Payable by Results System-operations

This article though is on PBR we have categorized it under operations management as payment related operations under different shop floor conditions are identified and discussed.

Tangible and Intangible Costs of a PBR System:
The introduction of a PBR scheme places a heavy responsibility on the management and comes with a few costs:
* The onus is on the management to provide materials and well-maintained machines on time, in order to reduce the ‘waiting times’.

* The management should always ask itself the question; ‘Output at what cost?’ Amongst the tangible costs could be the costs of deterioration in quality, increased materials usage, and improper handling (and usage) of the machines.
* Amongst the intangible costs are the costs of (a) depersonalization of relations and hardening of attitudes between the supervisor and workers; and (b) expenditure of the management time on various disputes about the new wages and time, instead of handling more constructive issues such as methods changes, inventory policies, etc.
* Wage anomalies may arise due to imperfect work measurements or due to varying bargaining capacities of individuals. A good worker but a bad bargainer may therefore suffer.
* Management should also be aware, that with an incentive scheme operating, the workers will resist deployment changes from one section to another. This flexibility is lost to a great extent.
* The workers may even resist method change or technology change, particularly in a job which has a ‘loose’ rate. In general incentives bring about an attitude inimical to improvements in methods and technology.
* The management, in a way, loses control over the output of the employees. This also has the effect on production control in terms of aligning different operations which are linked with one another.
* Since the direct worker is on incentive but the indirect one such as the materials handler, stores worker, laboratory technician, office worker, maintenance mechanic, etc. is not on incentive pay, the management may find it difficult to integrate the work of the incentive and non-incentive employees. This leads to many imbalances in the working of the plant.
* PBR scheme may also mean a fluctuating income for a worker since (a) the work may not be there all the time and (b) the worker himself may not be able to work at the same high pace all the time.

Measures to overcome problems related to the PBR System:
In order to overcome some of these difficulties, following are some of the measures that could be taken within the Payment by Results system:

Protection of Quality:

Generally, one should pay only for the output that meets set quality standards. In some instances, quality is of extreme importance such as in the products catering to the nuclear power stations, highly safety-oriented mechanisms, products dealing with human health, products of art, etc. The output-oriented incentive scheme is not very suitable for such cases. But, where the incentive schemes can still be installed, they have to be accompanied by the condition that every defective unit of output is severely penalized in terms of a drastic reduction in the incentive bonus.

Protection against wastage:

In cases where materials usage is of much importance (due to the high costs of materials themselves, and their reworking), the incentive payment can be tailored to two parameters:

(1) Output and (2) Materials usage.

Any output above the basic output level is given incentive pay which reduces as the material wastage gets higher. Thus, as the output increases the incentive pay increases, but, also concurrently, as the materials wastage increases the incentive pay decreases.

Indirect Workers and Incentives:

The term ‘indirect’ need not mean that the contribution of these workers to the enhanced productivity is any less than the so-called ‘direct’ workers. In some industries the indirect workers, such as maintenance technicians, the machine-setters play a very major role in having a high degree of machinery availability. Their role is all the more evident where the production is significantly machinery-controlled.

But, since the measurement of the work of the indirect workers is somewhat difficult, Many managements pay them an incentive bonus that is tied with the incentive earnings of the direct workers. For instance, they may pay them the average of their department or group.

Such a simplistic solution may not always be justified. The stop-watch Time Study, the Predetermined Motion Time Systems, the Standard Data Blocks, the Multiple Regression Analyses combined with Work Sampling could be of use in the measurement of indirect work.

The Multiple regression analysis correlates several criteria for the measure of the work (called ‘predictors’) with the time required to perform a job. If by means of a Work Sampling study enough data is collected on and this data can be used to run a regression and find out the various correlation coefficients in order to choose from the different predictors earlier hypothesized. An applicable formula can then be arrived at. This can, then, be used to measure the productivity.