The question of whether to pay Charlie’s Spot-Out Services employees an hourly wage or an incentive of some kind has always intrigued Charlie Chandler. His basic policy has been to pay employees an hourly wage, except that his managers do receive an end-of-the-year bonus depending, as Charlie puts it, “on whether their stores do well or not
However, he is considering using an incentive plan in one store. Charlie knows that parts washers should clean about 25 bread basket-sized parts per hour. Most of his do not attain this ideal standard, though. In one instance, a washer named William was paid $8 per hour, and Charlie noticed that regardless of the amount of work he had to do, William always ended up going home at about 3:00 p.m., so he earned about $300 at the end of the week.
If it was a holiday week, for instance, and there were lots of parts to clean, he might average 22 to 23 parts per hour and so he’d earn perhaps $300 and still finish each day in time to leave by 3:00 p.m., so he could pick up his children at school. But when things were very slow in the store, his productivity would drop to perhaps 12 to 15 pieces an hour, so that at the end of the week he would end up earning perhaps $280, and in fact not go home much earlier than he did when it was busy.
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