Safelite Glass Company – Labour Economics

Instructions

Safelite Glass Company

The headquarters of Safelite Glass Corporation is located in Columbus, Ohio and is America’s largest installer of automobile glass. Recently, Safelite, under the direction of CEO, Garen Staglin, and President, John Barlow, instituted a new compensation scheme for the autoglass installers. Until January, 1994, glass installers were paid an hourly wage rate, which did not vary in any direct way with the number of windows that were installed. During 1994 and 1995, installers were shifted from an hourly wage schedule to performance pay – specifically, to a piece rate schedule. Rather than being paid for the number of hours that they worked, installers were now paid for the number of glass units that they installed. The rates varied somewhat, but on average installers were paid $21 per unit installed. At the time that the piece rates were instituted, the workers were also given a guarantee of approximately $11 per hour. If their weekly pay based on piece rates came out to less than the guarantee, they would be paid the guaranteed amount. Many workers ended up in the guarantee range.

Part A.
Given the change in payment systems answer the following questions

1. How, specifically, is output affected by a switch from time rates to piece rates? Explain (4 marks)
2. Should there be some guaranteed wage? Why ? (4 marks)
3. What does the switch do to recruitment? (4 marks)

(1,000 words)

Part B.
Find ONE example from the labour market in your country of a job position that
offers some form of an incentive payment scheme as part of the overall benefits package and include this with your assignment.

(a) Identify that part of the compensation package that involves an incentive for
the employee. Is the incentive for the individual strong or weak ? Explain.
(4 marks)

(b) Identify some “income risks” for the potential employee associated with the
incentive scheme.
(4 marks)

(1,000 words)
Ready Paper Excerpt

Labour Economics

Part A

Question 1

Indeed, the issue of pay schemes outlines the manner in which employment contracts affect the output of workers and as such, possess considerable effect on the profits realised by the respective organisations (Bruchs & Evers, 2000). With respect to Safelite Glass Corporation, the firm decided to change the nature of employment contract with its workers based on initializing a performance-pay schedule. The schedule focused on changing the compensation/pay scheme of the auto glass installers from an hourly wage rate to a piece rate schedule. Notably, the hourly wage rate did not change in any undeviating manner with respect to the number of windows fixed. Additionally, with the piece rate schedule, the organisation focused on remunerating its auto glass installers based on the number of glass units they installed rather than the number of hours they performed.

Due to the change in pay schemes, the rates changed but on average, installers received US$ 21 per unit as well as a guarantee of approximately US$ 11 every hour. Interestingly, if the weekly compensation regarding the pierce rates became less than the guarantee amount, then the workers would receive the guarantee amount. As such, the inclusion of a fixed guarantee amount with respect to unachieved piece-rate basis inclined most workers to stay within the guarantee range. This certainly affects the productivity of the workers in a negative way……

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