Case 1 – Individual or Team Reward?

Summary

The case considers the consequences of implementing an incentive-based payment scheme in order to increase employee efficiency in producing furniture. Sally Boston, the CEO of Metropolitan Furniture, is trying to evaluate whether an individual or team-based incentive approach would be better in motivating employees. Jack Hopson, a new employee with over ten years of experience in making furniture, advises Sally to use a piece-rate pay plan to motivate her employees to produce more furniture. This plan would award each employee based on their individual output. Jack claims that the plan worked well at his previous employer, but Sally considers the ramifications of such a plan due to Metropolitan Furniture discerning itself from its competitors through its promise of on-time deliveries. Due to the need for employees to oftentimes work as a team to complete furniture pieces, Sally believes that a piece-rate pay plan could hinder their delivery times. Therefore, Sally feels conflicted in whether to choose a team-based incentive or to follow the advice of Jack and choose the piece-rate pay plan (which has previously seen success at other companies).  

Questions

1. What are some of the advantages of offering a piece-rate pay plan to the furniture builders at Metropolitan Furniture?

According to pages 91-92, there are four advantages of offering an individual incentive pay plan. 

1. The first advantage involves strengthening and promoting the relationship between performance and pay. According to chapter 1, when an individual’s pay is tied to their performance, a better overall job performance tends to occur.
2. The second advantage involves how compensation is distributed within a company. Due to pay being tied to job performance, a company can increase their overall value of job performance because of the innate desire of an employee to perform better to receive higher compensation.
3. The third advantage is the development of an ownership mentality to individuals who partake in an incentive pay plan. This can have positive impacts on a company, such as higher profits and increased work efficiency. The drive to receive a higher compensation can lead an employee to become more invested in the success of a company in order to generate those higher compensations. 
4. The fourth advantage revolves around the nature of a culture that an individual incentive pay plan is introduced in. The United States is a more individualistic culture. Therefore, an individual payment plan may motivate employees more than another incentive approach. 

2. What are some advantages of offering a team-based incentive pay plan?

According to page 98, there are two main advantages to using group-based incentive plans.

1. The first advantage involves the heightened ease of creating group incentives. Due to there being fewer people overall, group job performance measures can be created much more quickly and efficiently. This can result in measures that encourage a higher quality of work.
2. The second advantage is the creation of stronger group collaborative efforts. Having goals that a team must accomplish together will naturally allow a group to work better together in order to accomplish their goals and be compensated appropriately. 

JUST ANSER THE FOLLOWING QUESTION

3. What do you think Sally should do?