How much emphasis is placed on incentive compensation (as measured by the percentage of the
company's total compensation package accounted for by incentive pay)—Prior management instituted
the practice of paying each worker an incentive bonus for each pair produced that passed inspection
for good workmanship, the thesis being that such incentives spurred workers to both turn out more
pairs and curb defective workmanship. Currently, the incentive payment for shoes passing inspection
is $1.25 per pair for workers at the North American plant and $0.40 per pair for workers at the Asia-
Pacific plant. Your and your co-managers will have to decide whether to continue incentive bonus
payments, whether to raise/lower the incentive payment, and, if so, what percentage of total
compensation that piecework incentives should represent. The larger the percentage of total
compensation that comes from piecework incentives, the larger the annual boost to worker
productivity. However, once incentive pay exceeds 25% of total compensation, the incremental
gains in productivity become progressively smaller and top out altogether when incentive pay
reaches 50% of total compensation. By entering various “what-if’ values for base pay and worker
incentives, you can search out the combination that yields the best outcome from the standpoint of
worker productivity and labor costs per pair.