hiring, and we gave them full reign over managing their own production schedules for the most part,” said Clark Smith, President of Bluff Manufacturing.
This led to a smart and motivated workforce whose innovations resulted in tripling productivity and thereby tripling their hourly rate. With the least amount of management and the system being its own driving force, Bluff was able to successfully increase production and compensate its employees based on their own hard work and skills. By its very principle, the piece rate system allows a business to align its forces in the same direction. For instance at Bluff Manufacturing, it helped resolve scheduling conflicts between sales and production. Incentives for the production team based on the piece rate system helped expedite efforts, and production and sales were able to match schedules and meet orders.
Naturally, like every system, this one has its share of issues as well. But Bluff was able to customize the system to solve the problems. Traditionally, the biggest downside to this system is the compromise on quality as a direct result of faster production rates. At Bluff, we implemented reliable quality controls at every stage of production throughout the plant. If a part was sub-standard and it went from department A to department B, the latter would send it back to the former either to fix it or to start all over. This was done at the employees’ cost so it gives them a great deal of incentive to do it really well the first time.
Another challenge that this system presented was that often less-profitable jobs were overlooked for more profitable ones. This negatively impacted the schedule – enough attention was not paid to sub-assemblies because they weren’t as profitable as other products. Bluff consolidated sales and created teams in such a way that there were enough profitable jobs to offset any less profitable jobs that the teams could easily absorb. Consolidating teams helped maintain and manage the schedule.
Today, we are proud to have implemented a unique, successful and balanced compensatory system that has allowed Bluff and its employees to grow together.
This system is effective in so many ways it’s hard to recap all its merits in one simple blog. But the bottomline is, Bluff has reaped great rewards; the ability to hire and reward innovators, triple company productivity, remove micromanagement (since the system is self-policing), eliminate scheduling conflicts between sales and production and decrease lead-time in production. Additionally, employees are paid great rates – leading to reduced turnover and increased safety.
It is one of the simplest examples of free market economics at play. And at Bluff, we are proud to offer to our employees the opportunity to be their own rainmakers.