Piece-Part Incentives Gone Wrong

by Dean Prigelmeier, President of Proactive Technologies, Inc.

Sometimes we are tempted to take the easy route, even though it may cost more in the end, offer much less on the path to the desired outcome or cause us to repeat the effort another way. Shallow analyses and shortcuts often lead to unintended consequences. Changes to weaken metrics to convince us, or others, that progress is better than reality only postpones solutions to the underlying challenge. Too often we are focused on the search for a solution to a symptom and not the problem. The example I am about to share represents all of these tendencies.

As a Quality Control Line Inspector at an aerospace manufacturing facility in my early years, one of my first assignments was to in-process inspect work samples from several rows of NC Lathes, Mills and Grinders. I was assigned there with the implicit instructions to be on the look-out for “problems” identified by management: decreased quality yield, substantially high rates of scrap and rework, which lead to increased worker costs and lower returns. The proposed solution was more rigorous quality inspection of parts in-process before they became a component of an expensive sub-assembly or assembly.

While making my rounds, meeting the operators and inspecting samples, it seemed I was seeing evidence that management identified the “problem” correctly. I say problem, but my feeling was that I had not gotten to the root cause of what I was observing. I was rejecting parts at nearly every work station, on every pass. I decided to dig a little deeper – get to know the operators a little better to see if I could determine why this was happening.

What I found out was that the operators were, for the most part, experienced and knowledgeable. They knew how to measure their products and should have been able to detect parts drifting out of tolerance. Yet, each station had two barrels – one for scrap and one for rework – as if it were foregone conclusion. And they were working at a very high rate of output with, voluntarily, no breaks or lunch. The effort expended seemed to run counter to the outcome.

It didn’t take me long to get the operators to open up, and the explanation was troubling but understandable. It went like this. The Time Study Engineer would visit the workstation at the beginning of every batch run to establish the “standard rate” of parts per hour. A quality inspector inspected the “first part” to ensure the dimensions generated during that process met the specifications. This seemed like good management practices.

However, I learned that a loophole in the management practices was being exploited. The operators were given a piece-part incentive rate based on the standard rate plus an incremental incentive rate based on how well they exceeded the standard rate. Many, not all, operators provided a slow, thoughtful and accurate part sample for the Time Study Engineer to set a standard rate that turned out to be artificially low. To the degree the operator could produce the part above the standard rate, the operator was provided a per part incentive on top of his hourly rate. This seemed to explain why the operators seemed so focused on output, and no one in management saw a problem with output quantity. But this didn’t yet explain the low quality yield rate, or the high rework and scrap rates.

When I asked what happens to their incentive bonus if the part is found discrepant, I was shocked. The answer was “nothing.” When I asked if the operators were penalized for scrapped output or rework of the parts they originally made or a deduction was made to their bonus, the answer was “no.” What puzzled me more was that the operators all knew this incentive system made no sense, some felt a little ashamed of the waste and some felt angry that anyone with a moderately consistent reasonable quality yield was looked down upon by their supervisors as “low performers.” In trying to achieve their incentive bonus AND make quality parts they were paid less than someone whose yield was lower but rate of output higher. But all held management accountable for this anomaly.

When I explained this to the Time Study Engineer and suggested that he might institute a penalty deduction for scrapped and reworked parts, I was told to mind my own business and things continued as they were. In fact, his theory was that he was not allowing enough time per part to create it to specification, so he opened up the piece-part rates. Operators were tickled with the opportunity to double their pay for being even less accountable.

Several months later, upper management called an emergency meeting. All employees were assembled and taken on a tour of the plant. The Plant Manager pointed to the heaping scrap and rework barrels by every machine. We were told this could not continue and if the extremely high scrap and rework levels were not lowered to eventually 1%, then 0%, there would be layoffs.

That same week the piece-part incentive rate was modified – by the Plant Manager – to include an incentive penalty for scrap and rework. The operator would have to rework their parts on their own time and any scrap would be deducted from the total output. Within three months the plant went from 2 barrels for every machine to 2 barrels for the entire department of 50 machines!

It seemed these operators were capable of producing good parts at a fast rate all along. It was management that inadvertently established an incentive system to encourage increased output and share the good fortune with its workers, without thinking it through or accurately monitoring the metrics that created a problem where there was none before. Today, Total Quality Management and Statistical Process Control programs should be capable of preventing this scenario or catching and remedying it early on, so too the extreme pressure on management to keep operating costs low.

As an outside observer with no bias, it was simple for me to follow the symptoms to find the problem source and suggest a solution, although it was not heeded until it reached the attention of the highest levels. Solutions that don’t include a study of the underlying problem to isolate it from the symptom(s) may create other symptoms that further confuse the effort. I came to my conclusions in this example through informal operator observation/interview and data analysis, long before Proactive Technologies, Inc. and the PROTECH© system of managed human resource development were born. The methodology used today to analyze each task of the job classification would have made it easy spot this anomaly and provide accurate data for setting a standard rate, among many other things. Contact Proactive Technologies website for more information.