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Financial incentives for middle management in British Columbia. Robinson, Bruce Arnold 1963

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FINANCIAL INCENTIVES FOR MIDDLE MANAGEMENT IN BRITISH COLUMBIA by BRUCE ARNOLD ROBINSON B.A., B.A.Sc., The University of B r i t i s h Columbia, 1936  A thesis submitted as p a r t i a l fulfilment of the requirements f o r the degree of MASTER OF BUSINESS ADMINISTRATION i n the Faculty of COMMERCE AND BUSINESS ADMINISTRATION  We accept t h i s thesis as conforming to the required standard  THE UNIVERSITY OF BRITISH COLUMBIA June 1963  In the  requirements  British  Columbia,  available for  for  extensive  granted It  presenting  is  by  the  gain  an  I  agree  copying Head  that  shall  that  and  of  of  thesis  advanced  reference  understood  financial  for  this  degree  the  thesis  my D e p a r t m e n t copying  not  be  or  p a r t i a l at  Library  study.  this  in  I  the  for or  make  agree  scholarly by  his  publication  allowed  University  shall  further  fulfilment  without  of  i t  that  of  of freely permission  purposes  may  be  representatives. this  thesis  my w r i t t e n  for  permission.  ii  ABSTRACT  The  objective of this  financial  incentives  Columbia as a p p l i e d  s t u d y was t o d e t e r m i n e t h e u s e o f  i n the manufacturing industry specifically  of B r i t i s h  t o middle-management  personnel.  Many u n p r o v e n s t a t e m e n t s h a v e b e e n made i n t h e p a s t regarding.the that the  use of f i n a n c i a l  i n c e n t i v e s were o f t e n employee r a t h e r  in United  than encouraging  of other  industry.  successful  among t h e p l a n s  improved  incentive plans  of  financial A  incentives  systematic  in British  Columbia  Columbia.  provide  information  opinions  This  and t o c o n f i r m  The companies on t h e i r  about v a r i o u s  study conditions  and l a r g e  the use  employees.  random sample was drawn f r o m a l a r g e  British  and  Columbia.  evident  industry respecting  a v a r i e t y of manufacturing operations  than  few o f t h e a s p e c t s  f o r middle-management  o f m a n u f a c t u r e r s composed o f s m a l l in  extensive  a p p e a r e d t o be  was u n d e r t a k e n t o d i s p e l m i s c o n c e p t i o n s in British  performance.  i n d u s t r y was l e s s  In addition  i n operation  thought t o e x i s t  assumed  the a p p l i c a t i o n o f f i n a n c i a l  i n B r i t i s h Columbia States  I t has been  o f f e r e d f o r the purpose o f p l e a s i n g  I t h a s a l s o b e e n assumed t h a t incentives  incentives.  companies  located  group engaged  throughout  s a m p l e d were r e q u e s t e d t o  a c t u a l use o f , experience  types o f f i n a n c i a l  with,  incentives.  iii The  r e s u l t s o f the survey  manufacturing industry, financial  incentives  incentives In  indicated that  as much  vious  f o r m i d d l e management a s i n o f f e r i n g  t o t o p management and t o f i r s t - l i n e  supervisors.  incentives  f o r middle  seemed t o be e n c o u r a g e d i f t h e company h a d h a d p r e -  e x p e r i e n c e w i t h i n c e n t i v e p a y methods among o f f i c e a n d  production  worker groups.  Medium-sized companies financial  management t h a n d i d s m a l l -  or l a r g e - s i z e d concerns.  companies  i t appeared that  incentives  exhibited  more i n t e r e s t i n p r o v i d i n g  sized  financial  f o r middle I n medium-  i n c e n t i v e s were  u s e d f o r m i d d l e management  i n an attempt  tionate increases  s a l a r i e s f o r t h i s management  i n basic  compared t o r e c e n t  pay i n c r e a s e s  to o f f s e t small  f o r other  awards w h i c h m i g h t p r o v i d e Results  from the survey  the granting  t i v e value an  British  incentive  o f employees.  s u g g e s t e d t h a t many f i r m s r e l i e d  unduly  t o have a c o n t i n u i n g  incenover  period.  use o f f i n a n c i a l Columbia  industry  incentives  f o r management g r o u p s i n  seemed t o b e n o m i n a l ;  o f f e r e d more f o r t h e p u r p o s e o f p l e a s i n g distribution  proporgroup  i n e n c o u r a g i n g i m p r o v e d employee p e r f o r m a n c e  extended The  e f f e c t i v e motivation  of salary increases  being  groups o f employees.  No company i n d i c a t e d an i n t e r e s t i n m a k i n g l a r g e - s i z e d  on  Columbia  i n t e r e s t was shown i n p r o v i d i n g  some c o m p a n i e s t h e u s e o f f i n a n c i a l  management  in British  they were  t h e employee w i t h a  of a portion of the f i r m s p r o f i t s 1  C h r i s t m a s bonus t h a n f o r e n c o u r a g i n g s p e c i f i c  or with a  e f f o r t and  iv improved performance v a l u a b l e of  financial  incentives  t o t h e company.  in British  Columbia  The a p p l i c a t i o n  industry  for a l l  e m p l o y e e g r o u p s i n management a p p e a r e d t o be l e s s i n t e n s i v e and specifically  l e s s s a t i s f a c t o r y t h a n some  incentive plans tenets of  i n American  industry.  of effective financial  these s u c c e s s f u l plans  in British  Columbia.  Few, i f a n y , o f t h e  incentives  were e v i d e n t  long-established  e x h i b i t e d b y many  among t h e p l a n s  operated  V  TABLE OF CONTENTS CHAPTER I,  PAGE MIDDLE MANAGEMENT PROBLEM IN INDUSTRY  1  Encouragement o f Middle Management Is E s s e n t i a l to Industry  1  F i n a n c i a l Incentives for Middle Management Are Important Purpose and Hypotheses Methodology . . . . .  5 7 . . . . 8  Approach Followed i n the Balance of the Thesis. . .11  II.  Definitions of Terms Used  12  Limitations Applied to This Study  17  NEEDS AND METHODS OF COMPENSATION Needs of the Company Needs of the Employee . . Employee Needs and Work Rewards  21 .22 28 33  Types of F i n a n c i a l Incentives C r i t i c a l to This Study  III.  .37  "Current Motivator" group  39  "Deferred-holding" group  47  FINANCIAL INCENTIVES FOR MIDDLE MANAGEMENT  51  The Requirements of F i n a n c i a l Incentives f o r Middle Management . . . . . . Examples o f Established Incentive Plans  51 .58  vi PAGE Consideration Given to Middle Management by Early Plans  58  Recent Developments - The Rucker Plan  60  E f f e c t i v e F i n a n c i a l Incentives IV.  63  THE USE OF FINANCIAL INCENTIVES IN BRITISH COLUMBIA INDUSTRY  67  C l a s s i f i c a t i o n of Data from the Survey. . . . . . .68 Increases i n Remuneration from 1951 to 1961 . . . .73 Evaluation of Hypotheses  81  F i r s t Hypothesis  81  Second Hypothesis  . . . .85  Third Hypothesis  . .93  Fourth Hypothesis  96  Reasons Given f o r Non-Use or Discontinuance of F i n a n c i a l Incentives  100  Company Interest i n Employee Groups  103  Employee-Group Influence on Company-wide Results  103  Employee-Group Influence on Long-term Company Progress  ,  Influence of Company Organization Observations A r i s i n g from Interviews V.  SUMMARY AND CONCLUSIONS Summary of Survey Results  107 110 113 115 115  vii PAGE Concluding Remarks  117  Further Study  122  BIBLIOGRAPHY APPENDIX A.  123 SURVEY PROCEDURE AND QUESTIONNAIRE  130  Survey Design  130  Size of Sample Required  132  Survey Procedure and Response  136  APPENDIX B.  ADDITIONAL INFORMATION FROM OTHER SOURCES. . . 151  National I n d u s t r i a l Conference Board, 1939-54. . 151 National I n d u s t r i a l Conference Board, 1947 . . . 152 Canada, Department of Labor, 1954  153  Bureau of National A f f a i r s , 1957  154  United States, Department of Labor, 1960-61. . . 155 APPENDIX C.  EXAMPLES OF INCENTIVE PLANS AND MIDDLE  MANAGEMENT PARTICIPATION  161  Scanlon Type of Plan  161  Lincoln E l e c t r i c Incentive Management Plan . . . 164 Nunn-Bush Shoe Company Share-Production Plan . . 167 The Rucker Plan  167  American Can Company and Hewitt-Robins Inc.  APPENDIX D.  . 171  Rucker Bibliography  176  TABULATED DATA OBTAINED FROM SURVEY  178  Organization of Appendix D Tables of Data (XXV to XXXVI)  178 .  180  viii LIST OF TABLES TABLE I. II.  PAGE Change i n Average Gross Compensation, 1939-50  3  Increase i n Employment i n a Large United States Manufacturer  III. IV. V. VI. VII. VIII.  6  P r o f i t Sharing Plan-Type Used, and Additions to Pay.  Data on Bonus Practices for D i v i s i o n a l O f f i c e r s . . . .56 C l a s s i f i c a t i o n of Data from Survey  69  Increase i n Average Typical Remuneration .  75  Canadian Increase i n Weekly Earnings since 1951.  . . .76  Use of F i n a n c i a l Incentives by A l l Sizes of Companies  IX.  82  Use of F i n a n c i a l Incentives by Small, Medium, and Large Companies  X.  .45  86  Use of Incentives for Middle Management by Companies Using Incentives f o r O f f i c e and Plant Workers. . . .94  XI. XII.  Relative Interest i n Different F i n a n c i a l Incentives. .97 Relative Frequency of Reasons Given f o r Not Using F i n a n c i a l Incentives  XIIl.  Employee Group Considered Most Able to Influence Company-wide Results  XIV.  102  104  Employee Group Considered Most Able to Influence Company-wide Results, According to Company Size. . 105  XV.  Relative Indirect Interest Shown i n Employee Groups. 108  ix TABLE XVI.  PAGE Per Cent Use of F i n a n c i a l Incentives According to Location of Company Head O f f i c e  XVII.  Manufacturing  112  Firms i n B r i t i s h Columbia According  to Employment and P a y r o l l , 1958 XVIII. XIX.  131  Comparison of Survey Sample and Response . . . . .  138  Use of Incentives i n 1939 and 1946  152  XX.  P r o f i t Sharing Plans for Salaried Personnel. . . . 152  XXI.  Salaried Employees Paid Incentives, 1939 and 1947. 153  XXII.  Per Cent D i s t r i b u t i o n of Establishments by Type of Supplementary Cash Bonus Plan for Selected Occupational Groups, Winter 1959-60  XXIII. XXIV.  Bonus Payments as Per Cent of Average Salaries  157 . . 158  Comparison of D i s t r i b u t i o n of Supplementary Cash Bonus Plans f o r 1959-60 and 1960-61. . . . . . .  XXV.  159  Reported Approximate Increase i n Average Typical Remuneration, 1951-61, by Employee Categories. . 180  XXVI. XXVII.  Use of F i n a n c i a l Incentives, by Employee Group . . 181 Use of F i n a n c i a l Incentives (Current Motivators Only), According to Company Size  XXVIII.  183  Use of F i n a n c i a l Incentives (Current Motivators Only), According to Company C h a r a c t e r i s t i c s . . . 184  XXIX.  F i n a n c i a l Incentives Considered Most (and Least) Suitable for Management Groups  185  X TABLE XXX.  PAGE F i n a n c i a l Incentives Considered Most (and Least) Suitable f o r Management Groups, According to Company Size  XXXI.  Choices from a Selected L i s t of F i n a n c i a l Incentives  XXXII.  187  188  Relative Interest i n D i f f e r e n t Groups of F i n a n c i a l Incentives (Summary of Tables XXXI, XXIX and XXVII)  XXXIII.  Reasons for Not Using F i n a n c i a l Incentives f o r Management Groups.  XXXIV. XXXV.  Reasons for Discontinuing Incentive Plans  191 192  Incentives Chosen to Give Best Company-wide Results  XXXVI.  190  193  F i n a n c i a l Incentives Ranked f o r Increasing Long-term Company P r o f i t s and Progress  195  xi LIST OF FIGURES FIGURE 1.  PAGE  D i s t r i b u t i o n of Survey Returns by Size of Company and by Location of Company Head O f f i c e  2.  71  Increase i n the Average Typical Remuneration of Employee Groups from 1951 to 1961, by Small-, Medium-, and Large-sized Companies  3.  Use of F i n a n c i a l Incentives by Small-, Medium-, and Large-sized Companies  4.  79  87  Comparison of the Use of F i n a n c i a l Incentives with Increases i n Average Remuneration for Top Management, Middle Management, and O f f i c e Worker  5.  89  Comparison of the Use of F i n a n c i a l Incentives with Increases i n Average Remuneration for F i r s t - l i n e Supervisors and Plant Workers  90  xii  ACKNOWLEDGEMENT  Sincere appreciation  i s extended  composed o f W." 0 . P e r k e t t , C h a i r m a n ,  committee  and J . A. C r o s s e f o r p a t i e n t  covering l e t t e r  arranging courtesies  thesis  J . P. Van G i g c h ,  encouragement. f o r sponsoring  sent w i t h the m a i l q u e s t i o n n a i r e , f o r  t o accept incoming m a i l r e p l i e s , as committee  Sincere of  guidance and  t h a n k s a r e e x t e n d e d t o W. 0 . P e r k e t t  Specific the  to supervising  a n d f o r h i s many  chairman.  thanks a r e a l s o  e x t e n d e d t o M r . James R a n k i n  the Canadian Manufacturers A s s o c i a t i o n  a n d t o t h e many  m a n u f a c t u r e r s o f B r i t i s h C o l u m b i a who r e s p o n d e d t o t h e s u r v e y . Without would  their  helpful  n o t have been  and w i l l i n g  possible.  cooperation  this  study  CHAPTER I MIDDLE MANAGEMENT PROBLEM IN INDUSTRY Encouragement of Middle Management Is E s s e n t i a l to Industry There i s a demand for more well-trained and widely experienced administrators i n business to meet the increased and specialized needs of d i v e r s i f i e d and expanded industry. Many firms are neither e f f i c i e n t nor progressive because many managers i n industry and business are not f u l l y q u a l i f i e d f o r their responsibilities.  This i n e f f i c i e n c y i s a serious  threat to any i n d u s t r i a l economy dependent on the e f f e c t i v e management of an increasing number of small and large business concerns.  This shortage of executive a b i l i t y i n top management  i s related to past and present shortages of people with p e r t i nent experience i n the lower levels of management, and arises mainly from their lack of opportunity to gain p r a c t i c a l experience i n making responsible management decisions.^" Methods to improve the t r a i n i n g and to widen the experience of lower management personnel i n industry are e s s e n t i a l to the eventual improvement of the higher levels of management. Since the best sources of top-management personnel are the  Robert N. McMurry, "Man-Hunt for Top Executives", Harvard Business Review, January/February 1954, page 46.  2 ranks of lower management where the techniques of e f f e c t i v e 2  management are either learned well or not learned at a l l , industry must see that middle management  a l l the individuals  whose functions l i e between those of top management and f i r s t - l i n e supervisor  the  are given a chance to develop.  Suitable f i n a n c i a l incentives could materially a s s i s t i n the progressive development of middle-management personnel i n industry. Incentives for middle management i n the form of compensation may  not be receiving the consideration and attention  most conducive to the encouragement of today's middle-management individuals to q u a l i f y for. tomorrow s top-management positions. 1  In fact the compensation for management groups compared to that for o f f i c e and plant workers seems to be decreasing i n the United States, as i n shown i n Table I.  Even though  middle-management personnel are often assigned routine responsib i l i t i e s , they are usually f a m i l i a r with, and knowledgeable about, many e s s e n t i a l d e t a i l s of company-wide operations. This know-how permits middle-management people to assume considerable r e s p o n s i b i l i t y for major company operations, often with l i t t l e suitable recognition of their performance.  ^Mabel Newcomer, The Big Business Executive, Factors that Made Him 1900-1950, New York: Columbia University Press, 1955, page 145.  3 TABLE I CHANGE IN AVERAGE GROSS COMPENSATION  3  Percentage change i n average gross compensation Percentage change adjusted f o r in average gross increased taxes compensation 1939 and l i v i n g costs to 1950 ( i n U. S. A., (1939 to 1950 excluding overtime) - i n U. S. A.) - b TOP MANAGEMENT (Highest paid to 1/10 of 1% of large company payroll)  35 %  b MIDDLE MANAGEMENT (Next highest 9/10 of 1%) SUPERVISOR MANAGEMENT (Foremen and equivalent) OFFICE WORKER AND HOURLYRATED EMPLOYEES (Each group's compensation was approximately equivalent throughout period)  - 59 % - 40  83  106  - 13  +  3  Edward C. Bursk, "Thinking Ahead: Lag i n Executive Compensation", Harvard Business Review. March/April 1952, page 142. The findings of a survey made by Arch Patton of McKinsey and Company were made public here f o r the f i r s t time. They were based on a survey of 41 firms representing s t e e l , non-ferrous metals, mining, food, automobile, a i r c r a f t , banking, insurance, glass and metal containers, petroleum, railroads and miscellaneous consumer goods industries. a  ^The average gross compensation of top management does not include c a p i t a l gain a r i s i n g from i n d i v i d u a l stock options, nor r e f l e c t income deferred to the future under s p e c i f i c arrangement by i n d i v i d u a l executives. Both of these methods are increasingly important income sources to top management throughout t h e i r l i f e time, but are seldom available to middle management. Individuals i n middle management do not have the personal funds generally required to take up stock options, so i t i s l i k e l y that such sources of income would a l t e r the changes shown f o r middle management less than f o r top management.  4 L i t t l e r e s e a r c h has been performed  on the needs o f middle-  management employees and t h e i r m o t i v a t i o n by s u i t a b l e compensation plans.  Numerous a r t i c l e s appear i n b u s i n e s s p u b l i c a t i o n s  which d e a l w i t h e x e c u t i v e compensation, to middle management.  but few,  i f any,  apply  An e x h a u s t i v e b i b l i o g r a p h y on " E x e c u t i v e  Compensation" c o n t a i n e d v e r y few a r t i c l e s r e f e r r i n g to middle management.^ about  Furthermore,  compensation  t h e r e was  p a t t e r n s and the use of f i n a n c i a l  f o r top management i n Canadian middle management  a d e f i n i t e l a c k of data incentives  i n d u s t r y , l e t alone f o r the  group.  Edwin T. Ashman, "Why Managers Leave T h e i r Job", Nations B u s i n e s s . October 1958. Main reason g i v e n as " d e s i r e f o r more money"; Robert J . Howe, " P r i c e Tags f o r E x e c u t i v e s " , Harvard Business Review. May/June 1956, page 94; A r c h P a t t o n , "Trends i n E x e c u t i v e Compensation", Harvard Business Review, September/ October 1960, page 144; and R i c h a r d C. Smyth, "Bonus P l a n s f o r E x e c u t i v e s " , Harvard Business Review, July/August 1959, page 66. ^Thelma J . M o r r i s , E x e c u t i v e Compensation: S e l e c t e d References, Reference L i s t # 19, A p r i l 1960. Boston: Baker L i b r a r y , Harvard U n i v e r s i t y P r e s s , 1960, page 11. ^Canada, Department o f Labor, Economics Research Branch, "Methods o f Wage Payment i n Canada i n Manufacturing, October 1954", The Labor G a z e t t e . A p r i l 1956, page 435. T h i s i s a lone r e p o r t on the use o f "payment by r e s u l t s " schemes f o r the wage e a r n e r s i n Canada, and makes no r e f e r e n c e t o s i m i l a r schemes f o r management or s u p e r v i s o r y p e r s o n n e l . The 1952 l e v e l o f 20% f o r the use o f such schemes f o r wage earners i n Canada was l e s s than h a l f the 507 occurrence i n the U n i t e d S t a t e s , as r e p o r t e d by the N a t i o n a l I n d u s t r i a l Conf e r e n c e Board, P e r s o n n e l A c t i v i t i e s i n American B u s i n e s s , ( R e v i s e d ) , Survey o f P e r s o n n e l P o l i c y # 86, New York: 1947, page 12.- I n t e r e s t i n i n c e n t i v e s , even f o r wage e a r n e r s , seems t o l a g i n Canada as compared w i t h g r e a t e r acceptance i n the U. S. A. o  5 I t appeared to the w r i t e r that l i t t l e attention had been directed toward the study of compensation plans designed for middle management i n Canadian industry. No evidence was  found  to indicate that any study of t h i s area had been made i n B r i t i s h Columbia.  The present e f f o r t was  i n i t i a t e d to discover what  f i n a n c i a l incentives were being used by B r i t i s h Columbia industry f o r middle-management people. F i n a n c i a l Incentives for Middle Management Are  Important  The middle segment of management personnel i n industry i s growing r a p i d l y .  Industry i n Canada and i n B r i t i s h Columbia  i s growing with the country's expansion i n population and requires more management people.  In Canada, the proportions  of reported employees classed as s a l a r i e d s t a f f i n manufacturing industries increased from 16.3% i n 1946 to 18.5% i n 1950 and to 6 24.4% i n 1960. large and small.  These figures show the average f o r a l l companies In large companies this increase i n the pro-  portion of s a l a r i e d personnel, of which middle management forms a very large part, i s perhaps greater.^ Canada, Dominion Bureau of S t a t i s t i c s , Earnings and Hours of Work i n Manufacturing (Cat. No. 72-204), Ottawa: Dominion Bureau of S t a t i s t i c s , 1946, 1950, and 1960, Tables B. ^Arch Patton, "What Makes Executives Run?" Dun's Review and Modem Industry; September 1957. Patton reports the Increase i n Employment i n a Large United States Manufacturer as considerably greater for s a l a r i e d employees than for hourly rated workers:  6 Many i n d u s t r i a l concerns i n the United States, when threatened with a shortage of trained and experienced future executives, have recognized the importance of middle-management people by providing suitable f i n a n c i a l incentives.  Following  the i n i t i a t i o n of a program f o r decentralization, the General E l e c t r i c Company recently turned to the u t i l i z a t i o n of economic Q incentives f o r nearly 2000 key employees.  The company uses  incentive compensation along with intensive t r a i n i n g and other techniques designed to develop leaders and t r a i n management personnel i n decision-making.  This i s an example of how  f i n a n c i a l incentives are being recognized as an important course available to industry for the development of middlemanagement i n d i v i d u a l s . F i n a n c i a l incentives are not a panacea, but i n an intensive study of compensation and incentives for i n d u s t r i a l executives, Fetter concluded that such plans are important 9 to business a c t i v i t y . F i n a n c i a l incentive plans for management TABLE II 1948-52 Hourly-rated 4 60% Salaried + 130%  1952-56 + 16% + 70%  °Ralph J . Cordiner, New Frontiers f o r Professional Managers, New York: McGraw-Hill Book Company, 1956, page 108. ^Robert B. Fetter and Donald C. Johnson, Compensation and Incentives f o r I n d u s t r i a l Executives. Bloomington, Indiana: Indiana University Press, 1952, page 118.  7  personnel can materially help i n assuring that past progress i s maintained or preferably increased.  industrial  I f adequate  f i n a n c i a l incentives are not a v a i l a b l e , i t i s possible that p o t e n t i a l top executives  f o r industry w i l l be fewer i n number  as w e l l as less capable, less productive, and less dynamic. Accordingly,  i f B r i t i s h Columbia industry wishes to remain  competitive,  i t i s important that more f i n a n c i a l incentives  are made available to middle management to encourage the development of future top-management people. Purpose and Hypotheses The purpose of t h i s study i s to determine what use i s being made of f i n a n c i a l incentive plans i n B r i t i s h Columbia manufacturing industry for management people, p a r t i c u l a r l y middle management personnel.  I t i s desirable to determine  what types of incentives are being used and i f industry i s o f f e r i n g more, or l e s s , encouragement to middle management than i t i s giving to other employee groups.  More s p e c i f i c a l l y ,  an attempt w i l l be made to evaluate the following hypotheses: (1)  The attention given by industry to the actual use of f i n a n c i a l incentives for middle management i s lagging behind attention given f i n a n c i a l incentives for a) top management. and b) f i r s t - l i n e  (2)  supervisors.  Large firms (of over 400 employees) show more interest i n the use of f i n a n c i a l incentives f o r middle management than do smaller firms.  (3)  Firms using f i n a n c i a l incentives f o r o f f i c e and production workers pay less attention to the use of f i n a n c i a l incentives for middle management than do firms not using them.  (4)  A salary increase i s used more often than any other type of f i n a n c i a l incentive to motivate employees.  I t i s anticipated that the acceptance or r e j e c t i o n of these hypotheses w i l l determine the broad c h a r a c t e r i s t i c s of the use of f i n a n c i a l incentives for middle management i n the manufacturing industries of B r i t i s h Columbia.  Perhaps t h i s preliminary  approach w i l l uncover conditions, or arouse i n t e r e s t , leading to further work on the middle-management problem to the ultimate benefit of industry i n the province. Methodology A search was made of a v a i l a b l e sources of information i n respect to motivation  theories, the use of f i n a n c i a l incentives  for middle management, and the use of f i n a n c i a l incentives i n Canadian industry.  Publications at two l o c a l l i b r a r i e s and  studies from other private and government sources i n Canada and the United States were u t i l i z e d . The f a i l u r e to f i n d data and information concerning the application of f i n a n c i a l incentives to middle management personnel i n industry necessitated a study of primary sources i n B r i t i s h Columbia.  These sources comprised a l l the resource  industries and secondary manufacturing industries i n the province.  9  The study should reveal i n the f i r s t instance what types of f i n a n c i a l incentive plans were being used and for which employee groups. Since the manufacturing firms i n B r i t i s h Columbia number several thousand and since many are located hundreds of miles apart, i t was necessary to sample t h i s group with a mail survey supplemented by d i r e c t interviews. A systematic sample of 111 companies was drawn from a known group of 555 firms a c t u a l l y manufacturing i n B r i t i s h Columbia.^ of  This group was composed  small, medium, and large manufacturing concerns which  included s t e e l fabricators, pulp, paper, and lumber producers, clothing manufacturers, and food processors. They were located on the lower mainland, on Vancouver Island, and throughout other areas of B r i t i s h  Columbia.  The questionnaire form, consisting of ten questions together with a covering l e t t e r , an explanation of terms used, and a stamped reply envelope, was mailed to each firm sampled.  The main questions covered the use of f i n a n c i a l  incentives f o r d i f f e r e n t sizes of companies and for various  A systematic sample comprises every K item on an ordered l i s t of the population commencing with a number from 1 to K chosen at random. Here K i s 5, picked from an alphabetical l i s t of manufacturing firms. See Appendix A for d e t a i l s of sampling method. U  10  employee g r o u p s . ^  To provide valuable r e l a t i v e information,  other questions covered the reasons for use or non-use of f i n a n c i a l incentives and the choice of suitable incentives for s p e c i f i c employee or company needs.  The r e s u l t i n g opinion  scores indicated the interest i n the application of incentives and i n the use of d i f f e r e n t incentives for s p e c i f i c  purposes.  A f t e r the data obtained i n the survey was recapitulated, t o t a l s and r a t i o s were developed to provide a basis for comparing and s t a t i s t i c a l l y accepting or r e j e c t i n g the proposed hypotheses.  Several questions on the survey provided d i r e c t  checks on the r e s u l t s by asking for the same data i n a d i f f e r e n t manner.  Questions u t i l i z i n g opposite approaches, e.j*. "most"  versus " l e a s t " choices, provided further substantiation of survey r e s u l t s .  Some of the tabular data was  charted to more  e f f e c t i v e l y i l l u s t r a t e the relationships e x i s t i n g between some groups of data.  Where possible, the results from t h i s survey  were compared with similar data from other sources.  The content  of the r e p l i e s provided s p e c i f i c data and also suggested avenues suitable for further analysis that were beyond the 12 confines of t h i s study.  -See Appendix A for d e t a i l s of survey questions and procedures. iJ  ^See  "Limitations Applied to This Study", on page 17.  11 Approach Followed i n the Balance of T h e s i s The g e n e r a l c h a r a c t e r o f the needs o f both the company and the i n d i v i d u a l employee w i l l be o u t l i n e d i n the second chapter t o p r o v i d e a b a s i s f o r the ensuing d i s c u s s i o n o f the methods o f compensation a v a i l a b l e t o i n d u s t r y . A t t e n t i o n will  then be focused on f i n a n c i a l i n c e n t i v e s w i t h a d e t a i l e d 13  treatment o f the " C u r r e n t M o t i v a t o r " and " D e f e r r e d H o l d i n g " groups o f i n c e n t i v e s c o n s i d e r e d t o be o f p a r t i c u l a r to  this  interest  study.  The s p e c i f i c requirements  o f middle-management p e r s o n n e l ,  and the use o f f i n a n c i a l i n c e n t i v e s t o a s s i s t i n p r o v i d i n g them w i t h d e s i r a b l e c h a l l e n g e s , w i l l be p r e s e n t e d i n the t h i r d chapter.  S e v e r a l l o n g - e s t a b l i s h e d and s u c c e s s f u l i n c e n t i v e  plans w i l l  then be examined to see what they a c t u a l l y p r o v i d e  i n m o t i v a t i o n f o r middle-management p e r s o n n e l , w i t h c o n c l u s i o n s about the c h a r a c t e r i s t i c s o f e f f e c t i v e f i n a n c i a l plans.  A background on the purposes  incentive  and a p p l i c a t i o n s o f  f i n a n c i a l i n c e n t i v e s i s thus p r o v i d e d t o a i d i n the a n a l y s i s of  the survey data p r e s e n t e d . The f o u r t h chapter i s concerned w i t h p r e s e n t i n g a r e c a p i -  t u l a t i o n o f the r e s u l t s o b t a i n e d from the m a i l e d q u e r i e s and ^ S e e " D e f i n i t i o n s of Terms Used", on page 12.  12  direct interviews.  These r e s u l t s w i l l be d i s c u s s e d i n d e t a i l  and comparable or i n t e r e s t i n g r e l a t i o n s h i p s e v a l u a t e d or illustrated  on c h a r t s .  The  f i n d i n g s w i l l be a p p l i e d to the  acceptance or r e j e c t i o n o f the proposed hypotheses.  New  rela-  t i o n s h i p s t h a t become apparent w i l l be d i s c u s s e d , and n o t a b l e a s p e c t s a r i s i n g from survey i n t e r v i e w s w i l l be p r e s e n t e d . A summary o f the f i n d i n g s and c o n c l u s i o n s w i l l appear i n the f i f t h chapter, together w i t h f a c e t s o f the problem which may  be s u i t a b l e f o r f u r t h e r study. A d d i t i o n a l d e t a i l s on the survey method, r e l a t i v e data  from other s o u r c e s , and s e v e r a l i n c e n t i v e p l a n s w i l l be  carried  i n tfour: appendices. D e f i n i t i o n s of Terms Used D e f i n i t i o n s o f a few s p e c i f i c terms most f r e q u e n t l y used i n t h i s study are now  given f o r c l a r i t y and u n i f o r m i t y  14  of  understanding. Manufacturing i n d u s t r y c o n s i s t s o f any o r g a n i z a t i o n ,  company, or department whose purpose  i s to i n c r e a s e the worth  of m a t e r i a l s by performing work.thereon,  as opposed t o a s a l e s  o r g a n i z a t i o n marketing products or s e r v i c e s , p u b l i c or  o t h e r s i m i l a r non-manufacturing  business  utilities,  activities.  Management c o n s i s t s o f a l l i n d i v i d u a l s i n the o r g a n i z a t i o n ^ D e f i n i t i o n s of the more important terms a l s o accompanied the survey form sent to sample groups. See Appendix A.  13 o f an i n d u s t r i a l e n t e r p r i s e i n c l u d i n g the p r e s i d e n t and the f i r s t - l i n e s u p e r v i s o r o r foreman d i r e c t l y g u i d i n g the e f f o r t s o f the p r o d u c t i o n  and o f f i c e workers.  Management  provides  the guidance and decision-making t h a t g i v e e f f e c t i v e d i r e c t i o n to c o o p e r a t i v e human e f f o r t i n the f i r m through  "planning",  " o r g a n i z i n g * , " s t a f f i n g " , " d i r e c t i n g " , and " c o n t r o l l i n g " 1  functions.Normally  management p e r s o n n e l  are salaried  i n d i v i d u a l s as opposed t o h o u r l y - r a t e d employees and a r e o f t e n r e f e r r e d t o as "exempted c l a s s i f i c a t i o n s " because they are n o t c l a s s i f i e d as "employees" e n t i t l e d t o u n i o n i z e under the B r i t i s h Columbia Labor R e l a t i o n s A c t . Top management c o n s i s t s o f the top management group r e s p o n s i b l e f o r long-term r i s k d e c i s i o n s .  In l a r g e r companies  t h i s w i l l u s u a l l y i n c l u d e the P r e s i d e n t , V i c e - P r e s i d e n t s , and r e l a t e d p o s i t i o n s o f c o n t r o l l e r , t r e a s u r e r , and s i m i l a r p o s i t i o n s on the same l e v e l , a l l o f whom a r e probably  employed  under i n d i v i d u a l c o n t r a c t w i t h bonuses, o p t i o n s , o r other s p e c i f i c f i n a n c i a l arrangements.  I n s m a l l e r companies t h i s top  management group w i l l l i k e l y c o n s i s t o f the Owner-President and managers who a r e probably  enjoying  s p e c i f i c f i n a n c i a l arrange-  ments w i t h the owner.  ^ C l a u d e s. George, Management i n I n d u s t r y , Cliffs: P r e n t i c e H a l l Inc., 1959, page 6.  Englewood  M i d d l e management i s composed o f p r o f e s s i o n a l , l i n e ,  and  s t a f f p e r s o n n e l performing f u n c t i o n s that l i e between those o f top management and  the f i r s t - l i n e s u p e r v i s o r and  that  are  16 concerned mainly w i t h making short-term F i r s t - l i n e supervisor team r e s p o n s i b l e  operating  decisions.  i s the i n d i v i d u a l on the management  f o r the . d i r e c t s u p e r v i s i o n o f the  c l e r i c a l , or p r o d u c t i o n  worker.  ^ e v e l " o f management, but  He  office,  i s a member o f the "bottom  i s s t i l l w i t h i n the group o f " s a l a r i e d  employees". B a s i c s a l a r y or wages i n c l u d e s r e g u l a r pay, and  overtime,  such employee b e n e f i t s as h o l i d a y s , p e n s i o n p l a n s ,  a c c i d e n t , and  group l i f e insurance  plans  health,  or s i m i l a r allowances 17  which are not based on, or changed w i t h i n d i v i d u a l performance. E d w a r d C. Bursk, " T h i n k i n g Ahead: Lag i n E x e c u t i v e Compensation", Harvard Business Review. M a r c h / A p r i l 1952, page 141; and R i c h a r d C. Smyth, "Bonus P l a n s f o r E x e c u t i v e s " , Harvard Business Review, July/August 1959, page 68. Both • Bursk and Smyth suggest t h a t "Top Management" comprises the h i g h e s t 1/10 o f 1% o f the p a y r o l l i n l a r g e companies, and up to % o f 1% i n medium-sized companies. F u r t h e r that "Middle Management" p o s i t i o n s w i l l t y p i c a l l y comprise the next 9/10 o f 17«> i n very l a r g e companies, and w i l l range from % o f 1% to 2% i n the medium-sized companies. These d e t a i l e d segregations are o f f e r e d here f o r comparison purposes o n l y , as they were not f o l l o w e d i n the B r i t i s h Columbia study. 16  • ^ I t was assumed i n t h i s s i o n s of i n c e n t i v e s , t h a t the p o s i t i o n was c o m p e t i t i v e w i t h with l i k e r e s p o n s i b i l i t i e s i n  study, as i t i s i n most d i s c u s b a s i c s a l a r y o f f e r e d f o r any that paid for l i k e p o s i t i o n s that l o c a l i t y .  15 An incentive i s an objective goal which tends to encourage and motivate action or performance improvement and i s capable 18 of s a t i s f y i n g an individual's needs or desires. F i n a n c i a l incentives consist of additional employee income over and above established basic salary or wage; these incent i v e s are designed to increase the t o t a l yearly  earnings,  actual or calculated, and at the same time to encourage more productive, e f f i c i e n t performance of the i n d i v i d u a l or of the group with which he works, and to encourage c r e a t i v i t y i n 19 methods, processes or products. 20  "Current Motivator" Types of F i n a n c i a l Incentives Cash bonus (incentive type (a) on questionnaire)  i s a bonus  paid currently i n cash or company stock; i t i s usually paid •^Frederic Hooper, Management Survey. Harmondsworth, Middlesex: Penguin Books Ltd., I960,, page 121. States that "Incentives are at the root of a l l that a good climate means to workers at every l e v e l , to the success and s t a b i l i t y of the business and of the society i n which the business forms an important representative s o c i a l institution." In addition Hooper quotes Nigel Balchin as saying that an incentive "Must be something that a man can see and f e e l a l l around him at his bench or his desk on a wet Monday morning not a huge p r i n c i p l e i n a public speech." 19  Increases i n salary attached to competitive offers of employment from other than a current employer, as interpreted herein are not considered f i n a n c i a l incentives for an i n d i v i d u a l i n a given p o s i t i o n . T y p e s of "Current Motivator" and "Deferred-holding" forms of f i n a n c i a l incentives of s p e c i f i c i n t e r e s t to t h i s study are b r i e f l y defined here, and are discussed i n d e t a i l i n the l a t t e r part of Chapter I I . 20  promptly f o l l o w i n g the commendable a c t i o n o r performance i t r e c o g n i z e s and i s u s u a l l y based on a measurement o f t h a t performance a g a i n s t a predetermined  g o a l o r o p e r a t i n g budget.  P r o f i t s h a r i n g ( i n c e n t i v e type  (b) on q u e s t i o n n a i r e )  i s any procedure under which an employer pays, i n a d d i t i o n to p r e v a i l i n g r a t e s o f pay, s p e c i a l c u r r e n t o r d e f e r r e d sums 21 based on the p r o f i t s o f t h e b u s i n e s s . Stock p l a n s  ( i n c e n t i v e type  (c) on q u e s t i o n n a i r e ) u s u a l l y  permit a broad group o f employees to purchase company s t o c k a t c u r r e n t market p r i c e s , w i t h o r without of a d d i t i o n a l stock.  company c o n t r i b u t i o n s  Stock o p t i o n s a r e o f t e n granted  only  to a l i m i t e d number o f e x e c u t i v e s f o r the purchase o f company s t o c k a t reduced p r i c e s a t a f u t u r e date. "Deferred-Holding"  Types o f F i n a n c i a l  D e f e r r e d income ( i n c e n t i v e type  Incentives  (d) on q u e s t i o n n a i r e )  i s e n t i r e l y separate from r e g u l a r pension p l a n arrangements and i s t h a t p a r t o f earned s a l a r y n o t p a i d u n t i l when the r e c i p i e n t expects Increases  retirement  t o enjoy a lower income tax r a t e .  i n s a l a r i e s and wages ( i n c e n t i v e type  (e) on  q u e s t i o n n a i r e ) as a form o f f i n a n c i a l i n c e n t i v e a r e those i n c r e a s e s granted s p e c i f i c a l l y i n c o n s i d e r a t i o n f o r unusual n o n - r e c u r r i n g s p e c i f i c e f f o r t s o r performance.  They a r e n o t  J . B. M e i r , ed., P r o f i t S h a r i n g Manual, C o u n c i l o f P r o f i t S h a r i n g I n d u s t r i e s , 1957.  Chicago:  17 automatic increases, increases on basis of merit r a t i n g , or general increases to match changes i n salary or wage levels i n the community. Other f i n a n c i a l incentives (incentive type (f) on naire) may  be any form of f i n a n c i a l incentive not  question-  falling  in the above defined types, such as guaranteed annual wages, safety bonus, or piecework. Limitations Applied to This Study In the analysis of a problem by means of a survey, i t i s not possible or f e a s i b l e to e s t a b l i s h f i e l d conditions most suitable to obtaining reproducible r e s u l t s . . S p e c i f i c f i e l d conditions cannot be established nor can e x i s t i n g conditions be held constant for a l l firms sampled.  It i s  therefore necessary to recognize l i m i t i n g conditions beyond the control of the surveyor which cannot be eliminated from the method of survey, analysis of returns, or the r e s u l t s and  conclusions. The following l i m i t a t i o n s apply to this study: (1)  This study i s concerned only with the production  and management personnel of the manufacturing industries 22 of B r i t i s h Columbia.  S a l e s s t a f f personnel are excluded, as often t h e i r remuneration pattern with frequent use of commissions d i f f e r s considerably from that of other manufacturing company personnel; and the proportion of sales may vary considerably both by company and by industry within the general area of manufacturing activity. z  18 (2) British  The type d i f f e r e n t i a t i o n Columbia  of industry  i s assumed t o b e s i m i l a r  ,  existing i n  to that  occurring  23 in other i n d u s t r i a l areas. (3)  The f i r m s  surveyed are c l a s s i f i e d  o f employees a n d by t h e l o c a t i o n (4)  No a t t e m p t w i l l  evaluate the e f f e c t  o n l y b y t h e number  o f t h e company h e a d  b e made t o i s o l a t e ,  o f abnormal  variations  office.  2 4  define, or  or bias  arising  from any s o u r c e s u c h a s : (a)  Sampling  o r t a b u l a t i o n procedures  (b)  Mis-interpretation classification  used;  o f terms, p h r a s i n g , and  o f i n c e n t i v e s on q u e s t i o n n a i r e  used; (c)  N o n - u n i f o r m i t y o f p o s i t i o n s h e l d by r e s p o n d e n t s from d i f f e r e n t  companies;  and 25  (d)  Personal interests  and experience o f respondent.  23 T h e l a r g e p r o p o r t i o n o f s a w m i l l s a n d o t h e r wood p r o c e s s i n g p l a n t s i n B r i t i s h C o l u m b i a may d i f f e r c o n s i d e r a b l y f r o m o t h e r a r e a s c o v e r e d by s u r v e y d a t a u s e d f o r comparison. The l u m b e r i n g i n d u s t r y may e x h i b i t s p e c i f i c c o n d i t i o n s a n d p r o b l e m s not evident i n other manufacturing plants producing i n d u s t r i a l a n d consumer g o o d s . L i k e w i s e i n d u s t r i e s c o v e r e d may v a r y g r e a t l y i n custom and p o l i c y from those e x i s t i n g i n o t h e r a r e a s . T h i s o v e r l o o k s v a r i a t i o n s i n r e s p o n s e c a u s e d by companies being branch operations, t i g h t l y c o n t r o l l e d s u b s i d i a r i e s , p r i v a t e l y o r p u b l i c l y owned, o r s i m i l a r . The e x i s t e n c e o f m i d d l e management i n d i f f e r e n t - s i z e d c o m p a n i e s may n o t b e p r o p o r t i o n a t e or comparable. •"The n o n - r e s p o n s e , f o r e x a m p l e , o f 2 5 % o f t h e s y s t e m a t i c random s a m p l e c o u l d a r i s e f r o m a common c h a r a c t e r i s t i c , o r a t t i t u d e t o w a r d s f i n a n c i a l i n c e n t i v e s w h i c h was n o t r e f l e c t e d  19 (5)  The acceptable confidence l e v e l obtained i n the survey  applies only to the actual use of f i n a n c i a l incentives i n the 26 manufacturing industries of B r i t i s h Columbia. (6)  Basic salaries and wages i n an employee group are  assumed to be equitable with other positions and salary scales within the company and with those i n the l o c a l area. (7)  The comparison of the survey r e s u l t s with other data  i s l i m i t e d to that available i n Canada or the United States 27 and by the lack of f u l l y comparable or l i k e information. (8) The only motivating technique being examined i s 28 that provided by the use of f i n a n c i a l incentives.  by those that d i d reply. The people being spoken to and reporting from each company or industry are not holding ident i c a l company positions. They could be influenced by the r e s p o n s i b i l i t i e s of t h e i r positions, the attitudes or behavior expected of them by the organization, or by members of t h e i r immediate work group. The personal interests of the s p e c i f i c respondent and h i s a t t i t u d e towards the management group of which he i s a member, may w e l l a f f e c t h i s evaluation and treatment of that group on the questionnaire. 26  The confidence l e v e l obtained does not apply to the r e p l i e s to the opinion questions which many respondents d i d not answer. 27  This lack of comparability arises from the great variety of organizational structures, managerial group d i v i s i o n s , and groupings by company s i z e . One American survey excludes a l l companies with less than 100 employees, which would exclude a l l small and some medium-sized companies i n B r i t i s h Columbia, as used i n t h i s survey. ^®The main reason i s s p e c i f i c and p r a c t i c a l money or remuneration i s the only motivational reward that can r e a d i l y be measured o b j e c t i v e l y . A l l other motivations are q u a l i t a t i v e requiring subjective evaluation rather than objective measure-  20 (.9) The s p e c i f i c effectiveness of d i f f e r e n t f i n a n c i a l incentives i s not being determined. (10)  The use of a s p e c i f i c type of incentive by an  industry i s accepted as evidence that i n t e r e s t exists i n the application of f i n a n c i a l incentives to some employee group. (11)  The methods used by companies to measure or control  the effectiveness of i n d i v i d u a l or group performance are not 29 being evaluated. (12)  The existence of, or the influence of, any d i f f e r -  ences i n the organizational structure and c h a r a c t e r i s t i c s of companies of the same or d i f f e r e n t sizes were not evaluated.  ment. I t i s not intended by t h i s l i m i t a t i o n to suggest that non-financial needs and motivations are unimportant, but only that they are not being examined herein. 29  I t has been convenient to c l a s s i f y f i n a n c i a l incentives according to the nature of t h e i r effectiveness, "Current Motivator" and "Deferred-holding" groups. This i s not meant to be an absolute measure of t h e i r effectiveness. i  i  21  CHAPTER I I  NEEDS AND  METHODS OF COMPENSATION  Because the o b j e c t i v e s o f a b u s i n e s s today extend beyond the t r a d i t i o n a l theorem o f maximization o f p r o f i t s to i n c l u d e a balance o f a v a r i e t y o f needs and g o a l s , a  compensation  and i n c e n t i v e p l a n to be f u l l y e f f e c t i v e should f u r t h e r the o b j e c t i v e s of both the company and o f the i n d i v i d u a l .  Perfor-  mance and r e s u l t s are s e t i n terms o f company r e s o u r c e s , p r o d u c t i v i t y , market s t a n d i n g , i n n o v a t i o n , employee  performance,  manager development, worker a t t i t u d e s , and p u b l i c  responsibi-  i lity.  The o b j e c t i v e s o f the i n d i v i d u a l are t o meet h i s own  needs and those o f h i s f a m i l y f o r food, s h e l t e r , b e l o n g i n g n e s s , s t a t u s , and o p p o r t u n i t i e s f o r p e r s o n a l development and a c h i e v e ment.  A s u c c e s s f u l f i n a n c i a l i n c e n t i v e should motivate an  i n d i v i d u a l t o behave i n a way  which w i l l  l e a d him towards h i s  p e r s o n a l o b j e c t i v e s and the f u l f i l m e n t o f h i s own needs, w h i l e at  the same time f u r t h e r i n g the o b j e c t i v e s o f the company by  s a t i s f y i n g p r e s s i n g o r g a n i z a t i o n a l needs. An examination o f the n a t u r e of the needs o f both i n d u s t r y and employee i s n e c e s s a r y f o r an understanding o f the c h a r a c t e r  •"-Peter F. Drucker, The P r a c t i c e o f Management. New Harper & Bros., 1954, pages 62-63.  York:  22 i s t i c s of e f f e c t i v e f i n a n c i a l incentives and their use i n advancing the purposes of industry and i n meeting the needs of the i n d i v i d u a l . The needs of both company and employee are constantly changing with the changing environment, but the basic structure of needs should be recognized before nature of t h i s change can be understood.  the  This recognition  w i l l a s s i s t i n the development and application of f i n a n c i a l incentives important to the advancement and growth of a successful enterprise. The Needs of the Company To survive and grow i n the face of competition  a company  needs to use e f f e c t i v e l y both i t s physical and human resources. The decisions made by management respecting the best u t i l i z a t i o n of the company's human resources are important i n determining 2 the future of the enterprise.  To assure that the best  decisions are made i t i s e s s e n t i a l that the company have a s t a f f capable of adjusting to changing conditions i n the work, place, and i n the work force.  The development of a good s t a f f  necessitates a t t r a c t i n g , r e t a i n i n g , and motivating management i n d i v i d u a l s , and applying measurement techniques to assure that the required l e v e l s of performance are attained.  These c r i t i c a l  ^Douglas McGregor, The Human Side of Enterprise. New York: McGraw-Hill Book Company, 1960, page 244. "The fundamental d i f f i c u l t y i s that we have not yet learned enough about organizing and managing the human resources of enterprise."  23 and b a s i c needs, centered  around the p r o v i s i o n and maintenance  o f capable company s t a f f , a r e d i s c u s s e d  i n this section.  The workplace has a l t e r e d c o n s i d e r a b l y , g r e a t l y from t h a t o f the p a s t .  - i t differs  Over the ages, the i n d u s t r i a l  a c t i v i t i e s o f man have expanded from the s m a l l shop o f the home a r t i s a n t o t h e l a r g e r b u s i n e s s a c t i v i t i e s o f p a r t n e r s h i p s and  f i n a l l y , as a r e s u l t o f i n d u s t r i a l r e v o l u t i o n , t o t h e  p l a n t s o f p r i v a t e and p u b l i c companies. growth i s s t i l l c o n t i n u i n g ,  T h i s process o f  and s i n c e both the s i z e and  complexity o f i n d u s t r i a l c o r p o r a t i o n s  are continually increas-  i n g , t h e present-day i n d u s t r i a l e n t e r p r i s e w i l l continue to alter.  The c l u t t e r e d s i n g l e workbench by the window has g i v e n  way t o the g i a n t power-driven machine o r s p o t l e s s a i r - c o n d i t i o n e d laboratory. being  Mass p r o d u c t i o n  threatened  and assembly-line  techniques a r e  by the automation o f continuous  processes.  T h i s e v o l u t i o n o f i n d u s t r i a l a c t i v i t i e s has a l s o many changes f o r the work f o r c e .  involved  The a r t i s a n f a b r i c a t e d the  complete product, b u t today's machine operator  o f t e n performs  a monotonous r o u t i n e task which i s o n l y p a r t o f a l a r g e r operation.  The employee i s u s u a l l y s p e c i a l l y t r a i n e d ,  frequently  works as a member o f a l a r g e group o r team, and i s o f t e n a member o f a p l a n t u n i o n .  New s p e c i a l i z e d management p o s i t i o n s  have evolved which a r e s e r i o u s l y concerned w i t h t h e e f f e c t i v e s u p e r v i s i o n and f u l l u t i l i z a t i o n o f a l l human resources able to industry.  avail-  24 The  i n d u s t r i a l company o f today  problems i n the expansion The  i s faced with  ever-changing  and s t r u c t u r e o f i t s o r g a n i z a t i o n .  company must l e a r n and apply the p r i n c i p l e s o f good  p e r s o n n e l management, a t the same time s u c c e s s f u l l y d i r e c t a l l c o r p o r a t e f u n c t i o n s of the concern, and sometimes expand these endeavors i n the f a c e o f c o m p e t i t i v e a c t i v i t y .  The  concerted  teamwork and the f u l l u t i l i z a t i o n o f the most q u a l i f i e d management p e r s o n n e l a v a i l a b l e to the company are r e q u i r e d . To a t t a i n the company o b j e c t i v e s through the u t i l i z a t i o n o f a v a i l a b l e human r e s o u r c e s , the g r e a t e s t concern and comprehensive p l a n of management should  of any  sound  be:  (1)  To a t t r a c t the d e s i r e d c a l i b r e of management t a l e n t from other companies or from subordinate p o s i t i o n s within;  (2)  To r e t a i n the d e s i r e d c a l i b r e o f management p e r s o n n e l ;  (3)  To motivate management p e r s o n n e l to a s u s t a i n e d h i g h l e v e l o f p e r s o n a l performance to a c h i e v e c o r p o r a t e p r o f i t and growth o b j e c t i v e s . 3  A t t r a c t i n g , r e t a i n i n g , and m o t i v a t i n g management p e r s o n n e l are c h a l l e n g i n g problems to most manufacturing  firms.  High  s a l a r i e s alone without a d d i t i o n a l i n c e n t i v e s are u s u a l l y not sufficient  inducement to r e t a i n key p e r s o n n e l and to motivate  them to adapt t h e i r performance to the demands and  changes  f o r c e d by c o m p e t i t i v e a c t i v i t y and p r o g r e s s i v e p r e s s u r e s .  ^ R i c h a r d C. Smyth, " E x e c u t i v e Compensation: G e a r i n g the Program to Today's Needs", The Management Review, January, 1961, page 9.  25 Some form o f compensation which i s d i r e c t l y l i n k e d to a c t u a l i n d i v i d u a l performance i s r e q u i r e d t o h o l d and t o encourage i n d i v i d u a l s to perform as e f f e c t i v e members o f cohesive  and  n e c e s s a r i l y i n t e r l o c k e d groups i n the i n d u s t r i a l complex of  today. A bonus p l a n based on s p e c i f i c r e s u l t s from b e t t e r than  normal e f f o r t s by management p e r s o n n e l can be used to motivate i n d u s t r i a l personnel.  For example, the General Motors bonus  p l a n , i n o p e r a t i o n w i t h changes s i n c e 1918,  has been of con-  s i d e r a b l e b e n e f i t t o the s t o c k h o l d e r s through the y e a r s . In 1955,  an u n u s u a l l y p r o f i t a b l e y e a r , General Motors p a i d  $92 m i l l i o n i n bonuses to some 13,000 management employees. I f t h i s had been d i v e r t e d t o the s h a r e h o l d e r s , h a l f o f the $46 m i l l i o n l e f t a f t e r taxes would have p r o v i d e d o n l y a p p r o x i mately $.08 The  per share i n a d d i t i o n to $2.17  p a i d per  share.^  c o n t i n u e d e x i s t e n c e and planned expansion o f t h i s bonus  p l a n are p r o o f t h a t the board o f d i r e c t o r s c o n s i d e r e d t h a t the b e s t i n t e r e s t s o f the s h a r e h o l d e r s and company were served by the bonus d i s t r i b u t i o n made on a performance b a s i s . Thus the measurement o f management p e r s o n n e l performance i s an e s s e n t i a l step i n keeping both company and employee aware o f how  New  w e l l the f i r m ' s human r e s o u r c e s a r e b e i n g  ^General Motors C o r p o r a t i o n , Annual Report t o S h a r e h o l d e r s , York: G e n e r a l Motors C o r p o r a t i o n , 1955, page 33.  26 utilized."* Performance measurement i s v i t a l to the success f i n a n c i a l i n c e n t i v e p l a n , p a r t i c u l a r l y when one s e v e r a l types o f i n c e n t i v e s are used.  o f every  or more of  The use o f o v e r a l l  Performance measurement i s an e s s e n t i a l step i n awarding f i n a n c i a l i n c e n t i v e s d i r e c t e d at rewarding i n d i v i d u a l s f o r t h e i r performance. For management p e r s o n n e l , who are not producing e a s i l y counted or measured u n i t s o f p r o d u c t i o n , t h i s i s o f t e n a vague and d i f f i c u l t procedure. Recourse i s g e n e r a l l y made to the performance a p p r a i s a l by s u p e r i o r s , but t h i s i s not s u f f i c i e n t l y o b j e c t i v e to be used as a f u l l y s a t i s f a c t o r y b a s i s f o r determining the f i n a n c i a l i n c e n t i v e payments f o r management i n d i v i d u a l s . Performance measurement i s u s u a l l y o b t a i n e d i n much the same manner t h a t s u p e r v i s o r s c a r r y out j o b e v a l u a t i o n s and make recommendations f o r s a l a r y changes. Often s u p e r v i s o r s t r y to second-guess t h e i r s u b o r d i n a t e s , who i n t u r n t r y t o g i v e top management the p i c t u r e they t h i n k i s wanted " u p s t a i r s " . T h i s approach f r e q u e n t l y r e s u l t s i n "data adjustment" t h a t clouds the t r u e s i t u a t i o n , to the u l t i m a t e and c o n t i n u i n g d e t r i ment o f company o p e r a t i o n s a c c o r d i n g to McGregor.6 L i k e r t a l s o r e p o r t s t h a t performance reviews have been found to be d e t r i mental to the f u t u r e development o f managerial p e r s o n n e l , as they o f t e n s e r i o u s l y " d e f l a t e the employee's sense o f importance and personnel worth."6 I t i s v i r t u a l l y i m p o s s i b l e to t e l l an employee t h a t he does not "measure up", without having him f e e l threatened, r e j e c t e d , and discouraged which impairs the j o b performance of b o t h s u p e r v i s o r and s u b o r d i n a t e .  "Douglas McGregor, "An Uneasy Look at Performance A p p r a i s a l " , Harvard Business Review., May/June 1957, page 89; and Rensis L i k e r t , " M o t i v a t i o n a l Approach to Management Development", Harvard Business Review. July/August 1959, page 75. -  i  27 compensation p l a n s w i t h s p e c i f i c f i n a n c i a l i n c e n t i v e s t i e d t o o b j e c t i v e performance measurement c o u l d c o n c e i v a b l y r e i n f o r c e the c y c l e o f performance and m o t i v a t i o n .  The use o f o b j e c t i v e  methods f o r measurement i s d e s i r a b l e because people seem most w i l l i n g to a c c e p t i n f o r m a t i o n about t h e i r own i n a d e q u a c i e s i n the form o f o b j e c t i v e evidence such as the extent t o which the g o a l s o f the i n d i v i d u a l o r o f h i s work group a s s i s t i n the achievement of the o r g a n i z a t i o n ' s o b j e c t i v e s . ^  But the  a b i l i t y t o measure the performance o f management p e r s o n n e l o b j e c t i v e l y must precede the s u c c e s s f u l a p p l i c a t i o n o f f i n a n c i a l i n c e n t i v e s i n the management a r e a .  8  T h i s i s a s p e c i f i c problem  Rensis L i k e r t , i b i d . , page 79. I n a group o f decent r a l i z e d companies o r d i f f e r e n t departments w i t h i n a company " t h e use o f measurements as guides t o a c t i o n enables each manager t o tap the f u l l e x p e r i e n c e o f h i s e n t i r e company and o t h e r companies i n s e e k i n g ways t o improve h i s b e h a v i o r and h i s performance." When each manager, a t d i f f e r e n t l e v e l s i n an o r g a n i z a t i o n wants the o b j e c t i v e measurements f o r h i s own i n f o r m a t i o n and guidance t o b e t t e r performance, he i s m o t i v a t e d p o s i t i v e l y t o b e t t e r performance and to the c o l l e c t i o n o f c o r r e c t data f o r measurement and e v a l u a t i o n w i t h i n b o t h t h e group he l e a d s and the group he belongs t o , under h i s own s u p e r v i s o r . T h i s i n t e r l o c k e d c h a i n o f teamwork i s an e n t i r e l y d i f f e r e n t s i t u a t i o n from many e x i s t i n g under e s t a b l i s h e d methods o f performance a p p r a i s a l . I t i s an important adjunct t o an e f f e c t i v e i n c e n t i v e p l a n . A r c h P a t t o n , "What Management Should Know about E x e c u t i v e Compensation", Dun's Review and Modern I n d u s t r y . February 1957, page 129. - -  i n i t s e l f and w i l l not be developed f u r t h e r i n t h i s study. The  p r e c e d i n g d i s c u s s i o n has  emphasized t h a t the  fulfil-  ment o f the b a s i c needs o f the company i n a t t r a c t i n g , r e t a i n ing,  and m o t i v a t i n g  p e r s o n n e l , and  o b j e c t i v e l y measuring t h e i r  performance i s important to long-term company p r o g r e s s . The  s a t i s f a c t i o n o f these needs has  an important  bearing  on the e f f e c t i v e a p p l i c a t i o n o f compensation methods to management p e r s o n n e l , but a p a r a l l e l c o n s i d e r a t i o n o f i n d i v i d u a l employees i s a l s o p e r t i n e n t  o f the needs  to a s a t i s f a c t o r y  s o l u t i o n o f the problem and w i l l be covered i n the  following  section. Needs o f the Employee To understand the use  and  a p p l i c a t i o n of d i f f e r e n t f i n a n -  c i a l i n c e n t i v e s from the i n d i v i d u a l worker's p o i n t o f view, it  i s d e s i r a b l e to c o n s i d e r  employees. for  the b a s i c needs and motives o f  T h i s examination should p r o v i d e a background  evaluating  f i n a n c i a l i n c e n t i v e s which may  a p p l i c a b l e to work s i t u a t i o n s i n I t may  be s a i d t h a t man  i n c e n t i v e o f money and "the  c a r r o t and  ^See  be u s e f u l  and  industry.  i s m o t i v a t e d to work by the main  the secondary f e a r o f unemployment  the s t i c k " h y p o t h e s i s . ^  "Limitations" at  end  Some men  will  of Chapter I , page  ^ J . A. C. Brown, The S o c i a l Psychology o f Baltimore: Penguin Books Inc., 1954, page 186.  claim  17.  Industry,  they work because they have to i n order to l i v e .  Others  11  w i l l say that they work for money, f o r i t s usefulness i n providing t h e i r basic needs f o r food, clothing, and s h e l t e r — and their a n c i l l a r y desires for possessions, power, prestige, and enjoyable pastimes. The many needs of men may be c l a s s i f i e d , according to . Maslow, into f i v e basic groups: (1)  Physiological needs,  (2)  Safety needs,  (3)  Belongingness  (4)  Esteem or e g o i s t i c needs, and  and s o c i a l needs,  12 (5)  S e l f - a c t u a l i z a t i o n needs.  These are arranged i n order of requirement, r i s i n g i n steps to higher order of need; the f i r s t are innate and the l a t t e r are acquired. Physiological needs are those b i o l o g i c a l needs of hunger t h i r s t , maternal drives, and sex urges.  These needs are  presumably so w e l l s a t i s f i e d i n our society when an employee i s enjoying an equitable basic salary or wage that they do not normally enter into consideration o f employee needs by 13  industry. 11 "Others" refers e s s e n t i a l l y to a l l others. •^A. H. Maslow, Motivation and Personality, New York: Harper and Bros., 1954, pages 80-98. ^See  "Basic Salary or Wages", i n Chapter I, page 14.  30 S a f e t y needs  are  the  desire  wants t o be a s s u r e d t h a t h i s performance such that  is  good and as  for  job  is  l o n g as  employment  is  possible.  t i o n when o l d o r i l l  is  also  plans,  sickness  general  use  meet t h i s  benefits,  throughout  member o f  a group,  ourselves.  This  opportunity  friendships. associations by e m p l o y e e ties,  to belong  is  have  Pensions,  specifically  are protec-  insurance in  designed  to  to help  other this  people,  needs  and t o  need i s but  with their  and p r i d e and to  enjoy  Included here are authority,  successful  desire  some o r g a n i z a t i o n  i n the working g r o u p ,  status  by  are the  to  greater  a team,  develop  it  is  also  athletic  supplemented  or s o c i a l  firm,  activi-  company o r  f u l f i l l e d by the  feeling  oneself  aspects of business action,  of  a person  industry  participation  procedures, structures  and  union.  This  and a d m i r a t i o n o f  for  have  close  the r e s p e c t  committee  plans.  to  feel  and d e t e r m i n a t i o n o f  incentive  than  the need to  opportunity  the v a r i o u s  a  p r o v i d e d p r i m a r i l y by  a specific are  t o be  a r i s i n g from h o l d i n g a c e r t a i n p o s i t i o n .  goal-setting offered  to  t h e n e e d t o be a member o f  In i n d u s t r y  consequence  s u c h as  his  conditions  and s i m i l a r c o n s i d e r a t i o n s  and s o c i a l needs  associations  self-esteem  others.  employee  l o n g as  The d e s i r e  industry are  Esteem o r e g o i s t i c  of  as  economic  involved.  a n d by b e i n g a member o f  includes  secure  The  need.  Belongingness  the  security.  which are  associated  in often  with  31 S e l f - a c t u a l i z a t i o n needs are those opportunities f o r 1  personal growth and development, s e l f - f u l f i l m e n t , and a f e e l i n g of worthwhile accomplishment  and achievement.  This  involves also the need to f e e l that one i s doing a job that needs to be done  and the need to know that one i s doing  that job w e l l . In the work s i t u a t i o n the employee would l i k e management to explain changes a f f e c t i n g h i s work before the changes are made  he desires to have a voice i n the a f f a i r s that a f f e c t  him.  He wants to know how he i s doing, where he f i t s i n the  organization, what i s expected of him, what i s going on i n the company, and as far as possible  why.  P a r t i c u l a r l y he wishes  to know that he i s being taken seriously and i s being considered when he offers suggestions or lodges complaints. Each want has become thoroughly ingrained i n the ideals of our i n d u s t r i a l society.  In fact these employee wants are  established so deeply that they are often thought of as "human rights"  the essentials of personal dignity and of human  justice. Even though these wants are basic they do not i n d i v i d u a l l y maintain a consistent position of importance a new primary need i s always a r i s i n g .  for each person  Primary needs seldom  ^ T h e primary needs of an i n d i v i d u a l are those dominant at a given time, which f o r him are of current importance. Maslow's f i v e groups of needs are not to be thought of as  32 remain s a t i s f i e d f o r long, f o r they are constantly a l t e r i n g p o s i t i o n and are replacing each other.  This state of flux or  continuing v a r i a t i o n i n the current primary needs of the i n d i v i d u a l employee must be recognized i f any approach to motivating individuals i n the work place i s to be successful. The same basic needs and primary patterns of wants cannot be applied to separate groups of employees, which are somewhat d i f f e r e n t i a t e d by s o c i a l and Work environments.  I t cannot be  assumed that the personal needs of the members of one management group p a r a l l e l exactly i n v a r i e t y or strength those of other groups of employees.  Using the hierarchy of basic needs  proposed by Maslow, Porter structured the needs of lower and middle management into security, s o c i a l , esteem, autonomy and 15 s e l f - a c t u a l i z a t i o n categories.  He found that some differences  i n needs d i d exist between middle and lower management groups, being wanted by each i n d i v i d u a l i n a given order of requirement, i n a given amount, or even a l l at one time. These wants and needs also vary between individuals i n both what i s the need, and i n what would probably f u l f i l l i t . Apart from the innate p h y s i o l o g i c a l needs a l l others are acquired, and are being altered i n the process of everyday l i v i n g and interaction i n our culture. Thus, needs vary greatly with the i n d i v i d u a l , the company environment, the position held, the work s i t u a t i o n , and with the passage of time. ^^Lyrnan W. Porter, "A Study of Perceived Need Satisfactions i n Bottom and Middle Management Jobs", Journal of Applied Psychology. February 1961, page 5.  but he d i d not investigate those of top management.  A better  understanding of the needs and wants of a l l management people w i l l probably be possible when more work i n these areas has been reported. Employee Needs and Work Rewards Brown suggests that there are three reasons for working, each r e l a t e d i n varying degrees to work i t s e l f and to the fulfilment of some of the needs of the i n d i v i d u a l discussed 16  i n the previous section. F i r s t , work may be performed as an end i n i t s e l f i s the most s a t i s f a c t o r y reason for working  this  not only for the  sake of "craftsmanship", but also for the "companionship" 17 " of fellow workers. This purpose i s n u l l i f i e d i f the work i s meaningless to the worker or i f i t i s carried out under conditions not permitting communication with h i s fellows; when these conditions e x i s t , often being generated by  automation,  s p e c i a l i z a t i o n and d i v i s i o n of labor i n industry, the employee becomes bored.  J . A. G. Brown, The S o c i a l Psychology of Industry, Baltimore: Penguin Books Inc., 1954, page 206. ^Important as these noii-financial needs and rewards may be, they w i l l not be expanded further or considered i n the f i e l d survey, because motivation provided by the use of f i n a n c i a l incentives i s the main interest of this study. See "Limitat i o n s " i n Chapter I, page 17.  34  Secondly, work may be carried out w i l l i n g l y for reasons other than the f i r s t but associated with the work s i t u a t i o n , i.e.,  for esteem  actualization  status, power, position, etc., and for s e l f achievement and s e l f - f u l f i l m e n t .  T h i r d l y , work may be performed for s t r i c t l y e x t r i n s i c values  for money to be used to provide for the family, to  use for a hobby, or to c o l l e c t c a p i t a l permitting the worker to  set up h i s own business. Work rewards i n the form of money, which may be termed  an "in-between motive" or goal, seem to be deeply involved i n the  process of s a t i s f y i n g the many and changing needs of  employees.  Pay or f i n a n c i a l compensation, perhaps because i t  does s a t i s f y several types of needs d i r e c t l y and i n d i r e c t l y , i s a c r u c i a l item of great interest for a l l  employees.  Monetary rewards often assume some of the non-monetary values formerly carried by important needs that were previously s a t i s f i e d by the job environment.  Money i s frequently a means of  measurement or evaluation of our a b i l i t i e s and e f f o r t s on the 18 job.  But most important i t provides each worker with f l e x i b l e  and mobile means to meet ever-changing heeds e x i s t i n g o f f the  18 James F. Lincoln, Incentive Management, Cleveland, Ohio: The Lincoln E l e c t r i c Company, 1951, page 102. "...money i s valued less for what i t w i l l buy than as evidence of successful s k i l l i n achievement." r  This i s the opinion of Lincoln, president of a company opera t i n g possibly the most outstanding incentive management plan i n America today. See Appendix C for further d e t a i l s .  35 job or not available i n the work s i t u a t i o n . F i n a n c i a l compensation i s usually designed to encourage continued work at the same l e v e l of e f f o r t or to improve  that  19  performance e f f o r t .  Salaries  and protective compensation  such  as pensions, insurance, or deferred income are mainly used as compensation for a normal amount or l e v e l of work.  Managerial  s t a f f employed on straight salary i s u n l i k e l y to be concerned about increasing t h e i r e f f o r t or improving t h e i r performance. I t i s only when supplemental pay i n the form of f i n a n c i a l incentives i s offered that management personnel can be induced to behave i n an enterprising manner p r o f i t a b l e to themselves and to the company also. Money that i s t r u l y a f i n a n c i a l incentive can be most 20 e f f e c t i v e i n forwarding the objectives of an enterprise. In t h i s study i t i s assumed that s a l a r i e s are equitable and further consideration w i l l not be given to any motivating e f f e c t of basic salary structures. See "Limitations" i n Chapter I, page 17. L incoln, op_. c i t . Appendix and Addendum to Appendix i n f i f t h p r i n t i n g , 1960. The price of Lincoln welding units i n 1959.was approximately 80% of that i n 1934, while the prices have increased three times for s t e e l , four times for copper, and f i v e times f o r hourly rates of pay. 2 0  The annual increase i n productivity has averaged 15% yearly (3% for a l l manufacturing); sales value of products per employee are 4 times i n 1959 of that i n 1934 (double that of a l l manufacturing industry).  36 An incentive program with a "payment for r e s u l t s " approach can provide d e f i n i t e benefits to the company and at the same time • o f f e r the employee a way  to add to h i s basic pay.  In a survey  of thirty-three manufacturing companies, Opinion Research Corpor a t i o n found that p r o f i t - s h a r i n g plans added more than 10% to the basic pay of about 40% of the production and managerial 21 employees.  Compensation plans using other types of f i n a n c i a l  incentives by themselves or i n conjunction with p r o f i t - s h a r i n g frequently provide larger additions to income for employees 22 than do p r o f i t - s h a r i n g plans alone. The use of f i n a n c i a l incentive plans by American industry appears to be widespread and increasing.  A survey i n 1946  the I n d u s t r i a l Conference Board of 600 manufacturing  by  companies  reported that 32% were using some form of f i n a n c i a l incentives 23 for s a l a r i e d personnel. In the companies studied by Fetter, Opinion Research Corporation, "How P r o f i t Sharing Affects Employee Attitudes", Public Opinion Index f o r Industry, October 1957, Princeton, N. J . : Opinion Research Corp., copyrighted. 384 employees had 10% to 19%, and 72 had more than 20% added to t h e i r pay among a group of 1068 receiving bonuses out of 2153 employees of a group of firms sampled. 22 Lincoln, op_. c i t . Addendum i n f i f t h p r i n t i n g , 1960. Average annual earnings including incentive bonuses of a l l employees were $10,000 ($5,500 for a l l manufacturing i n d u s t r i e s ) ; labor turnover per month was less than % of 17o (3% for a l l manufacturing i n d u s t r i e s ) ; and the company paid a regular 6% d i v i dend to shareholders up to 1950 (later data not given). 9 3  i n  National I n d u s t r i a l Conference Board, Personnel A c t i v i t i e s American Business (Revised). Survey of Personnel P o l i c y # 86,  37 there was  an almost equal use of straight salary and of salary  plus incentive plans, with the l a t t e r s l i g h t l y  favoured.  A l a t e r report of the U. S. Department of Labor indicated the increasing importance of f i n a n c i a l incentives as part of compensation plans with 44% of the 9680 firms reporting such 25 use i n I960-among s a l a r i e d  personnel.  Types of F i n a n c i a l Incentives C r i t i c a l to This Study A great v a r i e t y of f i n a n c i a l incentive or bonus pay plans supplemental to salaries have been developed and u t i l i z e d . There are two general ways i n which these plans may (1) they may New  York:  operate:  promise the participant a share of the p r o f i t s  National I n d u s t r i a l Conference Board, 1947,  page 12.  The survey also reports that s i m i l a r f i n a n c i a l incentives were used for hourly-rated production workers by about 50% of the group surveyed i n 1946. ^ R o b e r t B. Fetter and Donald C. Johnson, Compensation and Incentives for I n d u s t r i a l Executives, Bloomington, Ind.: Indiana University Press, 1952, page 23. The studies of Fetter concerning compensation and incentives for top management i n industry were directed at the problem of how capable executives are to be compensated so that they are induced to exert t h e i r most productive e f f o r t s for rewards that are economically and also s o c i a l l y acceptable. 9 5  United States, Department of Labor, Bureau of Labor Stat i s t i c s , National Survey of Professional, Administrative, Technical and C l e r i c a l Pay, 1960-61. B u l l e t i n # 1310. Washington, D. C : Superintendent of Documents, 1961, page 23; i b i d . , B u l l e t i n ^ 1286, October 1960; and see a d d i t i o n a l d e t a i l s i n Appendix B.  i  i f the company prospers; and (2) they may reward the i n d i v i d u a l for h i s personal and s p e c i f i c contribution towards that p r o f i t . These w i l l be discussed when the d i f f e r e n t types of f i n a n c i a l incentives considered c r i t i c a l to t h i s study are examined i n t h i s section. In studying the use of f i n a n c i a l incentives for middle management as compared to other management groups, i t i s necessary to determine which f i n a n c i a l incentives are being used f o r each employee group,  Individually i n the smaller  company and c o l l e c t i v e l y i n the larger concern, people i n middle management play a v a r i e t y of r o l e s . that compensation  I t i s probable  plans for middle management vary with the  manner i n which individuals are organized to advance the objectives of the concern.  Since i t was not f e a s i b l e to  investigate separately a l l the variations and  combinations  of f i n a n c i a l incentives being u t i l i z e d i n B r i t i s h  Columbia,  similar types were grouped and arranged into a c l a s s i f i c a t i o n better suited to making comparisons when analyzing the r e s u l t of the survey of industry. The primary interest of this study l i e s i n the use of types of f i n a n c i a l incentives grouped under (a) Cash Bonus,  C h a r l e s C. Abbott and others, The Executive Function and Its Compensation, C h a r l o t t e s v i l l e , V i r g i n i a : University of V i r g i n i a , 1957, page 34. Z0  39 (b) P r o f i t Sharing, and (c) Stock Plans.  These are a l l current  motivators of day-to-day job performance and w i l l be referred to as the "Current Motivator" group of f i n a n c i a l incentives. The remaining types i n general use, (d) Deferred Income, (e) Increases i n Salaries and Wages, and (f) Other F i n a n c i a l Incentives, are of secondary  i n t e r e s t , a l l having a "Deferred-holding" e f f e c t .  The main c h a r a c t e r i s t i c s of each type, i t s u t i l i z a t i o n i n industry, and i t s s u i t a b i l i t y for company and employee w i l l now be examined. "Current Motivator" group of incentives (a)  Cash Bonus 27  Cash bonuses  are frequently considered to be the most  e f f e c t i v e form of incentive, p a r t i c u l a r l y when d i r e c t l y related to the performance of an i n d i v i d u a l or group as measured against 28 a predetermined goal or operating budget. D i s t r i b u t i o n of bonuses according to i n d i v i d u a l performance,  ^'"Cash Bonus" was defined i n Chapter I, page 15. 28' Fetter and Johnson, op_. c i t . . page 87, report: from a survey of 20 companies using incentive plans, that two-thirds of them "made d i r e c t payment i n cash of the e n t i r e amount of the bonus f o r the period i n which i t was awarded; and National I n d u s t r i a l Conference Board, Top Executive Compensation, Studies i n Personnel P o l i c y No. 179, New York: N a t l . Ind. Conf. Board, 1960, page 15. Here, 52% of 634 companies surveyed operated some form of bonus plan for three top executives. About 65% of 327 firms operating bonus plans paid the entire bonus at the close of the year i n which i t was earned.  ranging from no reward to a large f i n a n c i a l share, usually creates more incentive e f f o r t than i f awards are made as a percentage of s a l a r i e s . When a strong team-effort  i s also  desired, awards made on a combination of salary and i n d i v i d u a l performance may  be more e f f e c t i v e motivators.  No one method  or plan i s necessarily suitable for every firm or d i v i s i o n of a company.  Each s i t u a t i o n requires a s p e c i f i c " t a i l o r e d -  to-measure" program for best r e s u l t s . Cash bonuses are most acceptable because of t h e i r promptness, but they should not become a regularly expected event unless j u s t i f i e d by a continuing improvement i n performance. A bonus that becomes fixed, known, or established on some regular basis other than performance ceases to be an incentive. Scarcity i s c h a r a c t e r i s t i c of e f f e c t i v e incentive rewards. Cash bonuses tend to dramatize short-term contributions to p r o f i t and help to focus constant attention on worthy e f f o r t s which are often over-looked when compensation consists of salary only. I f cash bonuses are f u l l y contingent  on a p r o f i t i n a  current period, they develop some of the unsatisfactory c h a r a c t e r i s t i c s of p r o f i t - s h a r i n g i n that a commendable e f f o r t of an i n d i v i d u a l or a group which has highly desirable long-term benefits to the company may  29 go unrewarded.  29profit-sharing w i l l be discussed i n the following section.  Since t h i s i n turn may  discourage similar e f f o r t s by others,  i t i s desirable that some provisions be made by budgeting for bonus payments i n order that a consistent policy of 30 continued recognition may p r e v a i l over the long run. (b)  P r o f i t Sharing  P r o f i t sharing i s an i d e a l based on the premise that 31 the goals of the company and i t s employees are s i m i l a r . Welsford claims that p r o f i t sharing works because top managec  ment makes i t work and that i t i s only as successful as 32 management desires.  Management should not embark on a  p r o f i t - s h a r i n g plan unites i t f u l l y supports the philosophy •^George W. Torrence, "Budgeting Salary Increases", and underlying ideals of t r u lIyn d usharing the p r o f i t s Board, . Management Record, National s t r i a l Conference March 1961, page 2. 31  D e f i n i t i o n of P r o f i t Sharing i n Chapter I, page 16; and J . B. Meir, ed., P r o f i t Sharing Manual, Chicago: Council of P r o f i t Sharing Industries, 1957. P r o f i t sharing i s one of the oldest forms of employee incentive programs, being suggested f i r s t by Turgot of France in 1775. The f i r s t recorded p r o f i t sharing plan i n the United States i s credited to Albert G a l l a t i n when he applied i t as owner of a glass works i n New Geneva, Pennsylvania in 1794. Probably the f a l l i b i l i t y of t h i s premise i s at the base of v a r i e d d i f f i c u l t i e s experienced by operators of p r o f i t sharing plans. W. D. Welsford, " I n s t a l l i n g a P r o f i t Sharing Plan in Your Company", Cost and Management, A p r i l 1956 (Society of I n d u s t r i a l and Cost Accountants of Canada, Hamilton, Ont.), page 153. 32  Key people i n both top and middle management who  are  making pertinent company decisions or performing functions contributing to an increase i n company p r o f i t s often f e e l that they should share i n that p r o f i t .  Many companies consider  33 t h i s reasonable and acceptable. Advantages a r i s i n g from p r o f i t - s h a r i n g plans depend b a s i c a l l y on the continued operation and prosperity of the company involved. Workers under a p r o f i t - s h a r i n g plan tend to become more cost conscious, w i l l i n g not only to work more e f f e c t i v e l y but also to reduce wastage of materials.  Profit  sharing provides a common ground of mutual i n t e r e s t , c o n f i dence, and respect on which management and workers may meet; i t promotes team-work and fosters a s p i r i t of unity among personnel p a r t i c i p a t i n g i n a group a c t i v i t y . Disadvantages  to p r o f i t sharing tend to stem from the  r i s e and f a l l of company p r o f i t s r e s u l t i n g i n a disappearance of sharing when p r o f i t s decline seriously.  Likewise when  p r o f i t s permit only small payments to employees r e l a t i v e to 33  i  National I n d u s t r i a l Conference Board, Sharing P r o f i t s with Employees. Studies i n Personnel P o l i c y No. 162, New York: National I n d u s t r i a l Conference Board, 1957, page 9. Following the Second World War the growth of these plans has been phenomenal, and the number q u a l i f i e d under the United States Internal Revenue Code had r i s e n to an estimate of 10,000 or more by the end of 1956. 34 W. I r v i n Brennan, "What about P r o f i t Sharing?" American Business. August 1955, page 9.  43 t h e i r earnings (8% or l e s s ) , the effectiveness of the plan ceases. (a) "No  D i s s a t i s f a c t i o n s reported by plan users were mainly stimulation for e f f i c i e n c y " , and  granted".  (b) "Took plan for  35  The bonus a r i s i n g from p r o f i t sharing i s usually d i s t r i buted on the basis of salary earned; thus a l l individuals share proportionately i n that portion of the p r o f i t s available for d i s t r i b u t i o n .  This i s e f f e c t i v e for the management group  when only two or three persons are involved, but i t s incentive value i s seriously d i l u t e d when a large number share the p r o f i t in common.  A, p a r t i c u l a r weakness occurs when some individuals  do not carry their share of.the work load. duals may  Again some i n d i v i -  be ignored to the detriment of company operations  i f the p r o f i t shared i s l i m i t e d by a r b i t r a r y evaluation of company success i n a given period and paid only to those with a basic salary above a s p e c i f i e d amount or to those with certain required years of service.  These problems tend  to be overcome only when d i s t r i b u t i o n of bonuses, from whatever source, i s d i r e c t l y r e l a t e d to the performance and  contributions  36  of the i n d i v i d u a l . 35 National I n d u s t r i a l Conference Board, Survey of Personnel P o l i c i e s No. 162, op. c i t . 36  Arch Patton, "Incentive Compensation for Executives", Harvard Business Review, September/October 1951, page 37.  44 Smyth prefers the use of a formula setting aside a given portion of the earnings from a p a r t i c u l a r period which i s d i s t r i b u t e d according to some s p e c i f i c performance pattern 37  to management personnel on an i n d i v i d u a l basis.  The  earnings  to be d i s t r i b u t e d should a r i s e s o l e l y from the e f f o r t of the employee p a r t i c i p a n t s .  These amounts should not include c a p i t a l  gain on assets and inventories, or returns from investments i n other companies over which the management individuals p a r t i c i pating i n the bonus exert no c o n t r o l . Two  general types of p r o f i t sharing e x i s t , plus a combina-  t i o n of both.  The current or cash payment plan provides  incentive for improved performance as a plant unit or company group when payments are made on the basis of salary earned. The deferred plan, usually with the existence of a trust agreement, provides for the segregation of funds a r i s i n g from the p r o f i t s and for delayed payments to p a r t i c i p a n t s . This enlarges pension coverage and improves security, but provides l i t t l e incentive to improve day-to-day e f f o r t as the employee currently has nothing tangible i n hand.  Opinion Research  Corporation reported that deferred plans were used more than cash types for management groups, while both types or a _•  :  R i c h a r d C. Smyth, "Bonus Plans for Executives", Harvard Business Review, July/August 1959, page 69. 37  •  I  45 38 combination were more suitable for production employees." The National I n d u s t r i a l Conference Board reported i n 1957 the trend was  that  a c t i v e l y towards the use of deferred payments and  away from the current plan method of d i s t r i b u t i n g payments, with 39 a growing interest i n the use of a combination of both plans.  38,Opinion Research Corporation, l o c . c i t . TABLE III PROFIT SHARING PLAN -TYPE USED, AND ADDITIONS TO PAY Percentage Base  Pays by Current Plan  Pays by Deferred Plan  3  A Combination Plan  Not Reported  TOTAL EMPLOYEES  2153  31%  43%  22%  4%  Clerical Production Professional and Managerial  467 1431  17 39  62 32  17 25  4 4  235  8  77  14  1  220 392 384 72  26 30 43 19  40 41 41 55  32 28 14 24  2 1 2 2  PROFIT SHARING ADDED TO PAY 1 5 10 20%  - 4% - 9% -19% or more  T a b l e content i s based on r e p l i e s to question: What kind of p r o f i t sharing plan does your company now have? Received from 33 manufacturing companies surveyed i n 1957. a  ^ N a t i o n a l I n d u s t r i a l Conference Board, Survey of Personnel P o l i c i e s No. 162, l o c . c i t . A survey covering 242 companies using p r o f i t sharing plans, reported use by types as follows: (a) 24% operated current or cash plans, (b) 59% used deferred plans, and (c) 17% u t i l i z e d combined plans.  46 (c)  Stock Plans and  Options  In both stock plans and stock o p t i o n s , ^ the actual cash benefit to the participant i s normally deferred to some l a t e r date.  The size of the ultimate cash benefit depends both on  the investment made by the employee;: and on the future increased market value of the stock either purchased or contributed by the company  that i s , on the general company prosperity.  A deferred benefit has a limited value as an i n d i v i d u a l incentive, but i t s value increases as the participant i s able to influence the profit-making potentials of the company. Thus p a r t i c i p a t i n g top management may benefit appreciably. The stock option presently appears to be used s p e c i f i c a l l y for the top executive i n order to motivate and compensate the few risk-takers i n the upper management group.  In a median  company surveyed i n the United States, only \ of 1%, or t h i r t y of six thousand employees, received stock o p t i o n s . ^  In Canada,  thirty-three of t h i r t y - e i g h t companies with stock l i s t e d on the Canadian stock exchanges reported i n d e t a i l on one of the f i r s t 42 surveys made i n Canada.  Of these, twenty-three were manufac-  ^ D e f i n i t i o n s of "stock plans" and "stock options" are given i n Chapter I, page 16. • 41 T. M. Ware, "Stock Options: Their Morality and P r a c t i c a l Applications", Barron's. June 19, 1961, page 5; and J . M. L i v i n g ston, Barron s. July 24, 1961. 42 National I n d u s t r i a l Conference Board, Stock Options Plans i n Canada. Canadian Studies Series No. 1, Montreal: National I n d u s t r i a l Conference Board, 1959, page 4. ?  47 turing firms, and only seven stock plans had commenced before 1955. Stock options, though primarily provided f o r top management, are considered by some investigators to be i n the public i n t e r e s t because they encourage good management over the long term.  The stock option costs the company no cash outlay,  maintains the established salary pattern, and usually i s not subject to any government salary s t a b i l i z a t i o n p o l i c y . "Deferred-holding" group of incentives Although t h i s group would seem to have l i t t l e incentive value, i t i s u t i l i z e d by many companies as a s p e c i f i c appeal to older employees nearing retirement.  I t was included i n the  survey both f o r this reason and f o r s i m p l i c i t y , because a large number of respondents would l i k e l y have written about some of these types with lessened attention to others. 44 (d)  Deferred Income  As a r e s u l t of high personal income taxes which have r i s e n sharply since 1940, many companies have adopted a "tax deferral plan" i n the form of a p r o f i t - s h a r i n g trust or a deferred compensation  contract. In some cases t h i s resulted i n i n d u s t r i a l  ^ Henry Ford I I , "Stock Option Plans Are i n the Public Interest". Harvard Business Review, July/August 1961, page 51. They..."keep the best man i n positions that have the greatest impact on the whole economy...with r a i s i n g of incomes and l i v i n g standards." 3  44 See D e f i n i t i o n s i n Chapter I, page 16.  48 executives' being paid as much f o r not working as they were for working. The intent appears to be to reduce the "tax b i t e " rather than to o f f e r compensation as an incentive or reward for r e s p o n s i b i l i t y assumed.  The major r i s k i n assuming that the  "tax b i t e " w i l l be less for the employee i n l a t e r years i s that no assurance can be obtained that the present tax p o l i c i e s w i l l not a l t e r i n the future. There i s also another serious hazard to the company's welfare when i t follows the whims of current practice or the expected expedience of tax avoidance:  the economic pressure  patterns of normal salary d i f f e r e n t i a l s and supplemental incentives could be seriously d i s t o r t e d .  A deferred income  plan w i l l usually cost a company less i n cash outlay than the equivalent increases necessary to restore t r a d i t i o n a l salary 45 d i f f e r e n t i a l s between a l l management l e v e l s , (e)  Increases i n Salaries and Wages  I f granted s p e c i f i c a l l y for outstanding  performance,  increases i n s a l a r i e s may motivate performance improvement i n a firm where i t i s well established and generally  recognized  ^George T. W a l l i s , "Current vs. Deferred Executive Compensation", Management•Record. National I n d u s t r i a l Conference Board, June 1955, page 222; and J . K. Lasser and V. Henry Rothsc h i l d , "Deferred Compensation for Executives", Harvard Business Review. January/February 1955, page 102.  that the company benefits from frequent demonstrations of such individual e f f o r t . ^ Such a p o l i c y i n e v i t a b l y requires budgeting f o r these salary increases.  There i s often the tendency then to auto-  matically award salary increases on a length-of-service basis, which generates l i t t l e desire f o r performance improvement. It i s also d i f f i c u l t to foresee j u s t i f i e d increases, thus the allocated amount i s often too large, r e s u l t i n g i n added costs and over-generous awards.  Conversely,  budget-cutting becomes popular  i f business declines,  i f not e s s e n t i a l . This works  against the deserving i n d i v i d u a l who unfortunately missed e a r l i e r consideration.  Such budgeted salary increases f r e -  quently become "cut and dried", are often "expected", and "when not granted, reactions are not l i k e l y tp be constructive" Automatic salary increases based on s e n i o r i t y or general increases have l i t t l e incentive value for management  personnel  p a r t i c u l a r l y i f such increases p a r a l l e l union gains for nonmanagement workers.  The practice of extending general salary  increases to middle management may create dual allegiance both to the company and to the production wage earner's union.  ^"Increases i n Salaries and Wages" are defined i n " D e f i n i t i o n s " i n Chapter I, page 16. ^George W. Torrence, "Budgeting Salary Increases", Management Record. National-Industrial Conference Board, March 1961, page 2.  50 This occurs because the s a l a r i e d employee i s convinced  that h i s  salary increase depends on the success of the workers' union AO  rather than on h i s own performance. Although incentive salary increases may be intended to act l i k e a "bonus paid on the installment plan", the incentive e f f e c t on an individual's performance i s of short duration and i s probably considerably less than with a more frequently available cash bonus.  Such increases are part of the normal  salary cheque and soon become accepted as the regular and just remuneration to be expected f o r the usual work of that p o s i t i o n . (f)  Other F i n a n c i a l Incentives  This category was established to accommodate a l l other f i n a n c i a l incentives, such as piece-work and guaranteed annual wage which cannot be grouped with types (a) to (e) above.  George W. Torrence, "Individual vs. General Salary Increases", Management Record, National I n d u s t r i a l Conference Board, May 1961, page 19.  51  CHAPTER  FINANCIAL  Different istics,  and  individual with  the  which  effective  istic  work  which  differ  performing  are  both  outlined.  suitable the  currently they  of  the  incentive of  many  treasury  both  company  Companies  the  are for  some  of  of  the  accommodate  the  This  involved  characterpeople  employees. then  be  typical  A  few  described  needs  approach w i l l  characteristics  faced  This  middle-management  groups  and  middle  individuals  objectives.  Financial Incentives even  group  different  individuals departments;  range  character-  lead  of  of to  effective  plans.  management,  changing  of  operation w i l l  apparent  their  incentives  examining  other in  for  company  and needs of  needs  financial  approached by  about  These  that  selecting  o n how  Requirements  a mobile,  jobs  been  MANAGEMENT  incentives, the  and m i d d l e management.  Middle  and  have  from those  plans  financial  tion.  i n meeting  situations  conclusions  The  be  emphasis  industry  financial  i n promoting  problem w i l l  with  use  problem of  incentive  of  employees  management and  I N C E N T I V E S FOR M I D D L E  types  their  III  from a  within  composed  of  functions operate they  a  for  single  Middle  company,  a variety in  the  of  in production,  specialist  to  is  often  individuals  business  organiza-  marketing,  perform a variety  technical  Management  an  of  duties assistant  in  52 department manager.  Often middle-management personnel are on  company-sponsored t r a i n i n g programs and move through a series of positions over the years, or are i n d i v i d u a l l y improving and extending  their s k i l l s and knowledge through private e f f o r t s .  Because of this great v a r i a t i o n i n job r e s p o n s i b i l i t i e s and tenure, middle-management interests both i n d i v i d u a l l y and as a group are usually varied and frequently f u l l of change; they are probably  less homogeneous i n nature than those of either top  management or f i r s t - l i n e supervisors.  Therefore the require-  ment i s f o r f l e x i b l e and diverse incentive plans to accommodate both the v a r i a b i l i t y of i n d i v i d u a l goals and of company objectives as viewed by middle-management people. Management, i n addition to furthering company objectives, has a fundamental r e s p o n s i b i l i t y as "coordinator of human efforts"  a r e s p o n s i b i l i t y both to the concern and to the  community within a free enterprise society.  The exercise  of t h i s r e s p o n s i b i l i t y i s v i t a l to the successful operation of business and to the continued growth of our i n d u s t r i a l efforts.^  Individuals i n middle management recognize that  •'"Mary Cushing N i l e s , Middle Management: The Job of the Junior Administrator. New York, Harper Bros., 1949, Revised E d i t i o n , preface page i x . "The character of leadership i s the most important factor i n the operation of a business. This leadership belongs not only to top management but to the middle rank as well; and i t must be integrative i n order to use the growing s p e c i a l i z a t i o n s i n our day. Coordination i s the c e n t r a l problem of management and the junior administrators are key people i n achieving i t . Through them top management c a r r i e s out i t s coordinative  53  not  o n l y do  they  share  this  responsibility with  but  a l s o t h a t i n t i m e many o f them must be  t o p management,  ready  a d d i t i o n a l r e s p o n s i b i l i t y when t h e y move i n t o  t o assume  top-management  positions. The will  be  try.  executives faced with  challenging competitive conditions i n  Secondary manufacturing  Columbia, For  o f tomorrow as members o f t o p management  i s subject to i n c r e a s i n g competitive  some s e c o n d a r y  industry this  from w e l l - i n d u s t r i a l i z e d o t h e r s an  industry, particularly  could arise  c o u n t r i e s throughout  in  t o e x p a n d t h e i r m a r k e t s by  goods f r o m B r i t i s h  British  pressures.  from imports the world;  i n c r e a s i n g competitive pressure might a r i s e  attempting  indus-  coming for  from  exporting manufactured  Columbia.  E n e r g e t i c , a g g r e s s i v e l y t r a i n e d management p e r s o n n e l levels w i l l  be n e e d e d i f t h i s  successfully.  Men  p e r c e p t i v e n e s s by will  be  small.  a c t i v e and  I t i s important  effectively.  found  The  i s t o be  w i t h dynamic o u t l o o k s , d e v e l o p e d  r e q u i r e d to d i r e c t  s u i t a b l e ways be  competitive pressure  practical  and  to the  operate  competitive  experience,  provision of f u l l  and  adequate  that  develop  financial  i n c e n t i v e p r o g r a m s f o r middle-management i n d i v i d u a l s  responsibilities."  and  f u t u r e o f many c o m p a n i e s to  met  to a keen  companies l a r g e  f o r management p e r s o n n e l  at a l l  and  54 groups c o u l d m a t e r i a l l y h e l p i n p r o v i d i n g the m o t i v a t o r s c h a l l e n g e s n e e d e d t o e n c o u r a g e them t o p r e p a r e  and  f o r the r e s p o n s i 2  bilities The  o f t h e top-management p o s i t i o n s i n c r e a s e d use  of f i n a n c i a l  of  tomorrow.  incentives  f o r management  3 p e r s o n n e l was  reported e a r l i e r .  an e s t a b l i s h e d plans in  and  important  p a r t o f management  i n some a r e a s o f A m e r i c a n  one  s u r v e y o f 20  fields,  industrial  approximately  59%  I n c e n t i v e bonuses are becoming  industry. concerns  Howe r e p o r t s t h a t  i n a wide v a r i e t y  o f middle-management  r e c e i v e d b o n u s e s , w h i c h p r o v i d e d an  compensation  a d d i t i o n of  of  personnel approximately  4 287o more i n c o m e o v e r t h e i r b a s i c s a l a r i e s as i n T a b l e I V , p a g e 56. A  later  w i t h 1146  a n d more e x t e n s i v e n a t i o n a l  manufacturing  increased basic  survey r e p o r t e d  that  f i r m s i n the U n i t e d S t a t e s bonuses  earnings of c l a s s i f i e d p r o f e s s i o n a l  and  R o b e r t B. F e t t e r and D o n a l d C. J o h n s o n , C o m p e n s a t i o n and I n c e n t i v e s f o r I n d u s t r i a l E x e c u t i v e s , Bloomington, I n d i a n a : I n d i a n a U n i v e r s i t y P r e s s , 1952, p a g e 125. In t h e i r c o n c l u s i o n , t h e y p r o p o s e , among o t h e r s u g g e s t i o n s , t h a t one o f t h e a r e a s most l i k e l y t o y i e l d maximum r e s u l t s t o i n d u s t r y t h r o u g h p r o v i d i n g b e t t e r management f o r tomorrow, w o u l d be a s u r v e y o f t h e a t t i t u d e s a n d r e a c t i o n s o f m i d d l e management t o f i n a n c i a l incentives. " T h o s e who w i l l be tomorrow's t o p e x e c u t i v e s must be our p r i m a r y concern today." o D i s c u s s e d u n d e r " E m p l o y e e Needs and Work R e w a r d s " i n C h a p t e r I I , p a g e 33. R o b e r t J . Howe, " P r i c e T a g f o r E x e c u t i v e s " , H a r v a r d B u s i n e s s R e v i e w , May/June 1956, p a g e 98.  55 administrative positions by from 5% to 20%. a f a i r l y extensive trend.  5  This indicates  I t appears that f i n a n c i a l incentives  can measurably increase the earnings of middle-management personnel. Probably the most important requirements of f i n a n c i a l incentives are that they be designed to motivate employees by being substantial i n size when a c t u a l l y paid to individuals d e l i v e r i n g outstanding  performances, and that they be a t t a i n -  able by a f a i r proportion of the group, but not by a l l members. The value of incentives b a s i c a l l y l i e s i n t h e i r s c a r c i t y , but t h i s value fades i f they become so scarce that they are unknown or unwanted. The actual s i z e of bonuses for middle-management i n d i v i duals i n p r a c t i c a l and successful use i n industry varies with p o s i t i o n and organization.  According  to Smyth, t y p i c a l bonuses  at the t o p - o f f i c e r l e v e l usually amount to 40% - 50% of base salary, whereas at the middle-management l e v e l , 20% - 30% of salary would be more representative of bonuses a c t u a l l y paid.^ I t i s Smyth's b e l i e f , assuming that f a i r basic s a l a r i e s  United States, Department of Labor, Bureau of Labor S t a t i s t i c s , National Survey of Professional, Administrative, Technical and C l e r i c a l Pay, 1959-60 B u l l e t i n # 1286 (1960-61 B u l l e t i n # 1310), Washington, D. C : Superintendent of Documents, October 1960, page 8; and Appendix B. ^Richard C. Smyth,"Bonus Plans for Executives", Harvard Business Review, July/August 1959, page 67. The figures are based on c o n f i d e n t i a l information obtained from companies of varying s i z e i n the s t e e l , o f f i c e equipment, automotive, food,  56 TABLE IV DATA ON BONUS PRACTICES FOR DIVISIONAL OFFICERS  Function  3  Per Cent of Cases Receiving Bonus  Average Bonus as a Per Cent of Base Salary i n Cases Receiving Bonus  73% 69,  40% 38  TOP MANAGEMENT D i v i s i o n Manager Assistant Manager Sub-total Average  72%  b  39%  MIDDLE MANAGEMENT Manufacturing Head Sales Head Engineering Head Control F i n a n c i a l Personnel Head Purchasing Head I n d u s t r i a l Engineer Sub-total Average  70 68 67 64 51 50 41 b  28 32 29 21 19 18 19. 59%  28%  ADDITIONAL DATA In operations of equal s i z e , managers earning bonuses (head and subordinates) earned an average of 19% less i n base salary than non-bonus earners, but t o t a l compensation of bonus earners was 7% more than f o r non-bonus earners. Robert J . Howe, "Price Tags f o r Executives", Harvard Business Review, May/June 1956, page 98. I t was based on a survey of 20 prominent i n d u s t r i a l concerns i n a wide variety of f i e l d s . The report covered 55 autonomous product-line d i v i sions under d i v i s i o n a l managers and some 300 subordinate p r i n c i pal function heads. Employment ranged from 100 to over 20,000, and sales from $1 to $300 m i l l i o n . a  Arithmetic averages of Howe's figures; weighted values and quantitative data were not a v a i l a b l e .  and other i n d u s t r i e s . Data are based on 1957 averages of 62 companies for top management, and based on 1957 averages of 43 companies f o r middle management.  57 are paid at the going l o c a l rate, that the bonus opportunity required to "provide sustained high l e v e l performance" i s as follows: Top Level Positions - A bonus opportunity of from 40% to 60% of base salary f o r outstanding personal performance i n a year when the company makes a good f i s c a l showing. Middle Positions - A bonus opportunity of from 30% to 40% of base salary.'' These bonus opportunities for middle management are better than one-third more than the 1957 p r a c t i c e , while the estimated requirement  f o r top management i s approximately  one-quarter  more than the e x i s t i n g 1957 range. I f the value and worth of individuals i n middle management i s not acknowledged i n organizational status and r e f l e c t e d by both adequate basic compensation and sizable bonus opportunity,' the discouragement of the p o t e n t i a l members of top management has commenced, and the company i s l i k e l y to suffer from accumulated r e s u l t s .  Greater challenges and expanded opportunities  for middle management are both required by most companies and wanted by the middle-management ranks.  I f these are not  adequately provided, individuals looking for possible oppor-  See Chapter I, pages 13-14, for " D e f i n i t i o n s " of top and middle management; and Smyth, op_. c i t . ; 1959, page-68. ^Other methods of acknowledging the worth of individuals e x i s t , but only f i n a n c i a l incentives are being considered i n t h i s study. See " L i m i t a t i o n s " i n Chapter I, page 17.  t u n i t i e s to test t h e i r potentials w i l l continue to look elsewhere.  A l t e r n a t i v e l y they w i l l lose their enthusiasm,  lower  t h e i r sights, and tend to become resigned to the incomplete application and u t i l i z a t i o n of their a b i l i t i e s . Examples of Established Incentive Plans Many incentive plans have been developed for the manufacturing industry, though frequently they are not described to any extent i n the business l i t e r a t u r e .  A few plans w i l l be  outlined here to i l l u s t r a t e how they accommodate the needs of industry or affect middle-management i n d i v i d u a l s . ^ Consideration given to middle management by early plans Many early plans were commenced with the main emphasis on meeting the needs of production workers as well as on supporting and expanding the company's business a c t i v i t i e s . In some, p a r t i c u l a r l y the Scanlon type of p l a n , ^ the middlemanagement personnel were usually included i n the company-wide group of p a r t i c i p a n t s , which often extended to the company president.  Firms which used the Scanlon plan or some adaptation  of i t usually used a combination of group incentives and  ^A more detailed discussion of each plan with additional references i s provided i n Appendix C. F r e d G. Lesieur, The Scanlon Plan, New York: John Wiley and Sons, 1958, page 173; I n d u s t r i a l Councillors Inc., Group Wage Incentives: Experience with the Scanlon Plan, New York: I n d u s t r i a l Relations Councillors Inc., 1962, page 48. 1 0  opportunities for employees to share i n the task of thinking about t h e i r work through various types of committee p a r t i c i pation. Occasionally, middle management vigorously entered into the program, as i n Lincoln's "incentive m a n a g e m e n t " T h e L i n c o l n E l e c t r i c Company plan, which has been most successful i n increasing both employee earnings and company p r o f i t s over many years, uses a system of i n d i v i d u a l incentives and bonuses for suggestions rather than a group bonus. t h e i r success i s a vigorous  The backbone of  employee committee which has  met  with top management on a l l problems a f f e c t i n g work and workers since  1913. In other long-standing  and successful plans, such as the  12 Nunn-Bush operation,  middle management does not appear to be  as a c t i v e l y involved i n either the plan or the company operations.  However, i t i s recognized  that the descriptions of  many plans tend to be enthusiastic h i s t o r i c a l accounts of t h e i r development rather than s p e c i f i c analyses of the how  and  James F. L i n c o l n , Incentive Management, Cleveland, Ohio: The Lincoln E l e c t r i c Company, 1951, page 287; and J . D. Glover and R. M. Hower, The Administrator: Cases i n Human Relations i n Business, Homewood, I l l i n o i s : R. D. Irwin Inc., t h i r d e d i t i o n , 1957, pages 549-600. ^Henry L . Nunn, Partners i n Production; A New Role for Management and Labor, Englewood C l i f f s , Prentice H a l l Inc., 1961, page 221.  60 why  of their  tages.  o p e r a t i o n and p a r t i c u l a r  advantages o r  disadvan-  The Nunn-Bush Shoe Company has i n v o l v e d w o r k e r s  u n i o n i n some a s p e c t s  o f d e c i s i o n making  t i m e has g i v e n employees  and  a n d , a t t h e same  52 pay c h e q u e s a y e a r b a s e d on  labor's  p e r c e n t a g e s h a r e i n v a l u e a d d e d by m a n u f a c t u r e . Recent development  - the Rucker  plan  These e a r l y p l a n s o f t e n a p p e a r e d t o have been b o r n t u r m o i l and f i n a n c i a l  c r i s e s , w i t h w o r k e r s and management  f o r c e d by the n e c e s s i t y o f s u r v i v a l o f mutual cooperation existence. that  Under  to f i n d  a common p a t h  towards s a l v a g i n g b o t h j o b s and  these conditions  consideration,  R e c e n t l y , t h e dominant  l e t a l o n e acknowledgement tendency has been  evident in  i n large,  solidifying  long  types of f i n a n c i a l  established  compensation  incentives.  companies  existence.  seriously  This  i s most  interested  a n d i m p r o v i n g t h e i r manner o f o p e r a t i o n  over a  period. One  is  several  of  little  towards t h e e s t a b l i s h - ,  ment o f w e l l - c o n c e i v e d , b a l a n c e d , a n d i n t e g r a t e d plans using  company  i t i s reasonable to expect  t h e p r o b l e m s o f m i d d l e management w o u l d r e c e i v e  specific  amid  o f t h e more i n t e r e s t i n g  a p l a n d e v i s e d b y A l l e n W.  Company i n w h i c h employee  developments  i n recent  years  Rucker o f the Eddy-Rucker-Nickels  committees  and m e e t i n g s a r e a b a s i c  13 ingredient  o f the i n c e n t i v e o p e r a t i o n .  I t i s a group  plan  ;*- Allen W. R u c k e r , G e a r i n g Wages t o P r o d u c t i v i t y ; A New A p p r o a c h , Cambridge, Mass.: T h e E d d y - R u c k e r - N i c k e l s Company, 3  61 often applied to hourly-rated production workers, to middleand top-management groups, or i n some cases to a l l employees i n the company.  I t i s based on an h i s t o r i c a l relationship  established between t o t a l earnings, including fringe benefits of an hourly-rated or of a s a l a r i e d group, and the net production values created by the company.  Workers and the company share  any increases i n "value added by manufacture" which arise from their joint efforts.  An integrated incentive i s provided to  encourage (1)  The same labor cost for greater value or less cost for the same value of production;  (2)  Reduction of material and supply costs;  (3)  Improvement i n product quality;  (4)  Reduction i n scrap and returns by customers.  Since the plan i s based on r e a l i z e d production value income, the company's a b i l i t y to increase sales volume and to provide steady employment i s improved as w e l l as i t s a b i l i t y to meet competition by lowering p r i c e s . A recent application of the plan i s to the widely d i v e r s i -  1962, page 52; A l l e n W. Rucker, "Productivity: How to Be R e a l i s t i c i n I t s Measurement and-Its Improvement", Cost and Management. March 1957, pages 97-104; and Frances Torbert, "Making Incentives Work", Harvard Business Review. September/ October 1959, pages 81-92.  62 14 f i e d operations of the American Can Company.  The plan  o r i g i n a l l y was applied at the top-management l e v e l only, but i n 1959 a l l middle-management personnel were included. I t appears that here the u t i l i z a t i o n of f i n a n c i a l incentives commenced with a Rucker type of application, which was expanded downwards as experience was gained. In the Hewitt-Robins organization, a d i v e r s i f i e d manufacturer and d i s t r i b u t o r of conveying and transmission equipment, many t r i a l s and modifications of p r o f i t sharing were attempted without successfully meeting i t s varied requirements of segregated production plants.  This organization has recently adopted  a Rucker application which covers individuals i n middle management and which i s t a i l o r e d to s u i t a number of production operations, manufacturing d i f f e r e n t and unrelated products.^"  5  These plans are c a r e f u l l y designed, integrated applications u t i l i z i n g f i n a n c i a l incentives which also tap the potentials of work groups by giving the employees the chance to have a say in t h e i r work with better u t i l i z a t i o n of t h e i r i n t e r e s t ,  •"-^Robert W. Eidson, Management Production Improvement Incentive Plan, before 9th Annual Executives Conference on the Rucker Plan, Chicago, September 23, 1960, Cambridge, Mass.: The Eddy-Rucker-Nickels Company, 1961. •^Donald E. Kullander, A F i r s t - l i n e and Mid-management Incentive: That Spurs Productivity Gains for a Multi-plant Corporation. Cambridge, Mass.: The Eddy-Rucker-Nickels Company, 1961.  work capacity, and a b i l i t y to improve methods and product. E f f e c t i v e F i n a n c i a l Incentives The preceding, b r i e f descriptions of a few incentive plans, some of which have operated successfully for many years with considerable s a t i s f a c t i o n to both company and employee, indicate that with diligence and concerted e f f o r t , workable answers can be evolved for one of industry's most perplexing problems mance.  the motivation of people to improve t h e i r perforThere i s a growing r e a l i z a t i o n that s a l a r i e s alone do  not f u l l y f i l l the many needs of both working people and of the i n d u s t r i a l concern.  Supplemental  pay plans with f i n a n c i a l  incentives o f f e r i n g opportunity bonuses rather than protective compensation plans using pensions may be more h e l p f u l i n attaining more goals of both employee and company. An appreciation of the important aspects of e f f e c t i v e f i n a n c i a l incentive plans would be valuable, i n the future development and u t i l i z a t i o n of f i n a n c i a l incentives.  The  outstanding c h a r a c t e r i s t i c s exhibited by plans previously described and considered to be the main features common to e f f e c t i v e f i n a n c i a l incentive programs are summarized as follows:  1 6  Merle C. Hale, The Bonus as an Incentive i n Management Motivation. F i n a n c i a l Management Series No. 97, New York: American Management Association, 1957, pages 8-10; Harold J . L e a v i t t , Managerial Psychology, Chicago: University of Chicago Press, 1958, chapter 13, Money Incentives; Arch Patton, "Incent i v e Compensation for Executives", Harvard Business Review,  (1)  Integrated Plan.  Integrated, o v e r a l l compensation  plans, covering basic s a l a r i e s , f i n a n c i a l incentives, and employee p a r t i c i p a t i o n , are more l i k e l y to be successful than a single one-shot approach. (2)  S p e c i f i c Application.  s p e c i f i c and can accomplish designed;  F i n a n c i a l incentives are  only that for which they are  they are only a part, though probably a very  part, of integrated compensation programs ferable. (3)  important  they are not trans-  1 7  Competent Management.  Top management must be  reasonably competent, sincerely honest, and thoroughly convinced of the value of incentive compensation. must be openly w i l l i n g to make the necessary  Top management  e f f o r t to see  that the incentive plan i s productive. (4)  Permanent Acceptance.  The incentive program should be  September/October 1951, page 38; and Frances Torbert, "Making Incentives Work", Harvard Business Review, September/October 1959, page 89. These investigators support the above tenets with emphasis depending on approaches taken. I S u c c e s s f u l balancing of money payments with other/ factors of employee needs, company goals, organization structure, and communication methods i s necessary on a continuing basis for e f f e c t i v e achievement and maintenance of competitive company p o s i t i o n . F i n a n c i a l incentive plans working successf u l l y i n one company cannot be transplanted to another and y i e l d e f f e c t i v e r e s u l t s . Self-development of a plan to meet s p e c i f i c s i t u a t i o n a l needs i s c h a r a c t e r i s t i c of successful approaches. 7  65 a permanent force approved by shareholders and not subject to short-term p r o f i t s or the whims of any one i n d i v i d u a l or, group. (5)  Organization and Objective Evaluation. The company  should be organized and segmented so that grouped and i n d i v i d u a l r e s p o n s i b i l i t i e s are defined and clear-cut, thus permitting the best possible objective evaluation of contributions. (6)  Mixture of Needs.  Within a company and i t s employee  groups, a mixture of both f i n a n c i a l and non-financial needs may exist which require a blend of incentive methods and plans to meet conditions most e f f e c t i v e l y . (7)  Continuous Change.  A process of continuous change i n  the use of various plans i s necessary to successfully meet the changing needs of employees and companies, such as the application of group incentive plans j o i n t l y with, or as  replacement  for, systems of i n d i v i d u a l incentives. (8)  Involves A l l Employees.  A l l employee groups,  including middle management, are covered by e f f e c t i v e plans so that a l l employees may be f u l l y active i n forwarding company objectives and p a r t i c i p a t i n g i n the r e s u l t s . (9)  Participative Efforts.  The objective evaluation  of methods and performance by some, committee-like body p a r t i c i p a t e d i n by representatives of a l l employee groups i s conducive to the better understanding and communication of i n d i v i d u a l and company problems and to their s a t i s f a c t o r y solution.  66 (10) should dual  S u b s t a n t i a l Awards,  and (11)  and t h e o v e r a l l  period,  payments  of both  l o n g - t e r m company  indivi-  achieve-  welfare. Prompt Payment.  The s h o r t e r  under r e v i e w and t h e sooner t h a t  [  o r bonus  be s u b s t a n t i a l and a w a r d e d on t h e b a s i s  contributions  ments  Incentive  the b e t t e r  the p e r i o d  o f performance  i n c e n t i v e awards f o l l o w  i s the motivation  f o r improvement.  this  67  CHAPTER IV  THE  USE  OF  In Chapter the purpose financial  FINANCIAL INCENTIVES IN B R I T I S H COLUMBIA  I four hypotheses  of this  study, namely t o e v a l u a t e the use  incentives  manufacturing  of f i n a n c i a l discussed  ments.  the types o f f i n a n c i a l  to this  incentives  i n Chapter  some e x i s t i n g  of B r i t i s h Columbia.  study.  i n the manufacturing  1  The  i n the  p u r p o s e was  tested,  of  require-  financial  Columbia. incentives  revised,  industries  how  evaluation  t h e u t i l i z a t i o n made o f f i n a n c i a l  t o a sample o f m a n u f a c t u r i n g  Columbia.  consi-  financial  industry of B r i t i s h  designed,  of  t o meet t h e s e  o b t a i n e d from the survey o f the use  determine  II  requirements  I I I together with i l l u s t r a t i o n s  a s u r v e y q u e s t i o n n a i r e was applied  incentives  T h e more i m p o r t a n t a s p e c t s o f e f f e c t i v e  incentives  of  f o r middle-management p e o p l e w e r e  i n c e n t i v e p l a n s attempted  of the r e s u l t s  needs  i n Chapter  T h e more s p e c i f i c  i n c e n t i v e s w e r e t h e n summarized t o a s s i s t  To  The  o f t h e i n d i v i d u a l were r e l a t e d  w i t h w o r k r e w a r d s and dered c r i t i c a l  of  f o r middle-management p e r s o n n e l i n t h e  industries  t h e company and  were s t a t e d w h i c h d e f i n e d  and  then  in British  to p r o v i d e the data r e q u i r e d  to  test  D e t a i l s o f the survey d e s i g n , s i z e of the s y s t e m a t i c r a n d o m sample r e q u i r e d , and t h e t e s t i n g o f t h e q u e s t i o n n a i r e a r e p r o v i d e d i n A p p e n d i x A. The s t a t i s t i c a l a c c e p t a b i l i t y o f the survey response i s a l s o d i s c u s s e d .  the hypotheses proposed i n Chapter I.  The acceptance or  r e j e c t i o n of these four hypotheses was e s s e n t i a l l y to define the extent of current interest i n B r i t i s h Columbia i n applying 3  f i n a n c i a l incentives  to various employee groups  including  middle management. Chapter IV w i l l present and analyze the survey data i n respect to the four hypotheses.  The chapter w i l l conclude  with an examination of supplementary information obtained from the survey and observations a r i s i n g from interviews. C l a s s i f i c a t i o n of Data from Survey The survey of a sample of B r i t i s h Columbia manufacturing industries yielded data which r e f l e c t e d the use of f i n a n c i a l incentives f o r f i v e d i f f e r e n t groups of employees:  top manage-  ment, middle management, f i r s t - l i n e supervisors, o f f i c e workers, and production workers.^  -  S p e c i f i c information was obtained  respecting the number of companies using f i n a n c i a l incentives for middle management (the prime interest group for t h i s study) as well as comparative data for other groups of management personnel and for operating personnel i n o f f i c e and plant as shown i n Table V.  Other categories of data were provided by  ''See Chapter I, page 7, for statement of hypotheses. 3  D e f i n i t i o n s are given i n Chapter I, page 15, and i n Chapter I I , page 37.  4  Definitions of each of these employee groups are given i n " D e f i n i t i o n of Terms Used" i n Chapter I, page 13.  69 TABLE V CLASSIFICATION OF DATA FROM SURVEY Number of Companies Using F i n a n c i a l Incentives by Employee Groups 3  Top Middle Mgmnt. Mgmnt.  Classification Company S i z e Size Total Employees Small 1 to 74 Medium - 75 to 399 Large - 400 and over  FirstLine Supvr.  Office Worker  Plant Worker  b  Totals Head O f f i c e L o c a t i o n In B r i t i s h Columbia Not i n B r i t i s h Columbia  15 16 _2  14 17 _2  13 19 2  7 11  6 5 0  33  33  33  19  11  21 5 26  20 5  21 5 26  12 5 17  7 3 10  1  0  25  The use reported i s for "Current Motivator" type of f i n a n c i a l incentive only. For i d e n t i f i c a t i o n of this type and of the employee groups as used here refer to " D e f i n i t i o n s " i n Chapter I, page 13. a  ^Company size-groups were established as discussed i n "Survey Procedure" i n Appendix A, page 1. The number of companies using f i n a n c i a l incentives was reported i n d e t a i l in Table XXVII i n Appendix D. The "Head O f f i c e Location" was used to separate companies into those operating under p o l i c i e s established by l o c a l interests i n B r i t i s h Columbia and those l i k e l y to be influenced by p o l i c i e s established by n a t i o n a l and international corporations with head o f f i c e s located outside of B r i t i s h Columbia as discussed on page 72 of t h i s chapter. The number of such companies using f i n a n c i a l incentives was reported i n d e t a i l i n Table XXVIII i n Appendix D. c  70 the answers given by 83 firms to ten survey questions c i r c u l a t e d to the 111 firms comprising the sample.  5  These data were  s i m i l a r l y reported for a l l firms together as well as for two s u b - c l a s s i f i c a t i o n s by the size of the firm and by the location of i t s head o f f i c e . Companies comprising the sample group were c l a s s i f i e d by size according to the t o t a l number of employees reported: small companies employing up to 74 persons, medium-sized companies employing 75 to 399 persons, and large companies employing 400 or more persons.  I t was estimated that these  size-groupings divided the t o t a l employment and the t o t a l p a y r o l l of the group of manufacturing firms sampled into three approximately equal-sized sub-groups.  Each of these  sub-groups of survey data were associated with small-, medium-, or large-sized companies which might have r e f l e c t e d d i f f e r e n t applications of f i n a n c i a l incentives used to meet the s p e c i f i c needs of d i f f e r e n t operations depending on company s i z e . These sub-groups of data were obtained i n r e p l i e s from 43 small-sized companies (39% of the companies sampled), from 31 medium-sized companies (28% of sample), and from 9 largesized companies (8% of sample) as i l l u s t r a t e d i n Figure 1,  A copy of the Survey Form containing the ten questions i s provided i n Appendix A, page 143. D  lartA.  DISTRIBUTION OF SURVFY RETURNS BY SIZE OF COMPANY (From Table XVIII, Part C.)  Part B. DISTRIBUTION OF SURVEY RETURNS BY' LOCATION OF COMPANY HEAD-OFFICE (From Table XXVIII , Parts A and B)  FIGURE 1. DISTRIBUTION OF SURVEY RETURNS BY SIZE OF COMPANY AND BY LOCATION OF COMPANY HEAD-OFFICE  72 Part A.  This c l a s s i f i c a t i o n of data according to the size  of the company reporting the information provided the main basis for analyzing the survey r e s u l t s . The companies surveyed were also c l a s s i f i e d according to whether t h e i r head o f f i c e s were, or were not, located i n B r i t i s h Columbia.  The purpose of t h i s secondary c r i t e r i o n  of head o f f i c e location was  to provide a possible explanation  of evident v a r i a t i o n s i n the use of f i n a n c i a l incentives among manufacturing  industries i n B r i t i s h Columbia.  This c r i t e r i o n  tended to separate B r i t i s h Columbia manufacturing  firms which  were guided by p o l i c i e s o r i g i n a t i n g l o c a l l y from those companies guided by p o l i c i e s established at a head o f f i c e located outside of B r i t i s h Columbia.  The l a t t e r group might have included  national and international corporations exhibiting p o l i c i e s which possibly were at variance with those of firms which were managed by l o c a l B r i t i s h Columbia i n t e r e s t s .  I t seemed  that some companies considered t h i s information c o n f i d e n t i a l of the 83 companies responding to the survey only 72  (65%  of the 111 companies comprising the sample) indicated whether t h e i r head o f f i c e s were located i n B r i t i s h Columbia as shown i n Figure 1, Part B.  Such hesitancy i n answering this as well  as other questions on the survey greatly increased the d i f f i c u l t y  Replies were received from a t o t a l of 83 companies or 75% of the 111 companies comprising the systematic random sample drawn from the universe of 555 companies as detailed i n Appendix A.  73  i n obtaining a s u f f i c i e n t number of r e p l i e s to j u s t i f y sound conclusions p a r t i c u l a r l y i n respect to matters of opinion and choice. Increases i n Remuneration  from 1951 to 1961  I t was necessary to e s t a b l i s h what pattern of remuneration existed i n B r i t i s h Columbia because recent changes i n average earnings  (excluding overtime) of employees might have had a  bearing on the use of f i n a n c i a l incentives.  I f recent changes  i n the remuneration of any management group appreciably d i f f e r e d from changes i n the remuneration of other employee groups, or i f the changes for management as a whole d i f f e r e d materially from changes enjoyed by a non-management group of employees, an imbalance i n the pattern of employee compensation could have developed.  Such an imbalance might have become a serious  detriment to the e f f e c t i v e growth and operation of the firm or of the industry concerned. This retardation could be p a r t i c u l a r l y s i g n i f i c a n t to an industry i n the long term i f middle management were involved because of the importance of middle management as a source of future top-management personnel.^  An imbalance or s i g n i f i -  cant recent change i n the employee remuneration pattern might; also have a s i g n i f i c a n t impact on the findings of t h i s study.  The e s s e n t i a l i t y to industry of encouraging middle management personnel was indicated i n Chapter I , page 1.  Accordingly  the q u e s t i o n n a i r e requested a statement  approximate  percentage  (excluding overtime)  increase  i n average  s i n c e 1951"  typical  f o r each o f f i v e  of "the remuneration  employee  Q groups  f o r a ten-year  period.  About o n e - t h i r d o f t h e companies r e s p o n d i n g t o request to t h e i r  stated  that  they had  employees d u r i n g t h e t e n - y e a r p e r i o d  as shown on T a b l e V I . q company r e p o r t i n g : o f t h e medium-, and granted period.  increases The  T h i s r a t i o v a r i e d by  responding to t h i s  1961  the s i z e o f  the  one-half of the l a r g e - s i z e d  companies  increase  d u r i n g t h e same t e n - y e a r  i n compensation t o 60%  offered  to  in different-  B e c a u s e o f t h e s m a l l number o f  companies  i n f o r m a t i o n , f i r m c o n c l u s i o n s about  s i g n i f i c a n c e of the v a r i a t i o n s this  ending i n  one-third  from a p p r o x i m a t e l y 45%  companies.  i n remuneration  one-quarter of the s m a l l - ,  i n remuneration  typical  employees ranged sized  granted increases  this  the  shown c a n n o t be r e a c h e d i n  study.^  Refer p a g e 145 .  t o q u e s t i o n no.  4 on S u r v e y Form i n A p p e n d i x  A,  9 The s i z e - g r o u p i n g s u s e d i n t h i s s t u d y a r e d e s c r i b e d i n A p p e n d i x A, p a g e 130. The o r g a n i z a t i o n a l s t r u c t u r e a n d c h a r a c t e r i s t i c s o c c u r r i n g i n companies o f d i f f e r e n t s i z e s a r e n o t e v a l u a t e d i n d e t a i l h e r e i n as s t a t e d i n " L i m i t a t i o n s " i n C h a p t e r I , p a g e 20. R e f e r t o T a b l e XXV i n A p p e n d i x D f o r d e t a i l s o f r e m u n e r a t i o n i n c r e a s e s by s i z e o f company. 1 0  See "Limitation  ( 5 ) " i n Chapter  I , page  19.  75  TABLE VI INCREASE IN AVERAGE TYPICAL REMUNERATION (EXCLUDING OVERTIME) Employee Category  Per Cent Increase i n 1961 over 1951 a  Top Management  54%  Middle Management  54%  F i r s t - l i n e Supervisors  57%  SALARIED MANAGEMENT  55%  O f f i c e Workers and C l e r i c a l  48%  Plant Workers on Production  54%  HOURLY-RATED WORKERS  51%  R e f e r to Table XXV i n Appendix D f o r d e t a i l s on increases according to the size of the company. a  76 However, the changes i n the remuneration  levels f o r employees  of manufacturing industries i n B r i t i s h Columbia as shown i n Table VI appeared to be i n general agreement with available outside data.  Information from the Dominion Bureau of S t a t i s t i c s  permitted an estimate of a 57% increase i n earnings over ten years for s a l a r i e d personnel i n B r i t i s h Columbia.' '' ' The 1  1  change i n earnings of s a l a r i e d groups i n manufacturing  55%  industries  as r e f l e c t e d i n Table VI compares favourably with t h i s estimate. A lower rate of increase of 51% for hourly-rated employees was s i m i l a r to the lower estimated rate derived from the D. B. S. information. This comparison was important because i t gave an indicat i o n that the current survey r e s u l t s were probably representative  Canada, Dominion Bureau of S t a t i s t i c s , Labor D i v i s i o n Employment, Earnings and Hours of Work i n Manufacturing, Cat. No. 72-204, Annual, Table B. Ottawa: Dominion Bureau of S t a t i s t i c s . A straight l i n e projection of 1951-1960 data to 1961 i s shown i n brackets. No further breakdown into employee groups i s available. TABLE VII CANADIAN INCREASE IN WEEKLY EARNINGS SINCE 1951 Hourly-rated Employees 1951-61 1951-60 (Est.) Canada  -  B r i t i s h Columbia  Salaried Employees 1951-61 1951-60 (Est.)  41%  (44%)  52.5%  (58.5%)  43%  (48%)  57.5%  (57  %)  77 of  conditions existing  it  suggested that  of  salaried  12  Further,  earnings  management a n d h o u r l y - r a t e d non-management p e r s o n n e l m a n u f a c t u r i n g i n d u s t r y had n o t changed  t h e p a s t t e n y e a r s compared w i t h t h e g e n e r a l  situation  industrial  i n Canada a s a w h o l e .  Among t h e t h r e e s a l a r i e d it  industry.  t h e d i f f e r e n t i a l between t y p i c a l  i n B r i t i s h Columbia within  i n B r i t i s h Columbia  appeared  that  management g r o u p s  t h e change i n r e m u n e r a t i o n  o f employees  level  f o r middle  no management  (MM)  J  as compared t o t h o s e f o r o t h e r management  g r o u p s was n o t s i g n i f i c a n t Columbia  industry.  i n the current  The i n c r e a s e  MM was t h e same a s t h a t  i n remuneration  f o r t o p management  b e t w e e n t h e i n c r e a s e o f 54% f o r MM supervisors  survey of B r i t i s h  (TM) .  o f 54% f o r The d i f f e r e n c e  a n d t h a t o f 57% f o r f i r s t - l i n e  ( F L S ) was n o t s t a t i s t i c a l l y  significant;  there  14 was 43% p r o b a b i l i t y  that  this  d i f f e r e n c e c o u l d occur by  chance.  D a t a from o t h e r sources s u i t a b l e f o r comparison purposes was v e r y l i m i t e d . See " L i m i t a t i o n ( 7 ) " i n C h a p t e r I , p a g e 19. 1 2  will  • ^ R e f e r e n c e t o employee g r o u p s o f t e n be i d e n t i f i e d by c a p i t a l TM MM FLS OW PW  -  throughout t a b l e s and t e x t l e t t e r s as f o l l o w s :  Top Management M i d d l e Management F i r s t - l i n e Supervisor O f f i c e Worker P r o d u c t i o n Worker  ^ T h o m a s G. M c C o r m i c k a n d Roy G. F r a n c e s , M e t h o d s o f R e s e a r c h i n t h e B e h a v i o r a l S c i e n c e s , New Y o r k : Harper & Bros.,  78 Because o f the s m a l l response t o t h i s q u e s t i o n and apparent l a r g e v a r i a n c e i n s u p p l i e d data, sound c o n c l u s i o n s were not p o s s i b l e . ^ The changes i n remuneration f o r employee groups have been p l o t t e d by the s i z e o f companies i n F i g u r e 2.  I n s m a l l and  l a r g e companies, the p r o p o r t i o n a t e i n c r e a s e s i n remuneration for  top- and middle-management groups were l a r g e r than they were  i n medium-sized companies.  In c o n t r a s t , the i n c r e a s e s i n  remuneration f o r f i r s t - l i n e s u p e r v i s o r s o f f i c e workers (OW),  (FLS), c l e r i c a l  and  and p l a n t workers (PW) were l e s s i n l a r g e  companies than i n s m a l l - and medium-sized companies.  Particu-  l a r l y the p r o p o r t i o n a t e i n c r e a s e s i n t y p i c a l remuneration f o r f i r s t - l i n e s u p e r v i s o r s were markedly l e s s than f o r c l e r i c a l and o f f i c e workers or f o r p l a n t workers i n l a r g e companies.  1958, page  141. Pi  ~  U s i n g C r i t i c a l R a t i o = \[  P2 °<i  n  l  1?2 +  ^2  a  n  n*  normal curve areas; where, i n group 1, p r o p o r t i o n = p^, q^ = 1 - p-^; sample s i z e - n^, i n group 2, p r o p o r t i o n = p^, q.^ ~  " 1?2*  s a m  P^  e  s i  -  z e  =  n  2*  ^•^A few i s o l a t e d cases which r e f l e c t e d changes more a c c u r a t e l y i n u n i t percentages (as opposed to steps o f 5 percentage p o i n t s ) among s m a l l and medium-sized companies supported the t r e n d towards l e s s e r i n c r e a s e s f o r top- and middle-management groups as r e p o r t e d by Bursk and Patton i n T a b l e I , Chapter I . R e p l i e s from l a r g e companies d i d n o t i n d i c a t e any s i m i l a r c o n d i t i o n s .  d  5  79 •KEY TO EMPLOYEE GROUP PERCENT INCREASE IN 1961 OVER 1951 (Based on Table XXV)  6o %  TM MM FLS OW PW  ~ -  Top Management Middle Management F i r s t - l i n e Supervisor O f f i c e Worker Production Worker  FLS  r  TM  MM  PW HIXt  TM  OW'  1  FLS  PW  PW  '50 %  MM  OW  OW F L S  40 %  30 %  20 %  10 %  0 %  SMALL  1-74  MEDIUM 75-399 COMPANY SIZE AMD EMPLOYEES  LARGE  FIGURE 2. INCREASE IN THE AVERAGE TYPICAL REMUNERATION OF EMPLOYEE GROUPS IN 1961 OVER 1951~BY *"' SMALL-, MEDIUM.-, AKD L/iRGE-SIZED COMPANIES.  over 400  This suggested that some c h a r a c t e r i s t i c differences existed i n company p o l i c i e s , management techniques, or operational methods which were associated with company size and which affected the changes i n remuneration f o r d i f f e r e n t employee categories. The management groups of small- and medium-sized companies might have not only fewer i n d i v i d u a l s , but also persons with a lesser degree of s p e c i a l i z a t i o n among t h e i r top- and middlemanagement groups than have larger companies. companies might place comparatively  Thus, these  more r e l i a n c e and responsi-  b i l i t y on the members of the f i r s t - l i n e supervisor group than d i d large companies.  I f t h i s was generally true i n  B r i t i s h Columbia, the greater dependence on f i r s t - l i n e superv i s o r s might then be r e f l e c t e d i n the greater  proportionate  increase i n t h e i r remuneration evident among small- and mediumsized companies with the reverse s i t u a t i o n l i k e l y to exist i n large companies not so dependent on f i r s t - l i n e supervisors. This dependence on f i r s t - l i n e supervisors might have been conscious or unconscious on the part of top management, and though i t probably arose from s t a f f shortages,  i t might also  have resulted from the attitudes and the a b i l i t i e s of topmanagement i n d i v i d u a l s involved.  This was one possible explana-  t i o n of the v a r i a t i o n s found and i l l u s t r a t e d i n Figure 2 . V  81 E v a l u a t i o n o f Hypotheses An i n d i v i d u a l using  e v a l u a t i o n o f e a c h h y p o t h e s i s was made  the a p p l i c a b l e data  T a b l e s XXV t o XXXVI  from  the survey  i n A p p e n d i x D.  as r e f l e c t e d i n  The a c c e p t a n c e  or rejection  of  e a c h h y p o t h e s i s was a t 95% c o n f i d e n c e l e v e l a s f o o t - n o t e d  in  the following d i s c u s s i o n of the f i r s t  sons w i t h  similar  data  s u i t a b l e d a t a were First The by  from  other  hypothesis.  s o u r c e s w e r e made w h e n e v e r  available.  hypothesis  first  hypothesis  s t a t e d t h a t "The a t t e n t i o n  industry t o the actual use of f i n a n c i a l  middle  management  incentives visors."  i s lagging behind  f o r ( a ) t o p management.  given  incentives f o r  attention given  financial  and (b) f i r s t - l i n e  super-  1 6  Information and  Compari-  about t h e u s e o f b o t h t h e " C u r r e n t M o t i v a t o r "  the "Deferred Holding E f f e c t "  were c o n s i d e r e d t o be o f p r i m a r y  groups o f f i n a n c i a l i n c e n t i v e s importance  i n evaluating this  17 hypothesis. for  survey  T h e s e two g r o u p s f o r m e d c l a s s i f i c a t i o n s and a n a l y s i s purposes  because they  suitable  represented  The a t t e n t i o n g i v e n b y i n d u s t r y t o t h e a c t u a l u s e o f " i s synonymous w i t h t h e u s a g e o f f i n a n c i a l i n c e n t i v e s a s r e p o r t e d on t h e s u r v e y . I t was assumed t h a t an e q u a l l y t h o r o u g h s t u d y a n d p l a n n i n g o f s u i t a b l e i n c e n t i v e s h a d b e e n made f o r e a c h application reported. * R e f e r t o "Types o f F i n a n c i a l I n c e n t i v e s C r i t i c a l t o S t u d y " i n C h a p t e r I I , p a g e 37. 7  This  frequently used and commonly known types of f i n a n c i a l incen18 tives.  Questions on the survey form  were designed to r e f l e c t  the actual use of d i f f e r e n t types of incentives for d i f f e r e n t 19  employee groups.  The resultant data permitted an evaluation  of this hypothesis by a comparison of the use of f i n a n c i a l incentives by employee groups as reported i n Table VIII. TABLE VIII USE OF FINANCIAL INCENTIVES BY ALL SIZES OF COMPANIES  3  Top Middle Mngmt. Mngmt.  Firstline Supvr.  Office Worker  Plant Worker  Current Motivators  40%  40%  40%  23%  13%  Deferred-holding Effect  12%  15%  19%  13%  17%  T o t a l Current and Deferred  42%  43%  43%  25%  20%  R e f e r to Table XXVI i n Appendix D for further d e t a i l s of survey r e s u l t s . a  As shown i n Table VIII the proportions of companies using "Current" and "Deferred" types of f i n a n c i a l incentives  Refer to question no. 2 on the Survey Form i n Appendix A, page 143. This use was accepted as evidence of the application of incentives to an employee group as indicated, subject to "Limitations" l i s t e d i n Chapter I, page 17.  for top management (427») , f o r middle management (437o) , and for  f i r s t - l i n e supervisors (437») did not d i f f e r s i g n i f i c a n t l y .  Therefore, the f i r s t hypothesis was rejected at 957o confidence level.  2 0  This indicates that companies i n the manufacturing indust r i e s of B r i t i s h Columbia gave as much attention to the use of f i n a n c i a l incentives f o r middle management as they gave to incentives f o r top management and f o r f i r s t - l i n e  supervisors.  More than one-third or 407> of the 83 firms responding to the survey used one or more types of f i n a n c i a l incentive with "Current Motivator" c h a r a c t e r i s t i c s f o r the three management 21 groups of employees.  Less than o n e - f i f t h or 127 to 197» 0  of these companies used "Deferred-holding E f f e c t " types of incentive plan either alone or i n conjunction with "Current" incentives f o r management personnel. The r e s u l t s from t h i s survey of f i n a n c i a l incentives i n B r i t i s h Columbia were compared to one other similar study made recently i n North America.  The United States Department  of Labor i n a 1960 survey reported that 447o of a selection Refer to McCormick and Frances, l o c . c i t . *"Refer to "Survey Design" i n Appendix A f o r comments on acceptable confidence intervals i n an opinion type of survey. The r e s u l t s of the present survey permitted an estimate of 957. confidence f o r an i n t e r v a l of + and - 10 percentage points, that from 307» to 507» of the group of 550 B r i t i s h Columbia manufacturers used f i n a n c i a l incentives f o r management personnel. 2  mainly of manufacturing industries used "cash bonus supplementary pay plans" for professional, technical, and c l e r i c a l job c l a s s i f i c a t i o n s f a l l i n g l a r g e l y i n the middle-management area."  This 44% usage of incentive plans i s comparable  to the 40% usage of the equivalent "Current Motivator" types of f i n a n c i a l incentives found i n B r i t i s h Columbia by current survey. Comparison with Canadian conditions was not possible because no other study of the use of f i n a n c i a l incentives for management people has been made by either the B r i t i s h Columbia Government  J  or the Canadian Government.  A* Canadian  survey covering wage earners completed i n 1954 reported that 20% of the plant production workers surveyed were either paid by a payment-by-results scheme (incentive bonus plan) and another 10% were paid on a piece-rate basis.  No follow-up  U n i t e d States, Department of Labor B u l l e t i n # 1310, National Survey of Professional, Administrative, Technical and C l e r i c a l Pay - Winter 1960-61, Washington, D. C : Superintendent of Documents, 1961. Table 5, and other data from p r i o r B u l l e t i n # 1286 are provided i n Appendix B. The c l a s s i f i c a t i o n of personnel followed i n t h i s U. S. study i s not exactly comparable to that used i n the current B. C. study. 22  23  B r i t i s h Columbia, Department of I n d u s t r i a l Development, Trade and Commerce, Bureau of Economics and S t a t i s t i c s , private communication; June 1962; and B r i t i s h Columbia, Department of Labor, private communication, June 1962. ^Canada, Department of Labor, Economics and Research Branch, Methods -of Wage Payment i n Canadian Manufacturing, October 1954. The Labor Gazette, A p r i l 1956, page 435; and Canada, Department of Labor, Economics and Research Branch, private communication, June 1962.  85 study has been made to date. Second hypothesis The second hypothesis stated that "Large firms (over 400 employees) show more interest i n the use of f i n a n c i a l incentives for middle management than do.smaller firms." The data obtained from the survey on the use of f i n a n c i a l incentives by small-, medium-, and large-sized companies as shown i n Table IX indicated that there was a s i g n i f i c a n t d i f ference i n the use of incentives for middle management depending 25 on the s i z e of the company.  The greatest use, 55%, occurred  i n medium-sized companies and decreased to 33% i n small companies and to only 21% i n large firms.  Thus large companies  showed s i g n i f i c a n t l y less i n t e r e s t i n the use of f i n a n c i a l incentives, and the second hypothesis was rejected at 95% confidence. The use of f i n a n c i a l incentives by small-, medium-, and large-sized companies was also presented graphically i n Figure 3, page 87. This showed that the pattern of the use of f i n a n c i a l incentives among the three size-groupings of companies d i f f e r e d considerably both by company size-group and by employee category within these groups.  Medium-sized  companies exhibited greater use of f i n a n c i a l incentives f o r 25xhe difference i s s i g n i f i c a n t at 97% confidence For formula used see McCormick and Frances, l o c . c i t .  level.  86 each employee category than did either small or large companies for the same employee categories.  Small companies i n turn  exhibited a greater use of f i n a n c i a l incentives than did large companies. TABLE IX USE OF FINANCIAL INCENTIVES BY SMALL, MEDIUM AND Top Middle Mngmt. Mngmt. Small-sized Companies^ Medium-sized Companies  35%  33%  51%  55%  Firstline Supvr.  21%  3  Office Worker  21% • • •  Plant Worker  30%  16%  14%  61%  35%  16%  21%  11%  0%  • • * • • •  Large-sized Companies  LARGE COMPANIES  R e f e r to Table XXVII i n Appendix D for supporting detailed r e s u l t s . Company size-groups are discussed i n Appendix A, page 130. Only the use of "Current Motivator" group of f i n a n c i a l incentive (see "Types of F i n a n c i a l Incentives C r i t i c a l to This Study" i n Chapter I I , page 37) was r e f l e c t e d i n the table above because this group included the more e f f e c t i v e types of f i n a n c i a l incentives of primary i n t e r e s t to this study. a  b The three company size-groupings divided both the t o t a l p a y r o l l and the t o t a l employment of the manufacturing industries of B r i t i s h Columbia into three approximately equal-sized parts. Refer to Table XVII i n Appendix A where "Survey Design" i s discussed. The graphical pattern i n Figure 3 formed by the p l o t of the usage of f i n a n c i a l incentives among d i f f e r e n t employee categories of TM, MM, group.  FLS, OW and PW was  d i f f e r e n t for each company s i z e -  In the small companies the use of incentives was  great-  est for TM and decreased progressively downward through the  87  PERCENT OF COMPANIES USING  TM MM FLS OW PW  F I N A N C I A L  INCENTIVES . (Based, on ' Table XXVII)  -Top' Management -Middle Management - F i r s t - l i n e Supervisor - O f f i c e Worker - P l a n t Worker FLS  60 :i _  TM 50 %  1,0 % OW MM FLS  30 %  TM  MM FLS  20 %  OW  PW OW  PW 10 %  PW  0 %  SHALL  1-74  • MEDIUM 75-399 COMPANY SIZE AND EMPLOYEES  LARGE  SL  over 400  FIGURE 3. USE OF FINANCIAL INCENTIVES BY SMALL-, MEDIUM-, AND LARGE-SIZESCOMPANIES  88 organization FLS enjoyed  f r o m MM t o PW.  I n m e d i u m - s i z e d companies  t h e most e x t e n s i v e  application of  the  incentives  w h i l e u p w a r d t h r o u g h t h e company o r g a n i z a t i o n t o TM a n d downw a r d t o PW t h e r e was a d r o p - o f f tives. of for  In large  companies t h e r e  financial incentives  financial incen-  a p p e a r e d t o b e an e q u a l  f o r T M , MM a n d F L S , w i t h l e s s e r  f i n a n c i a l i n c e n t i v e s was  situation,  the  use  use-pattern  c h a r t e d i n F i g u r e s 4 and 5  each of  five  a n d two  i n F i g u r e 5 , along w i t h the r e s p e c t i v e  remuneration  employee g r o u p s ,  low.  three  l a r g e use o f  category  incentives  This pattern of  in  and the  low p e r c e n t  a lesser  extent  category the increase  f o r FLS  shown i n F i g u r e 5 .  A further analysis to determine whether to  employee  i n v e r s e r e l a t i o n s h i p between  i n r e m u n e r a t i o n seemed t o h o l d t o  applied  increases  (TM, MM, F L S , OW and  for a given  financial incentives  a n d f o r PW as  for  t h r e e b e i n g shown i n F i g u r e 4  f o r e a c h employee  PW) f o r e a c h o f was  use  OW a n d none f o r PW. In o r d e r to e x p l a i n t h i s  for  i n the use o f  each o f  of  the  the  this  d a t a was made i n a n  inverse relationship  five  employee  effort  specifically  categories  in a l l  three i  size-groupings financial of  of  companies.  The p e r cent  i n c e n t i v e s was p l o t t e d a g a i n s t  r e m u n e r a t i o n for e a c h e m p l o y e e  category  of  companies u s i n g  the per cent i n the  increase  different  o  size-groupings  of  companies.  existed,  if  the per cent  i..,e.,  If of  the  inverse relationship  companies u s i n g  financial  89 PERCENT INCREASE IN REMUNERATION (!9ol. o v e r 1 9 5 1 . f r o m T a b l e X X V . ))  1 iv sv '  v x  . \| *^— x  PERCENT OF COMPANIES USING FINANCIAL INCENTIVES' (From T a b l e X X V I I . ) :  TOP PERCENT  •  MIDDLE MANAGEMENT  MANAGEMENT  OFFICE WORKER  60 % .  50 % -s / /  / / /  / /  / /  40 %  •  / /  / / /  /  / S  y  S  /  30 %  /  /  / /  / /  /  •''  /  •* c'  y  /  /  /  /  \/  20  y  /  /  s  /  / /  'y y  /  /  y y  / /  10 %  /  /  y  /  /  /  S  y  / /  /  y  y y r  s /  /  /  0 %  ' / /  M  L  . S • M L S , ,_._ COMPANY. S I Z E _ v ( S - a m a l l , M ~ r. e o i u m . I - L a r g e j c  n  T  FIGURE 4 . 3.-LPARIS0N OF THE USE O F NANCI.AL I N C ! WITH INCREASES H i iXERAOE REMUNERATION FOR TOP MANAGEMENT. MIDDLE MftP< A O F K F . M T AMD OFFICE •/0RKER5 IN S M A L L - . MEDIUM-. AND L A R G E - S I Z E D C0MPANIB"ST rT  90  r  1  P E R C E N T ' I N C R E A S E I N REMUNERATION (1961 o v e r 1951, f r o m T a b l e XXV.)  K- yv\xx|  PERCENT OF COMPANIES U S I N G F I N A N C I A L INCENTIVES (From T a b l e X X V I I . )  X  FIRST-LINE SUPERVISOR  .PERCENT  PLANT WORKER  -  60 %  •  / /  s  /  / /  50 %  /  —  y / /  /  y  40 %  / / £'  / / s  O A  a?  y y  —  /  /  / /•  ,.  /  /  s / /  20 %  / J  ? r  y  f  /  / / /  10 %  S  >* / /  /  /  .'  /  ,  / /  0  p*  —  2L M (S=  M COMPANY S I Z E . S m a l l , M= M e d i u m , L= FIGURE  Large)  5-  COMPARISON OF THE U S E OF F I N A N C I A L I N C E N T I V E S WITH I N C R E A S E S I N AVERAGE REMUNERATION FOR F I R S T - L I N E S U P E R V I S O R S AND P L A N T WORKERS  incentives increase  increased over a given  i n remuneration  range w h i l e  the  per  cent  decreased f o r the r e s p e c t i v e  employee  group, then the p l o t would have y i e l d e d a s t r a i g h t l i n e a  series of  and  MM  straight lines.  Even though the p l o t s f o r  tended to form a s t r a i g h t l i n e  e m p l o y e e c a t e g o r i e s were w i d e l y per  cent  against  o f companies u s i n g the  financial  r e c i p r o c a l of the  per  cent  falling  on  or near  i n v e r s e r e l a t i o n s h i p was  because r e s p e c t i v e p o i n t s for  the The  other  three  a curve.  valid  fell  S i m i l a r l y , the  increase  I f the  inverse relationship the p l o t o f  It i s possible  f o r t h e TM  and  were  mean t h a t  sampled. the  but  Only that  the  a v a i l a b l e data.  beyond the If  the  meant t h a t ment low  The  scope o f t h i s  could not  rates  points  scattered.  size-  from  the  be  exist,  substantiated  p r o v i s i o n of a d d i t i o n a l data  from was  study.  i n v e r s e r e l a t i o n s h i p had financial  the  l a c k of conclusive r e s u l t s  inverse r e l a t i o n s h i p d i d not  i t s existence  that  groups  three  limited representation The  the  considered  i n c o n c l u s i v e b e c a u s e d a t a were a v a i l a b l e f o r o n l y  d i d not  MM  c l o s e to a curve but  r e s u l t s of both g r a p h i c a l analyses  group o f companies  plotted  i n remuneration  employee c a t e g o r i e s w e r e w i d e l y  g r o u p i n g s o f companies w i t h  TM  other  i n c e n t i v e s was  e x i s t e d i t would have been r e f l e c t e d by  survey data the  the p l o t s f o r  scattered.  f o r r e s p e c t i v e employee c a t e g o r i e s . had  or  incentive plans  of remuneration  that  e x i s t e d , t h i s would have were b e i n g  used to  i s , financial  supple-  incentives  w e r e b e i n g u s e d i n companies e a r n i n g s o f a group of  similar  where i n c r e a s e s  o f employees  employee c a t e g o r i e s  might have been o f employees  i n typical  w e r e l o w compared t o t h o s e  i n o t h e r companies.  This  t h e c a s e w i t h t h e s a l a r i e d TM a n d MM  among t h e companies  categories  responding t o the survey.  When t h e e a r n i n g s o f an employee c a t e g o r y came more  under  the i n f l u e n c e o f p r e s s u r e s from a c t i v e unions o r from prices  for well-established  might have been  skills  a reduced need  market  or specializations,  for additional  and t h e i n v e r s e r e l a t i o n s h i p would T h i s might have been  average  there  compensation  have ceased t o o p e r a t e .  t h e c a s e w i t h PW a n d F L S g r o u p s ,  parti-  c u l a r l y where t h e e a r n i n g s o f F L S w e r e b a s e d o n h o u r l y - r a t e s o r were c l o s e l y tion  related  to the earnings o f hourly-rated  produc-  workers. If  the inverse relationship  had e x i s t e d and i n c e n t i v e s  were b e i n g used i n B r i t i s h Columbia  t o supplement  earnings,  i n c e n t i v e s were b e i n g  i t might  distributed rather  then f o l l o w  that  to personnel proportionately  t h a n on t h e b a s i s  When d i s t r i b u t e d n o t have been  o f improved  low r e g u l a r  t o t h e i r b a s i c pay  individual  on t h e p r o p o r t i o n a t e b a s i s  performance.  incentives  would  e f f e c t i v e m o t i v a t o r s , but merely an expected 26  part of regular  Refer page 63. 2 6  earnings.  I f i n c e n t i v e s h a d been w i d e l y u s e d  t o " E f f e c t i v e F i n a n c i a l Incentives", Chapter I I I , • '  93 i n B r i t i s h Columbia as e f f e c t i v e motivators for i n c r e a s i n g i n d i v i d u a l production l e v e l s and were d i s t r i b u t e d on the b a s i s of i n d i v i d u a l performance the inverse r e l a t i o n s h i p would not have been expected to e x i s t .  Rather there would have been an  increased use of f i n a n c i a l i n c e n t i v e s p a r a l l e l e d by an increase i n t y p i c a l average earnings r a t h e r than a decrease as w i t h the inverse r e l a t i o n s h i p . T h i r d hypothesis The t h i r d hypothesis s t a t e d that "Firms u s i n g f i n a n c i a l i n c e n t i v e s f o r o f f i c e and production workers pay l e s s a t t e n t i o n to the use of f i n a n c i a l i n c e n t i v e s f o r middle management than do firms not u s i n g them." In order to evaluate t h i s hypothesis reference was made to the data i n Table X f o r companies which used f i n a n c i a l i n c e n t i v e s f o r middle-management personnel according to whether those companies d i d , or d i d n o t , use f i n a n c i a l i n c e n t i v e s f o r t h e i r o f f i c e and p l a n t workers.  These data i n d i c a t e d that  t w o - t h i r d s of the companies that used i n c e n t i v e s f o r t h e i r  office  and p l a n t workers a l s o used them f o r middle management; w h i l e only o n e - t h i r d of the companies that d i d not use i n c e n t i v e s f o r OW and PW a p p l i e d i n c e n t i v e s to MM. A c c o r d i n g l y , the t h i r d 27  hypothesis was r e j e c t e d at 95% confidence l e v e l .  ^'The d i f f e r e n c e between 66% and 30% i s s t a t i s t i c a l l y s i g n i f i c a n t at more than 98% confidence l e v e l ; see McCormick and Frances, l o c . c i t .  94 TABLE X USE OF INCENTIVES FOR MIDDLE MANAGEMENT BY COMPANIES USING INCENTIVES FOR OFFICE AND PLANT WORKERS  3  Companies that Do Not Use Incentives for OW and PW T o t a l number of companies using "Current" and "Deferred" incentives for Middle Management Number of companies using no incentives for Middle Management PER CENT OF COMPANIES USING FINANCIAL INCENTIVES FOR MIDDLE MANAGEMENT  Companies that Do Use Incentives for OW and PW  9  14  , 2 1  7  30%  66%  These data were obtained by r e c l a s s i f y i n g r e p l i e s to question no. 2 according to use of f i n a n c i a l incentives for OW and PW as reported i n Table XXVIII, Part C, i n Appendix D. a  The use of "proving ground t a c t i c s " among employee groups commencing with the introduction of f i n a n c i a l incentives to PW and OW groups suggested that t h i s procedure was frequently responsible for the successful a p p l i c a t i o n of incentives. The conclusion that firms which used incentives for one category of employees tended also to apply incentives to other employee groups suggested that past experience and f a m i l i a r i t y with the use of f i n a n c i a l incentives l i k e l y encouraged t h e i r wider application, p a r t i c u l a r l y i f the f i r s t experience with incentives had been successful.  Therefore,  i t seemed that i f every e f f o r t  had  b e e n made i n a g i v e n  plan  company t o make t h e  effective i n a l l respects,  applications  of b e n e f i t  t o b o t h the  If,  however, t h e  and  u s e d e f f e c t i v e l y , as may  in  incentives  B r i t i s h Columbia,  t h i s l e d to  had  the  initial  incentive  i t s employees.  been  applied  been the  then wider a p p l i c a t i o n of  company s h o u l d be w e l l meet t h e  initially  have o c c a s i o n a l l y  a p p l i c a t i o n of  incentive  further  company and  not  w o u l d have l i k e l y been r e t a r d e d . that  initial  incentive  T h u s i t seemed t o financial  p l a n n e d and  requirements of b o t h the  case plans  be,important  incentives  in a  designed s p e c i f i c a l l y company and  of  the  to  employee  28 group  involved. The  introduction  of  incentives  i n successive  o t h e r e m p l o y e e g r o u p s o n c e t h e v a l u e and financial  i n c e n t i v e s had  o f f i c e workers  company o b j e c t i v e s fostered. a s s e s s e d on during  and  the  survey but  interviews  and  t h e r e was  towards b e t t e r  also  of  to  were n o t  among p l a n t  the n a t u r e o f climate  examined or  comments on  financial  frequently  the  the they  formally evident  questionnaires.  i n c e n t i v e s was  l i t t l e evident  or  which  t h e i r n a t u r e o f t e n became  from the use  also  organizational  Company o b j e c t i v e s  When i n t e r e s t i n t h e dent  the  due  to  a c c e p t a b i l i t y of  been e s t a b l i s h e d  seemed t o be  steps  not  evi-  enthusiasm  i n d i v i d u a l e f f o r t s i n support of  improved  R e f e r to the c h a r a c t e r i s t i c s o f " E f f e c t i v e F i n a n c i a l I n c e n t i v e s " i n C h a p t e r I I I , p a g e 63.  96  company p r o f i t s and progress.  The apparent absence of company  objectives towards which the i n d i v i d u a l employee could personal l y contribute i n a measurable and acknowledgeable manner seemed to be detrimental to the company well-being.  However when  f i n a n c i a l incentives were an important part of the job environment, because they were an i n t e g r a l part of the company's objectives, enthusiasm and interest i n the attainment of company objectives were frequently evident also.  Thus, finan-  c i a l incentive plans seemed to be a means to an end rather than j u s t an end i n themselves. Fourth hypothesis The fourth hypothesis stated that "A salary increase i s used more often than any other type of f i n a n c i a l incentive to motivate employees."  The purpose of this hypothesis was  to focus attention on the f a i r l y common use of salary increases "type e ( l ) " as a f i n a n c i a l incentive expected to operate i n a manner similar to the operation of the "Current" group types "(a) Cash Bonus", "(b) P r o f i t Sharing", and "(c) Stock P l a n s " .  2  The group "(e) Increases i n Salaries and Wages" including types " e ( l ) , e ( 2 ) a n d e ( 3 ) was used by 24% of the responding companies and thus appeared to enjoy considerable acceptance. But when broken into i t s components " e ( l ) Salary Increases etc." i s the only important motivating incentive; type "e(2) Basic Wages or salary higher than l o c a l average" i s a "Deferred Incentive" of value i n obtaining and holding employees but not i n motivating them to improved performance. M  c  97  TABLE XI RELATIVE INTEREST IN DIFFERENT FINANCIAL Types of Incentives  Number of Companies Using  "Current" Incentives (a) Cash Bonus (b) P r o f i t Sharing (c) Stock Plans and Options "Deferred" Incentives e ( l ) Salary Increases A l l others  INCENTIVES a  Percentage of Companies Using  17 23 7  25% 34% 10%  6 15 68  9% 22% 100%  The preference pattern of various f i n a n c i a l incentive types f o r management personnel as r e f l e c t e d by actual usage was p r a c t i c a l l y i d e n t i c a l with the pattern of "most suitable" incentives as established by i n d i r e c t questioning of opinionor choice of suitable incentives. Refer to Table XXXII i n Appendix D f o r further d e t a i l s . a  R e f e r to question no. 2 on Survey Form i n Appendix A, page 143; and to "Types of F i n a n c i a l Incentives" i n Chapter I I , page 37. b  98 The r e l a t i v e interest i n d i f f e r e n t types of f i n a n c i a l incentives shown i n Table XI indicated that " P r o f i t Sharing" was used by 347. and "Cash Bonuses" by 25% of the reporting companies, while "Salary Increases" were only used as f i n a n c i a l incentives by 97 of the responding companies. 0  "Salary Increases"  or the incentive type " e ( l ) Salary increases for unusual, nonrecurring, s p e c i f i c e f f o r t " was the only sub-group of "(e) Increases i n Salaries and Wages" deemed to be used to s p e c i f i c a l l y motivate the employee to more e f f e c t i v e performance. This usage of 9% was s i g n i f i c a n t l y d i f f e r e n t at 95% confidence l e v e l from the 257. and 34% values; thus " P r o f i t Sharing" and "Cash Bonuses" were of more interest to B r i t i s h Columbia manufacturing industry than any other type of f i n a n c i a l incentive including even "Salary Increases".  Accordingly, the fourth  hypothesis was rejected at 95% confidence l e v e l . The interest shown by the manufacturing industry of B r i t i s h Columbia i n the use of " e ( l ) Salary Increases" thus seems to be 30 of minor importance,  though sizeable.  This apparent  interest  could have arisen from one or more of several possible conditions: The conclusion reached here that type " e ( l ) Salary Increases" i s of lesser importance may not agree with importance assigned to t h i s type by some companies i n B. C. manufacturing industry. Perhaps t h i s may have occurred because they were not f u l l y cognizant with, nor f a m i l i a r with, the operational charact e r i s t i c s of e f f e c t i v e incentive plans as discussed i n Chapter I I I , page 63.  99 (1)  Salaries might not have been equitable within the  manufacturing firm or i n comparison with the going rates i n the l o c a l community.  This was  contrary to a basic assumption  made at. the beginning of t h i s study, which therefore might not 31 have been generally true i n B r i t i s h Columbia. (2)  Great v a r i a t i o n may  have existed i n respect to the  basis used for awarding salary increases,  e.£. for unusual  non-recurring e f f o r t , for changes i n job r e s p o n s i b i l i t i e s , or for meeting the r i s i n g salary levels i n the l o c a l community.  business  Some of the r e p l i e s to t h i s section of the survey  reported salary increases being given " f o r general performance", " f o r merit", and "at the d i s c r e t i o n of management".  These  reports did not suggest that increases were being awarded for actual improved performance and increased productivity as 32  recommended for the e f f e c t i v e a p p l i c a t i o n of incentive plans. But i t appeared that salary and wage increases, i r r e s p e c t i v e of the reasons for which they were granted,  tended to be  accepted and used by B r i t i s h Columbia industry as f i n a n c i a l 33  incentives. 31 See "Limitation (6.)", Chapter I, page 19. 32 See " E f f e c t i v e F i n a n c i a l Incentives", Chapter I I I , page 63, 33 Salary increases may have some incentive value u n t i l the earner's l e v e l of income i s equivalent to a basic or acceptable standard of l i v i n g i n the community, but once t h i s l e v e l has been reached, the incentive value l i k e l y decreases. J  100 (3)  The attempts to use "Increases  i n Salaries and Wages"  as a motivating incentive may have arisen and persisted from reliance on a long-used or accepted practice without f u l l evaluation of current r e s u l t s or from l i t t l e f a m i l i a r i t y with, or knowledge of, an a l t e r n a t i v e method of providing incentives for employees. (4)  A general misinterpretation of d e f i n i t i o n s and  questionnaire phrasing may have existed among many respondents. Further evaluation of l o c a l B r i t i s h Columbia conditions seemed to be necessary before firm conclusions could be made respecting either the i n c l u s i o n of "salary increases" with "current motivators"  for survey purposes or t h e i r acceptance as a p r a c t i -  c a l and continuing incentive for the improvement of employee performance. Reasons for Non-use, Discontinuance  of F i n a n c i a l Incentives  During the preliminary t e s t i n g of the questions on the 35 survey form,  i t was evident that a number of firms had  ^See "Limitations Applied to This Survey" i n Chapter I, page 17. Reference i s also made to " E f f e c t i v e F i n a n c i a l Incent i v e s " i n Chapter I I I , page 63. I t should also be noted that f u l l y e f f e c t i v e incentives are r e t r a c t a b l e , that i s they are reduced or not awarded when e f f o r t or performance decreases. Therein l i e s much of t h e i r value. Salary increases on the other hand, once they are i n s t i tuted become permanent and are accepted as a non-retractable a l t e r a t i o n to the basic remuneration structure. This i s a basic difference between the use of salary increases or f i n a n c i a l incentives as e f f e c t i v e methods for motivating people t6 improve t h e i r performance and e f f o r t s on the job. 35  •* • .• Refer to "Survey Design" i n Appendix A, page 135 .  101 discontinued the use of f i n a n c i a l incentives i n recent years. Accordingly questions were included on the questionnaire requesting reasons why f i n a n c i a l incentives were not used, and also what f i n a n c i a l incentives had been discontinued o  c.  and why they had been abandoned. Two-thirds of the responding  companies reported that they  did not use any form of f i n a n c i a l incentive plan.  Among the  various reasons given for this,, item "(C) Funds available for rewards are limited", was checked most frequently, with item "(D) Employees are now f u l l y rewarded", being ,next, followed by item "(A) Too d i f f i c u l t to administer" as shown i n Table XII. Variations i n this order occurred by sizes of company, with smaller companies favoring C, medium-sized companies favoring D, and large companies placing equal stress on items C and D. Comments written i n under item (E) did not r e f l e c t any pattern of s p e c i f i c or common reasons or indicate any common or major d i f f i c u l t y that prevented  or discouraged the use of  incentives for any management group.  I n d i r e c t l y the scarcity  of reported reasons under item E could have r e f l e c t e d the general lack of experience with, or interest i n , the application 37  of f i n a n c i a l incentives to management groups. Of.  .  See questions nos. 5 and 6 on the Survey Form i n Appendix A, pages 145 and 146. 37  This tends to support the suggestion made on the preceding page that f i n a n c i a l incentives have not been applied e f f e c t i v e l y to any great extent i n B r i t i s h Columbia. A c t u a l l y , only one  102  TABLE RELATIVE  FREQUENCY  XII  OF REASONS G I V E N FOR  NOT U S I N G F I N A N C I A L I N C E N T I V E S  3  Weighted of  Per  Companies  Reporting A.  Too  difficult  B.  Other  to  better  than  Funds  available  D.  Employees  E.  Other  are  for  now  financial  are 6%  rewards  fully  are  407  limited  o  rewarded  317.  reasons  87o  TOTAL  by  Refer  company  The  to  100%  Table  plans  those  offered  in  Table  XXXIV  for  around "not  and "too  difficult  respondent  that  gave  few,  to  D for  a  experience  the  non-use.  reasons  The most  D,  for  adequate",  detailed  plans  detailed them t o  given  results  "no  were  incentive This not  effective  discontinued were  similar  common r e a s o n s incentive value  given plans,  left",  pattern  of  reasons  designed  to  meet  description of be  with  abandoning  administer".  incentive  c o n s i d e r e d by  past  and  i n Appendix  centered  was  i n Appendix  reflecting were  to  suggested  XXXIII  size.  replies  incentive  Reason  15%  motivators  C.  a  a  administer  incentives  Cent  and  their  plan,  desirable.  which  103 the s p e c i f i c needs of the company involved, or were not modified to meet changing needs as they arose. Company Interest i n Employee Groups To a s s i s t i n the evaluation of the factual results obtained from the survey i t was desirable to assemble some information about company attitudes towards salaried-employee groups, p a r t i c u l a r l y i n respect to how company operations.  these groups might influence  The purpose was  to discover what purposes  management had intended to further by the use of f i n a n c i a l incentives or which employee groups was  expected to o f f e r  most support i n reaching those objectives. To indicate company attitudes towards d i f f e r e n t employee groups s p e c i f i c questions on the survey sought to obtain information i n three areas: employee-group influence on company-wide r e s u l t s , employeegroup influence on long-term company progress, and the influence of company organization. Employee-group influence on company-wide results . Opinion about which employee-group was  considered to  have the greatest influence on the improvement of company-wide r e s u l t s was obtained i n an i n d i r e c t approach by requesting that a selection be made from a number of incentives offered for p a r t i c u l a r e f f o r t s .  The r e s u l t s shown i n Table XIII  indicated that 39% of expressed opinion favored Middle Manage-  R e f e r to question no. 7 on the Survey Form i n Appendix A, page 146 . J O  104 ment, 26% fox the F i r s t - l i n e Supervisors, 237, for the Plant Worker, and 12% for Top Management as the group of employees most able to influence company-wide r e s u l t s . * TABLE XIII EMPLOYEE GROUP CONSIDERED MOST ABLE TO INFLUENCE COMPANY-WIDE RESULTS  3  Relative Interest  a  Top Management  127»  Middle Management  39%  F i r s t - l i n e Supervisors  26%  Production Plant Worker  23% 100%  Refer to Table XXXV i n Appendix D for detailed r e s u l t s .  When separated into opinion by company-size i n Table XIV, both small- and medium-sized companies placed the middle management group f i r s t .  This was of interest when i t was r e a l i z e d  that small companies frequently did not have middle-management personnel.  By obtaining these data i n an i n d i r e c t manner,  opinions on the value of management groups might have been obtained independently of the existence of these groups i n a 39 given company. The non-existence of fcruly "middle management" groups i n some small firms l i k e l y has l i t t l e bearing on above r e s u l t s y  105 Large companies placed more emphasis on the importance of f i r s t - l i n e supervisors i n furthering company-wide r e s u l t s . This greater interest i n FLS may have been the r e s u l t of respondents i n MM looking on the FLS as being important to MM i n helping them to obtain the best company-wide r e s u l t s .  The low  interest i n TM may have been due to the low a c c e p t a b i l i t y of the incentives offered to this group, or to the fact that these incentives were primarily of interest to TM i n larger companies of a size not e x i s t i n g i n B r i t i s h Columbia. TABLE XIV EMPLOYEE GROUP CONSIDERED MOST ABLE TO INFLUENCE COMPANY-WIDE RESULTS, ACCORDING TO COMPANY SIZE  Employee Group  Small  3  Companv Size Medium Large  Top Management  12%  13%  11%  Middle Management  40%  45%  22%  • • •  F i r s t - l i n e Supervisor  22%  • • •  22%  50% • • »  Plant Worker  25%  21%  17%  R e f e r to Table XXXV for detailed data obtained from quest i o n no. 7, i n Appendix D. a  because many such firms tended not to answer this question, w r i t i n g i n "does not apply", "no experience", or simply "owner-operated".  106  When s u p p l y i n g dent was  the data r e p o r t e d  i n T a b l e XIV  the  respon-  r e q u e s t e d to choose a group o f i n c e n t i v e s " t o  the b e s t company-wide r e s u l t s " .  The  question was  give  externally  d i r e c t e d away from the i n d i v i d u a l towards the company i n t e r e s t s and On  the r e p l i e s probably r e f l e c t e d l i t t l e p e r s o n a l t h i s b a s i s , the r e s u l t s r e f l e c t e d i n Table XIV  bias. should  be  accepted f o r what they i n d i c a t e d , namely t h a t middle management was  the group which i f motivated w i t h i n c e n t i v e s was  most a b l e to i n f l u e n c e company-wide r e s u l t s . the respondents favored probably a v a r i a t i o n due  considered  In l a r g e companies  the f i r s t - l i n e s u p e r v i s o r ;  this  was  to a v a r i a b i l i t y o f respondent p o s i -  t i o n s i n d i f f e r e n t - s i z e d companies. Consideration  o f the o r g a n i z a t i o n a l s t r u c t u r e o f a  typical  manufacturing company suggested t h a t when t a k i n g a "companywide" p o i n t o f view, the respondent was  more l i k e l y to. emphasize  the v a l u e of the group on which he depended most f o r r e s u l t s namely the group comprising d i a t e l y below the one  the o r g a n i z a t i o n a l l a y e r imme-  he occupied  himself.  T h i s approach  assumed t h a t the respondents from small and medium-sized companies were p a r t o f top management, and  the respondents from  l a r g e companies were g e n e r a l l y drawn from middle management,^  0  ^ I r r e s p e c t i v e of the soundness of t h i s assumption, i t should be noted t h a t i n surveys i n v o l v i n g o p i n i o n or s u b j e c t i v e e v a l u a t i o n s , the p o s i t i o n and r e l a t i o n s h i p of the respondent to the o r g a n i z a t i o n a l s t r u c t u r e w i t h i n which he operates, should be e s t a b l i s h e d . The i n d i v i d u a l respondent may r e p l y from e i t h e r  107 and offered a plausible explanation of the opinions reported above. Employee-group influence on long-term company progress In view of the expressed opinions that middle management was considered valuable to industry, i t was considered desirable to e s t a b l i s h the attitude taken by B r i t i s h Columbia industry 41 toward various groups of s a l a r i e d employees.  To obtain data  on this attitude a number of incentive types were linked to various employee groups i n question no. 10 on the survey form. The respondents were requested to rank these linked groups i n the order of t h e i r estimated value for increasing the longterm company p r o f i t and progress.  The r e s u l t s by ranked posi-  tions placed the greatest importance on FLS, followed by  MM  and then TM i n estimated a b i l i t y to influence long-term company progress.^*  2  The importance accorded to the f i r s t - l i n e supervisor d i f f e r e d from data previously reported i n Table XIV, page 105, the company's point of view or from his own as an i n d i v i d u a l , with an e f f e c t on the r e s u l t s from companies with d i f f e r e n t structures and operational methods. See suggestions made respecting areas suitable for further study i n Chapter V, page 122. 41  .i  Refer to Encouragement of Middle Management Is Essential to Industry", Chapter I, page 1; and to footnote 2 i n Chapter I I I , page 54. 42 Refer to Table XXXVI i n Appendix D for the rank-position of other employee groups.  108 which rated MM  i n small- and medium-sized companies as highest  i n a b i l i t y to influence company-wide r e s u l t s .  This greater  interest i n middle management was  additional  supported by  data reported i n Table XV which showed the greater interest evidenced i n TM and p a r t i c u l a r l y MM  groups as*reflected  indir-  e c t l y when the "most suitable" and " l e a s t suitable" types 0 of f i n a n c i a l incentives were "chosen" on the survey. TABLE XV RELATIVE INTEREST SHOWN IN EMPLOYEE GROUPS, BASED ON CHOICE OF "SUITABLE" INCENTIVES  Employee Group  Small  3  Companv Size Medium Large  46%  33%  40%  Middle Management  32%  36%  40%  F i r s t - l i n e Supervisor  22%  31%  20%  Top Management  * • •  » • •  • • •  • • •  R e f e r to Table XXIX i n Appendix D for detailed data based on "most suitable" choices from question no. 3, and " l e a s t suitable" choices from question no. 8. a  The apparent v a r i a t i o n i n the conclusions drawn from these two sets of data may  have been due to the v a r i a t i o n  in the interpretation of the d i f f e r e n t i n i t i a t i n g questions by the respondents,  to the d i s s i m i l a r i t y of the company objec-  tives r e f l e c t e d i n the two questions, or the d i r e c t i o n of the attention  of the respondent towards factors of s e l f - i n t e r e s t  to each s p e c i f i c further  employee g r o u p .  s u r v e y w o r k a p p e a r e d t o be  "difference  of opinion"  could  A n o t h e r a p p r o a c h was data p r e v i o u s l y reported size  43  medium- and  reconciled the  f o r a l l companies, 1-5  This  study  necessary before  to r e c l a s s i f y  o f r e s p o n d i n g company.^  management g r o u p s i n t h e  be  Additional  placed  and this  fully.^ rank-position i n t o data  by  three d i f f e r e n t  f i r s t - r a n k e d p o s i t i o n s among  l a r g e - s i z e d c o m p a n i e s , n a m e l y FLS,. TM  and  small-, MM  ^ in t h e q u e s t i o n s no.s 3 and 8 w h i c h s u p p l i e d t h e i n f o r m a t i o n r e f l e c t e d i n T a b l e XV, page 108, the a t t e n t i o n of the r e s p o n d e n t was d i r e c t e d i n t e r n a l l y t o w a r d s s e l f - i n t e r e s t f a c tors. I t i s p o s s i b l e t h a t t h e i n t e r e s t shown h e r e i n TM and MM g r o u p s m i g h t h a v e a r i s e n l a r g e l y f r o m t h e p e r s o n a l b i a s o f the i n d i v i d u a l respondents w i t h s t r o n g s e l f - i n t e r e s t i n t h e i r own e m p l o y e e - g r o u p . T h i s was t h e p o i n t o f v i e w p r o b a b l y t a k e n by m o s t r e s p o n d e n t s when t h e y p u t t h e m s e l v e s i n t h e p l a c e o f t h e company when r e p l y i n g t o t h e s e p a r t i c u l a r q u e r i e s . T h i s d i f f e r s from the " e x t e r n a l l y d i r e c t e d " n a t u r e o f the i n i t i a t i n g q u e s t i o n a s s o c i a t e d w i t h T a b l e XIV d a t a , p r e v i o u s l y d i s c u s s e d on page 106. 3  ^ B r i t i s h C o l u m b i a i n d u s t r y may d e s i r e and c h o o s e f r e e l y t o g i v e more c o n s i d e r a t i o n t o TM and MM t h a n t o F L S . But i n a c t u a l p r a c t i c e i n d u s t r y a p p a r e n t l y e n d e a v o r s t o be i m p a r t i a l o r i s p r e s s u r e d by t h e p r o x i m i t y o f o r g a n i z e d l a b o r t o t h e FLS o r the g o i n g market p r i c e f o r s k i l l e d s u p e r v i s o r s . Conditions o r r e q u i r e m e n t s f o r f i n a n c i a l i n c e n t i v e s may d i f f e r a p p r e c i a b l y b e t w e e n c o m p a n i e s , and some v a r i a t i o n i n t h e c h a r a c t e r i s t i c s o f c o m p a n i e s o f d i f f e r e n t s i z e may a l t e r t h e c h o i c e o f i n c e n t i v e s s u i t a b l e f o r some employee g r o u p s . As no a t t e m p t was made i n t h i s s u r v e y t o c l o s e l y examine t h e d i f f e r i n g a s p e c t s o f company o p e r a t i o n i n B r i t i s h C o l u m b i a , no f i r m c o n c l u s i o n s can be reached here. See " L i m i t a t i o n s " i n C h a p t e r I , page 17. Refer  t o T a b l e XXXVI i n A p p e n d i x  D.  110 respectively.  S i m i l a r l y t h e employee g r o u p s i n t h e s e c o n d -  r a n k e d p o s i t i o n s were TM, F L S a n d F L S .  These data d i d n o t  appear t o form a p a t t e r n w h i c h c o u l d be r a t i o n a l i z e d . f a u l t may l i e w i t h s t r u c t u r e o f t h e q u e s t i o n p r e t a t i o n by t h e r e s p o n d e n t s .  may h a v e e x i s t e d r e s p e c t i n g in British require the  Columbia  forspecific  o f company  Company o r g a n i z a t i o n interest  survey.^  i n c e n t i v e s and i n t h e i r Even though a  financial  incentives  to obtain  d e t a i l e d information  whether  the use o f  f o r m i d d l e management, i t was n o t f e a s i b l e from t h i s  initial  one q u e r y was made i n t h i s  exploratory  area.  l a r g e s t v a r i a t i o n i n company p o l i c y t o w a r d  incentives  i n B r i t i s h C o l u m b i a m i g h t h a v e d e p e n d e d on  t h e company was a p a r t  of a large national  corporation  ^ R e f e r t o " C o n c l u d i n g Remarks" i n C h a p t e r V, p a g e 117 ; t o " L i m i t a t i o n s (4)" i n C h a p t e r I , p a g e 18. 6  and  fuller  of different  companies might have been h e l p f u l i n e v a l u a t i n g  among c o m p a n i e s  6  m i g h t h a v e h a d an i n f l u e n c e o n t h e  knowledge o f t h e s t r u c t u r e o f t h e o r g a n i z a t i o n  The  with  organization  t o d i f f e r e n t employee g r o u p s .  s u r v e y , and o n l y  incentives  purposes would  used i n t h i s  shown i n t h e u s e o f f i n a n c i a l  application  that  i n v e s t i g a t i o n t h a n was p o s s i b l e  s m a l l number o f q u e s t i o n s Influence  firm  common f a c t o r s  the use o f f i n a n c i a l  industry  a more e x t e n s i v e  or the inter-  I t was c o n c l u d e d t h a t  agreement about, o r t h e d i s c e r n m e n t o f ,  The  Ill or whether i t was a separate l o c a l organization.  I t was con-  sidered that t h i s information would be of value i n q u a l i f y i n g the r e s u l t s of the survey.  To a s s i s t i n obtaining t h i s informa-  tion an i n d i r e c t approach as to whether the company head o f f i c e was located i n or out of B r i t i s h Columbia was used to divide data into two groups which might have exhibited d i f f e r e n t patterns r e l a t e d to policy-making and organizational structure. This approach permitted a further analysis of survey data as shown i n Table XVI. There was no s i g n i f i c a n t difference i n the use of incentives f o r middle management (38%) as compared to either TM (40%) or FLS (40%) i n companies with head o f f i c e s in B r i t i s h Columbia.  Likewise, f o r companies with head o f f i c e s  outside of B r i t i s h Columbia there was no difference i n the use of f i n a n c i a l incentives f o r d i f f e r e n t employee groups ( a l l at 26%).  The difference i n the s i z e of f i n a n c i a l incentives  (for middle management f o r example) by. companies with head o f f i c e i n B r i t i s h Columbia (38%) and by companies with head o f f i c e outside of B r i t i s h Columbia (26%) was not s i g n i f i c a n t 47 at 90% confidence l e v e l .  ^ R e f e r to McCormick and Frances, l o c . c i t . 7  112  TABLE XVI PER CENT USE OF FINANCIAL INCENTIVES ACCORDING TO LOCATION OF COMPANY HEAD OFFICE a  Employee Group  Head O f f i c e Located i n B r i t i s h Columbia  Head O f f i c e Not i n B r i t i s h Columbia  Top Management  40%  26%  Middle Management  38%  26%  First-line  40%  26%  Supervisor  Refer to Table XXXVIII, Parts A and B, i n Appendix D f o r data from question no. 2 r e c l a s s i f i e d according to location of head o f f i c e . a  The organizational structure of companies, inasmuch as i t i s determined by the l o c a t i o n of the head o f f i c e , d i d not appear to have any influence on the i n t e r e s t shown by companies i n using f i n a n c i a l incentives f o r d i f f e r e n t employee groups. This observation i s based on only one determinant, head o f f i c e l o c a t i o n , and i s not a conclusive evaluation of the e f f e c t of d i f f e r e n t company organizational structures on the use of f i n a n c i a l incentives.  As stated previously a more exhaustive  study of the possible causal factors would be required to estab l i s h firm conclusions i n t h i s area.  113 Observations A r i s i n g from  Interviews  During survey interviews with the  firms which d i d not opinion  their an  that  financial could  a n e e d and  also  a desire  frequently  r e s p o n d e n t was method o f  not  evident  f o r the  a " C h r i s t m a s bonus".  rity,  financial  i n B r i t i s h Columbia. i n other  incentive.  an  its  being  tional  and  I t was  rather  the p o p u l a r a p p e a l o f ,  the  i n c e n t i v e s as  a  plan.  other  t h i s was  to the  the  have  amount o f  t h a n any  idea  obtained  populatype  due,  general i n the  of  not familia-  sense  with l i t t l e  of  addi-  individual effort. i n c e n t i v e methods f r e q u e n t l y  s a t i s f a c t i o n w i t h t h e i r program, but  and  companies t h a t  probable that  s o m e t h i n g w h i c h m i g h t be  Users of  to "get  However,  effective incentive  unfavourable,  to i t s proven e f f e c t i v e n e s s , but r i t y with,  incen-  T h e s e management p e o p l e m i g h t  and  to  expressed  a p p l i c a t i o n of  seemed t o e n j o y a g r e a t e r  both favourable  applied  u s u a l l y thought o f "bonus" i n terms  o n l y wanted a " c u r e - a l l " , not sharing  expressed  survey r e s u l t s .  familiar with financial  compensation and  Profit  effectively  a summary o f t h e  e x i s t e d i n some c o m p a n i e s  was  be  associated  incentives  O t h e r s commented l i k e w i s e and  interest i n obtaining  tives  of  incentives  operations.  Apparently,  it  use  several individuals  on w i t h t h e  job"-—both  i n performing the u s u a l  a t t i t u d e was  entirely  evidenced not  also a cheerful  i n supplying  functions  of  d i f f e r e n t from t h a t  survey  willingness information  their position. frequently  only  This  encountered  i n concerns which were not using f i n a n c i a l incentives.  Here  there was a tendency to explain why t h e i r business was d i f ferent, to exhibit some discouragement  when facing problems,  and to appear to be busy and overloaded with work. Additional observations of an informal and secondary natureare included with "Concluding Remarks" at the end of Chapter V.  115  CHAPTER V  SUMMARY AND  Summary o f S u r v e y The  turing  Results  o b j e c t i v e of t h i s  what u s e was  s t u d y was  b e i n g made o f f i n a n c i a l  industries  particularly  CONCLUSIONS  to determine  by  a  survey  i n c e n t i v e s i n the manufac-  of B r i t i s h Columbia  f o r management  f o r middle-management i n d i v i d u a l s .  t h e p u r p o s e was  to determine  what t y p e s  were b e i n g used  f o r middle-management p e o p l e  personnel,  Specifically  of f i n a n c i a l incentives  i n d i v i d u a l s w e r e b e i n g o f f e r e d more o r l e s s with  financial  data  on r e c e n t i n c r e a s e s i n t h e r e m u n e r a t i o n  and w h e t h e r encouragement  i n c e n t i v e s than were o t h e r employees. for  General  different  groups o f employees were o b t a i n e d i n o r d e r t o e s t a b l i s h background f o r the examination in British  of the use  ten years in  Columbia i n d u s t r y .  Canada.  reported that  g r a n t e d i n c r e a s e s i n employee r e m u n e r a t i o n ending  salaries  survey  the  of f i n a n c i a l incentives  About o n e - t h i r d o f a l l companies s u r v e y e d t h e y had  these  i n 1961.  the  I n d i c a t i o n s were t h a t the i n c r e a s e s  for a l l s a l a r i e d personnel  agreed w i t h  during  other data  as r e f l e c t e d  for British  These i n c r e a s e s appeared  t o be  g a i n e d by h o u r l y - r a t e d e m p l o y e e s o v e r f o r middle-management p e r s o n n e l  in  C o l u m b i a and  for  s l i g h t l y more t h a n  t h e same p e r i o d .  appeared  this  t o be  similar  those  Increases to  those  116 for  t o p management and The  cial for  for first-line  f i r s t hypothesis  concerning  i n c e n t i v e s f o r middle t o p and m i d d l e  management was  participate  in financial  ment g r o u p s a n d workers.  use  l e s s e r use  rejected.  offered  The  theiuse  survey  of f i n a n c i a l  and  production  i n c e n t i v e s f o r management, i n c l u d i n g i n a b o u t 407  o  of the  of year-end  and  Christmas  i n c e n t i v e plans d i d not provide be made i m m e d i a t e l y  second  firms of f i n a n c i a l  rejected.  f o r l a r g e - s i z e d bonus  in  employee  s m a l l - or l a r g e - s i z e d  companies.  offset The  f o r middle  incentives  concerning  by  I t appeared  that  management i n an  those  financial attempt  salaries.  the l e s s e r use  i n c o m p a n i e s w i t h e s t a b l i s h e d p l a n s was  was  companies  t h a n were  smaller proportional increases i n basic t h i r d hypothesis  occur.  management  s i g n i f i c a n t l y more i n c e n t i v e p l a n s  the  awards  the g r e a t e r use  i n c e n t i v e s f o r middle  i n c e n t i v e s were b e i n g u s e d to  dealing with  Middle-management groups i n m e d i u m - s i z e d  were o f f e r e d  The  t h a t most  f o l l o w i n g t h e improvement o f  hypothesis  the  bonuses t o g e t h e r w i t h  p e r f o r m a n c e when t h e most e f f e c t i v e m o t i v a t i o n m i g h t  large  middle-  manufacturing  incentives i n United States industry.  a b s e n c e o f any m e n t i o n o f prompt awards s u g g e s t e d  The  indicated  i n B r i t i s h C o l u m b i a , w h i c h compared f a v o r a b l y w i t h  frequent use  to  finan-  as much o p p o r t u n i t y t o  p r o b a b l y more t h a n w e r e o f f i c e  Financial  of  i n c e n t i v e p l a n s as w e r e o t h e r manage-  management p e r s o n n e l , w e r e u s e d concerns  the  management as compared t o  management was  that middle  supervisors.  of  financial  rejected.  117 Financial  i n c e n t i v e s f o r middle  frequently plans  management  were u s e d  i n companies w h i c h had e x p e r i e n c e w i t h  for their  office  and p l a n t w o r k e r s t h a n  w h i c h d i d n o t have t h i s  experience.  more  incentive  i n companies  The e x p e r i e n c e  a n d know-  ledge  a b o u t i n c e n t i v e methods g a i n e d by c o m p a n i e s u s i n g p i e c e -  rates  and p r o d u c t i o n b o n u s e s w e r e u s u a l l y a p p l i e d n e x t  first-line and  s u p e r v i s o r s a n d management  c o n t r o l methods w e r e d e v e l o p e d The  salary  fourth hypothesis  i n c r e a s e s than  rejected.  "Profit  other  i n these  for  o f any o t h e r  financial  Columbia manufacturing  type o f f i n a n c i a l  The tives at  to motivate  an e x t e n d e d  areas.  d e a l i n g with the greater use o f  incentive  i n c e n t i v e s was  employees  more  i n d u s t r y than  including "Salary Increases".  I n d i c a t i o n s w e r e t h a t undue r e l i a n c e was increases  as measurement  S h a r i n g " and " C a s h Bonuses" were u s e d  f r e q u e n t l y by B r i t i s h any  personnel  to  o f t e n p l a c e d on  t o improve t h e i r  salary  performance  p e r i o d of time.  preceding conclusions apply only to f i n a n c i a l  and a r e s u b j e c t t o c e r t a i n  incen-  l i m i t a t i o n s w h i c h were s e t out  the beginning o f the study. Additional  conclusions arising  a l s o be o f i n t e r e s t  from  the study  t o p o l i c y makers i n management  are planning o r c o n s i d e r i n g the use of f i n a n c i a l  might when  they  incentives.  118 (1)  Few  i f any  o f the g e n e r a l l y accepted t e n e t s  of  s u c c e s s f u l f i n a n c i a l i n c e n t i v e plans were being a p p l i e d i n the manufacturing i n d u s t r i e s surveyed i n B r i t i s h Columbia. (2)  I t seemed t h a t f i n a n c i a l i n c e n t i v e s were used mainly  as minor adjuncts  or supplements (Christmas or year-end bonuses)  to the b a s i c earnings o f middle management r a t h e r than as a s i z e a b l e , a d d i t i o n a l f i n a n c i a l payment earned by the for increased production well-designed and  employee  or improved performance w i t h i n a  p l a n to m o t i v a t e p e r s o n n e l to improved e f f o r t  above-normal performance. (3)  The  i n c e n t i v e program which was  s t a t i c and  not accommodate the changing needs of employees and soon became i n e f f e c t i v e and was (4)  frequently  did company  terminated.  Bonuses were f r e q u e n t l y awarded at the d i s c r e t i o n  of the manager or p r e s i d e n t without r e f e r e n c e  to o b j e c t i v e  measurement or e v a l u a t i o n o f an employee's i n c r e a s e d i n d i v i d u a l or group (5) and  effort. I n d i v i d u a l employee i n t e r e s t i n the company progress  competitive  p o s i t i o n f r e q u e n t l y appeared to be  lacking,  1 The n o n - f i n a n c i a l aspects of rewards o f f e r e d by w e l l designed i n c e n t i v e plans are important and v a l u a b l e i n m o t i v a t i n g employees but are not d i s c u s s e d i n t h i s study i n compliance w i t h " L i m i t a t i o n ( 8 ) " i n Chapter I, page 19. For more informat i o n r e s p e c t i n g n o n - f i n a n c i a l rewards and i n c e n t i v e s r e f e r to the B i b l i o g r a p h y f o r a r t i c l e s by C h r i s A r g y r i s , Howard Dresner, R e n s i s L i k e r t , E l t o n Mayo, A r c h P a t t o n , Robert S a l t o n s t a l l and James Worthy.  119  probably  because when i n c e n t i v e awards were made, they were  usually d i s t r i b u t e d uniformly  to a l l employees of a company  p l a n t as a percentage of e a r n i n g s ,  r a t h e r than t o i n d i v i d u a l  employees based on the measurement of t h e i r performance. The  l a t t e r method u s u a l l y p r o v i d e s  a more d i r e c t  linkage  between the e f f o r t s o f the i n d i v i d u a l employee and the  success-  f u l attainment o f company o b j e c t i v e s . (6)  L i t t l e o p p o r t u n i t y was  p r o v i d e d whereby the  employee  c o u l d earn a d d i t i o n a l s a t i s f a c t i o n s or bonuses f o r h i m s e l f a s s o c i a t i n g h i s personal  o b j e c t i v e s more c l o s e l y w i t h  those of  the company, even though the d e s i r e to p l e a s e the employee frequently evident.  by  was  P r a c t i c a l and workable i n t e r p r e t a t i o n s o f  t h i s d e s i r e might have been p r o v i d e d by s u i t a b l y designed f i n a n c i a l incentive plans. (7)  The use of i n c r e a s e s i n s a l a r i e s and wages to m o t i -  v a t e employees to b e t t e r and to be e f f e c t i v e f o r o n l y very  i n c r e a s e d performance appeared short p e r i o d s and  d i d not  encourage  continuous job improvement or performance over an extended p e r i o d of time. (8)  Management f r e q u e n t l y appeared to c o n s i d e r  p r o f i t s had  that  to be i n c r e a s e d BEFORE an i n c e n t i v e p l a n c o u l d  be  i n s t i g a t e d , seldom r e a l i z i n g t h a t improved p r o d u c t i v i t y w i t h reduced d i r e c t c o s t s c o u l d be a sound and  continuing  t i o n f o r p r o v i d i n g f i n a n c i a l i n c e n t i v e awards. and  other  f a c t o r s t h a t may  justifica-  P r i c e changes  a f f e c t company p r o f i t s which are  120 beyond the c o n t r o l of i n d i v i d u a l employees, should not become involved  i n the p r o v i s i o n of f i n a n c i a l awards f o r improved  productivity. Concluding Remarks When a company executive  i s charged w i t h the r e s p o n s i b i l i t y  f o r d e v e l o p i n g an i n c e n t i v e p l a n , he w i l l p r o b a b l y f i n d f a m i l i a r i t y w i t h how by  that  i n c e n t i v e p l a n s are c u r r e n t l y b e i n g used  i n d u s t r y i n o t h e r communities i s o f c o n s i d e r a b l e  T h i s f a m i l i a r i t y c o u l d m a t e r i a l l y i n f l u e n c e the  assistance.  successful  u t i l i z a t i o n o f f i n a n c i a l i n c e n t i v e s i n B r i t i s h Columbia  by  s u g g e s t i n g a p p l i c a t i o n s which might be most s u i t a b l e f o r specific local situations. o f f i c e r s and  Such knowledge by both company  employees might a l s o g r e a t l y improve the  comprehension o f i n c e n t i v e p r i n c i p l e s and  general  constructively  a s s i s t i n the development of workable l o c a l a p p l i c a t i o n s . Great care and  a t t e n t i o n should be given by management  to the d e s i g n o f m u l t i - p u r p o s e f i n a n c i a l i n c e n t i v e plans which w i l l meet the changing needs of both the employees o f the company.  Many f a i l u r e s o f i n c e n t i v e p l a n s have appa-  r e n t l y developed from u s i n g one one  and  s p e c i f i c s i t u a t i o n , and  i n c e n t i v e approach to improve  then expecting  this simplified  p l a n to a l s o accommodate s e v e r a l other problem s i t u a t i o n s important to improved employee performance and conditions  and  effort.  Changing  changing requirements of the work s i t u a t i o n  s h o u l d be promptly matched w i t h a p p r o p r i a t e  changes i n the  1 2 1 i n c e n t i v e program. Many p o l i c y makers i n i n d u s t r y might w e l l c o n s i d e r  increas-  i n g the number o f v a r i a b l e s c o n t r o l l a b l e by employees which a f f e c t the attainment o f company o b j e c t i v e s , p a r t i c u l a r l y i f these employees a r e o f f e r e d f i n a n c i a l i n c e n t i v e s  directly  l i n k e d t o the success o f the company i n r e a c h i n g  i t s objectives.  M i d d l e management occupies a s t r a t e g i c p o s i t i o n i n t h i s c o n t r o l p a t t e r n and i s f r e q u e n t l y r e s p o n s i b l e a f f e c t i n g company p r o g r e s s . d i r e c t i n g middle management's behavior-cycle  f o r many v a r i a b l e s  A t t e n t i o n should be given t o motivation-need-fulfilment  i n t o e f f o r t s most p r o f i t a b l e t o the company by  u s i n g more f i n a n c i a l i n c e n t i v e s s p e c i f i c a l l y a s s o c i a t e d w i t h and  l i n k e d to d e f i n i t e middle-management r e s p o n s i b i l i t i e s . A number o f unanswered questions  developed from the c o n c l u -  s i o n s a r i s i n g from the r e j e c t i o n o f the hypotheses and the observations reported  which f o l l o w e d .  F o r example, i t appeared that the  i n t e r e s t i n f i n a n c i a l i n c e n t i v e s tended to v a r y when  the survey q u e s t i o n tended t o center  o r l o c a l c o n d i t i o n s w i t h i n the company  i n t e r e s t i n t e r n a l l y on an i n d i v i d u a l employee  and h i s work-group, or e x t e r n a l l y on the company as a whole; and when b a s i c company o b j e c t i v e s were short-term  and d i r e c t e d  towards immediate p r o f i t s , or were long-term and d i r e c t e d towards the best company-wide p r o g r e s s .  I t seemed evident  that  important aspects o f the use o f f i n a n c i a l i n c e n t i v e s f o r middlemanagement p e r s o n n e l i n the manufacturing i n d u s t r i e s o f B r i t i s h  122  Columbia r e q u i r e d a more t h o r o u g h . c o l l e c t i o n had  been p o s s i b l e i n an e x p l o r a t o r y  Further  of data than  survey.  Study  A f u r t h e r study o f the use o f f i n a n c i a l i n c e n t i v e s might b e n e f i t from a c o n s i d e r a t i o n o f the i n t e r - r e l a t i o n s h i p s t h a t e x i s t among the (a) The  may  following:  r e l a t i v e s i z e o f a d d i t i o n a l earnings added to b a s i c  s a l a r y by s p e c i f i c i n c e n t i v e plans  f o r d i f f e r e n t employee  groups; (b) The methods o f making i n c e n t i v e awards and  their  r e l a t i o n s h i p to the o b j e c t i v e measurement o f employee performance; (c) The  a p p l i c a b i l i t y o f d i f f e r e n t types o f i n c e n t i v e s  f o r v a r i o u s needs and (d) The  requirements;  change of company earnings w i t h the change o f  company employment l e v e l s by employee groups; (e) The measurement of p r o d u c t i v i t y i n p l a n t s both u s i n g , and not u s i n g , ( f ) The  financial incentives;  and  use o f f i n a n c i a l i n c e n t i v e s f o r i n d i v i d u a l s and  f o r groups, s e p a r a t e l y and These suggestions,  i n combination.  w h i l e not exhaustive,  emphasized by  their  v a r i e t y the p e r p l e x i n g m u l t i p l i c i t y of f a c t o r s f a c i n g management h a v i n g an i n t e r e s t i n the e f f e c t i v e a p p l i c a t i o n o f incentives.  financial  Probably a g r e a t e r r e a l i z a t i o n o f the need f o r  improvement i n B r i t i s h Columbia i n d u s t r y must occur b e f o r e  any  122a l a r g e measure of success w i l l be a t t a i n e d i n u s i n g incentives.  financial  123  BIBLIOGRAPHY Abbott, Charles C. 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Non-financial Executive Incentives: Retirement and Security Plans. F i n a n c i a l Management Series No. 97. New York: American Management Association, 1951, pp. 12-15. General Motors Corporation. Annual Report to Stock Holders for 1955. New York: General Motors Corporation, 50 pp. George, Claude S. Management i n Industry. Englewood C l i f f s : Prentice-Hall Inc., 1959, 585 pp. Glover, J . D. and R. M. Hower. "The Lincoln E l e c t r i c Company", The Administrator: Cases i n Human Relations i n Business Homewood, I l l i n o i s : R. D. Irwin Inc., t h i r d e d i t i o n , 1957, pp. 549-600. Hale, Merle C. The Bonus as an Incentive i n Management Motivat i o n . F i n a n c i a l Management Series, No. 97. New York: American Management Association, 1957, pp. 8-11. Hapgood, Richard L. "A Productivity Guide for Manufacturing Management", The Controller, May 1960, pp. 61-67.  125 Hooper, Frederic. Management Survey. 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"Motivation: The Core of Management" i n Readings in Management. (Koontz and O'Donnell, eds.)- New York: McGraw-Hill Book Co., 1959, pp. 225-271. L i n c o l n , James F. Incentive Management. Cleveland: The L i n c o l n E l e c t r i c Company, 1951. F i f t h p r i n t i n g , 1960, with Addendum to Appendix, 287 pp. . "Incentive Management", Canadian Purchaser, March 1956, pp. 59-63. Livingston, J . M. "Discussion of Stock Options", Barron's, July 24, 1961.McCarthy, P. J . "Sample Design", Research Methods i n S o c i a l Relations ( M i Jahoda and others, eds.), New York: The Dryden Press, 1951, pp. 643-680. McCormick, Thomas C. and Roy G. Frances. Methods of Research i n the Behavioral Sciences. New York: Harper Bros., 1958, 244 pp.  126 McGregor, Douglas. "An Uneasy Look at Performance Appraisal", Harvard Business Review, May/June 1957, pp. 89-96. . The Human Side of Enterprise. H i l l Book Co., 1960, 246 pp.  New York:  McGraw-  McMurray, Robert N. "Man-hunt for Top Executives", Harvard Business Review, January/February 1954, pp. 46-54. Maslow, A. -H. Motivation and Personality. Bros., 1954, 411 pp.  New York:  Harper  Mayo, Elton. The Human Problems of an I n d u s t r i a l C i v i l i z a t i o n . New York: Viking Press, 1933, 187 pp. Meir, J . B. (ed.) P r o f i t Sharing Manual. Chicago: of P r o f i t Sharing Industries, 1957, 461 pp.  Council  Morris, Thelma J . Executive Compensation: Selected References. Reference L i s t no. 19, A p r i l 1960. Boston: Baker Library, Harvard University Press, 1960, 11 pp. National I n d u s t r i a l Conference Board. Management Almanac, 1946. New York: National I n d u s t r i a l Conference Board, 365 pp. . Personnel A c t i v i t i e s i n American Business (Revised). Survey of Personnel P o l i c y no. 86. New York: National I n d u s t r i a l Conference Board, 1947. (Policy no. 88, 1948.) Sharing P r o f i t s with Employees. Studies i n Personnel Policy no. 162. New York: National I n d u s t r i a l Conference Board, 1957, 92 pp. . Stock Option Plans i n Canada. Canadian Studies Series no. 1. Montreal: National I n d u s t r i a l Conference Board, 1959, 27 pp. . Survey of Personnel P o l i c y no. 59. New York: National I n d u s t r i a l Conference Board, 1940, 63 pp.  The  . Top Executive Compensation. Studies i n Personnel P o l i c y no. 179. New York: National I n d u s t r i a l Conference Board, 1960, 76 pp. Newcomer, Mabel. The Big Business Executive: Factors that Made Him, 1900-1950. New York: Columbia University Press, 1955, (Bibliography), 164 pp.  N i l e s , Mary C. H. Middle Management: The Job of the Junior Administrator, Revised E d i t i o n . New York: Harpers and Bros., 1949, 247 pp. Nunn, Henry L. Partners i n Production: ment and Labor. Englewood C l i f f s : 1961, 221 pp.  A New Role for ManagePrentice-Hall Inc.,  Opinion Research Corporation. "How P r o f i t Sharing Affects Employee Attitudes", Public Opinion Index for Industry, October 1957. Princeton: Opinion Research Corporation, 1957 r  Patton, Arch. "Executive Compensation: Tax Gimmick vs. Incentives", Harvard Business Review, November/December 1953, pp. 113-119. . "Incentive Compensation for Executives", Harvard Business Review, September/October 1951, pp. 35-56. '  . "Trends i n Executive Compensation", Harvard Business-Review, September/October 1960, pp. 144-154. __. "What Makes Executives Run?" Modern Industry, September 1957.  Dun's Review and  . "What Management Should Know about Executive . Compensation", Dun's Review and Modern Industry, February 1957, pp. 43-44, 122-31. Porter, Lyman W. "A Study of Perceived Need Satisfactions i n Bottom and Middle Management Jobs", Journal of Applied Psychology, February 1961, pp. 1-10. Rucker, A l l e n W. "Clocks for Management Control", Harvard Business Review, September/October 1955, pp; 68-80. . Gearing Wages to Productivity: A New Approach. Cambridge, Mass.: The Eddy-Rucker-Nickels Company, 1962, pp. 52. . "Pay Proportionate to Productivity", Proceedings of the American Pharmaceutical Manufacturing Association, June 1934. . "Productivity: How to Be R e a l i s t i c i n I t s Measurement and-Improvement", Cost and Management, March 1957, pp. 97-104.  Sherif, M. and R. C a n t r i l . The Psychology of Ego-Involvement. New York: John Wiley and Sons, 1947. Smyth, Richard C. "Bonus Plans for Executives", Harvard Business Review, July/August 1959, pp. 66-74. •  . "Executive Compensation: Gearing the Program to Today's Needs", Management Review, January 1961, pp. 9-12.  Torbert, Frances. "Making Incentives Work", Harvard Business Review, September/October 1959, pp. 81-92. Torrence, George W. "Budgeting Salary Increases", Management Record, National*Industrial Conference Board, March 1961, pp. 2-7. . " i n d i v i d u a l vs. General Salary Increases", Management Record, National I n d u s t r i a l Conference Board, May 1961. Towl, Andrew R. "Patterns of Executive Compensation", Harvard Business Review, July/August 1951, pp. 25-34. United States, Department of Labor, Bureau of Labor S t a t i s t i c s . National Survey of Professional Administrative, Technical, and C l e r i c a l Pay - Winter 1960-61. Department of Labor B u l l e t i n no. 1310 (Winter 1959-60, B u l l e t i n no. 1286). Washington, D. C.:~ Superintendent of Documents, 1961, 92 pp. Welsford, W. D. " I n s t a l l i n g a P r o f i t Sharing Plan i n Your Company", Cost and Management, A p r i l 1956, pp. 151-57, W a l l i s , Gordon T. "Current vs. Deferred Executive Compensation' \ Management Record, National I n d u s t r i a l Conference Board, June 1955, pp. 222-24, 254-56. Ware, T. M. "Stock Options: Their Morality and P r a c t i c a l Applications", Barron's, June 19, 1961, pp. 5-6. Worthy, James C. "Factors Influencing Employee Morale", Harvard Business Review, January/February 1950, pp. 95-107  129 OTHER SOURCES B r i t i s h Columbia, Department of I n d u s t r i a l Development, Trade and Commerce, Bureau of Economics and S t a t i s t i c s . Private communication, June 1962. Canada, Department of Labor, Economics and Research Branch. Private communication, June 1962. The Eddy-Rucker-Nickels Company, Cambridge, Mass. material.  Mimeo  130  APPENDIX A  SURVEY PROCEDURE AND  Survey  Design  To  survey the whole manufacturing i n d u s t r y o f B r i t i s h  Columbia in  QUESTIONNAIRE  i n order to ascertain  the use of f i n a n c i a l  t h e amount o f i n t e r e s t  incentives  f o r m i d d l e management  was t o o l a r g e a n u n d e r t a k i n g f o r t h i s was made t o a sample An  alphabetical  taken  study; t h e r e f o r e ,  recourse  survey. listing  o f some 650 m a n u f a c t u r e r s  with  c u r r e n t p o s t a l a d d r e s s e s a n d names o f company p r e s i d e n t s or  managers was a v a i l a b l e .  and  T h i s group  l a r g e - s i z e d m a n u f a c t u r e r s , who,  h a v e middle-management i n d i v i d u a l s  c o n s i s t e d o f medium-  i t was e x p e c t e d , w o u l d i n their  organizations,  as w e l l a s s m a l l e r m a n u f a c t u r e r s , who w o u l d h a v e a few m i d d l e management i n d i v i d u a l s . tive of  o f manufacturers  T h i s g r o u p was e s s e n t i a l l y r e p r e s e n t a -  i n B r i t i s h Columbia  very small firms of f i f t e e n  thus s u i t a b l e lent  itself The  f o r the purposes  and  large  ing  results  or less  employees.  of this  study, and r e a d i l y  t o s y s t e m a t i c random  division  I t was  sampling.  o f t h e sample i n t o  f i r m s was h e l p f u l  with the exception  typical  small,  i n making t h e a n a l y s i s  to actual practice  i n known c o m p a n i e s .  r e c e n t a v a i l a b l e i n f o r m a t i o n on t h e d i s t r i b u t i o n  medium, and r e l a t T h e most  of manufacturers  '  131  in B r i t i s h Columbia by plant size was examined to establish group s i z e s .  Grouping of firms by the t o t a l number of company  1  employees was used to define small firms as those with 74 or less employees, medium-sized firms as those with 75 to 399 employees, and large firms as those with 400 or more employees. These size-groupings divided the t o t a l B r i t i s h Columbia manufacturing employment and p a y r o l l into approximate thirds as shown - 2  in Table XVII.  This d i v i s i o n into size groups provided a  basis convenient for the analysis of some variables, but was not suitable for s t r a t i f i e d sampling because a f u l l and current l i s t i n g by firm size was not a v a i l a b l e . TABLE XVII MANUFACTURING FIRMS IN BRITISH COLUMBIA ACCORDING TO EMPLOYMENT AND PAYROLL AS PER 1958 SURVEY Employment - Both male and female employees during week of highest employment, excluding s a l a r i e d executives and managerial staffs. Total Employment  1-74  75-399 400 or over  Per Cent of Firms Reporting  94.3  4.8  0.9  Per Cent of T o t a l Employment  38.5  30.1  31.4  Per Cent of T o t a l P a y r o l l  33.9  30.2  35.9  •'-British Columbia, Department of I n d u s t r i a l Development, Trade and Commerce. L i s t of I n d u s t r i a l Firms i n B. C. Segregated i n Size Groups According to Employment Reported i n Each Plant Location. V i c t o r i a , B. C : Department of I n d u s t r i a l Development, Trade and Commerce, Bureau of Economics and S t a t i s t i c s , 1958, 58 pp. Mimeo. (Not up-dated as of 1962). 2  I b i d . , page i i i .  132 Size of Sample Required Since the survey was made i n a subject area which had not been investigated previously, an exploratory examination of numerous unknowns was  indicated.  A simple random sample of  f a i r l y general nature, l i k e l y to cover the main unknowns, was desirable.  There was no comprehensive theory for designing 3  multipurpose  samples,  so some assumptions and generalizations  were made i n estimating the size of the required sample. As the main interest was f i n a n c i a l incentives, this was the sample s i z e .  i n the proportionate use of the c r i t e r i o n used to estimate  The maximum conditions for acceptable error  apply when a proportion of .5 for the occurrence of incentives e x i s t s , lessening as the r a t i o decreases.  However, human  errors could enter from v a r i a t i o n s i n interpretation, inaccuracy of reported information depending on who  reports for the company,  l i m i t a t i o n s on the information available to the respondent, variations between company p o l i c y and the respondent's interpretation of that p o l i c y , incomplete  or hurried consideration of  questionnaire items respecting opinion, and possible errors i n recording and i n t e r p r e t i n g the r e p l i e s .  Since these were only  some of the possible sources of error beyond the control of the P . J . McCarthy, "Sample Design", Research Methods i n S o c i a l Relations^ Marie Jahoda and others, eds. New York: The Dryderi Press, 1951, page 659. 3  133 investigator, the setting of a confidence i n t e r v a l of + and - 10 percentage points seemed reasonable.  The reduction of this  confidence i n t e r v a l at 95% confidence l e v e l by requiring more exacting sampling methods did not seem f e a s i b l e . The decision was made to use a mail survey  initially  because i t would be the most economical means of contacting manufacturers throughout B r i t i s h Columbia.  I t was  estimated  that a 50 per cent mail return could be expected from a sample of the group of manufacturers i n question.  I f needed at a l a t e r  date, interview and follow-up procedures could be taken to ensure an adequate reply. On the basis of these assumptions, the sample sizes required at 957o confidence l e v e l to provide a confidence 4 i n t e r v a l of + and - 0.1  for a range of proportions are:  Proportion p =  .5  Sample size n =  .4  .3  .2  84  80  72  56  168  160  144  112  At 50% response, required mailing i s  During the planning stage the proportion of companies using f i n a n c i a l incentives i n B r i t i s h Columbia manufacturing ^ I b i d . , page 652. N = 650 i n  Using d = .1, and f i n i t e population ( i . 9 6 ) pq 2 N =• 1 ,  .  2  n -  A  (L96)  2  pq  134 industry was not known, but with an estimated proportion of .25 and a 4- and - 10 percentage point confidence i n t e r v a l (.15 to .35), plus 50% allowance for non-response, required sample was estimated to be 130.  the size of the This was o n e - f i f t h  of the group of 650 firms to be sampled, which would permit systematic sampling of every f i f t h firm on the alphabetical l i s t of t h i s group. A f i n a n c i a l incentive program which i s most suitable for a given company i s probably unique i n character and s p e c i f i c i n design.  Among the programs i n force i n B r i t i s h  i t was expected that a great v a r i e t y existed.  Columbia,  To serve the  purposes of t h i s study i t was not necessary to obtain a detailed description of each separate program or to evaluate i t s merits and s u i t a b i l i t y , but only to establish the existence of f i n a n c i a l incentives by type and to define the employee group covered. The purpose was to determine the r e l a t i v e interest i n the use of f i n a n c i a l incentives as motivators f o r d i f f e r e n t groups of management. To confine the study questionnaire within the s t r i c t d e f i n i t i o n of f i n a n c i a l incentive as used herein would probably have raised questions of degree among the respondents and caused unnecessary d i f f i c u l t i e s and variations i n data q u a l i t y . Accordingly, the questionnaire was designed to permit an i n d i c a t i o n by respondent of the incentives i n use within f a i r l y well-known or e a s i l y i d e n t i f i e d groups and a breakdown of these  135 groups i n t o types f o r s p e c i f i c that  this  approach would e l i m i n a t e  s i v e " w r i t e - i n " of data. considered been  pilot  The  the  form, o f  first  improvement o f the  styling  question  later  d i v i d e the r e p l i e s  large  f i r m s , or  i n or  outside  the  was  a c t u a l use  different  was  around the  also reflected usage p a t t e r n suitability  See  and  firms having The  procedure the of  layout  the  definition  used  The  financial remaining  two,  to  financial  choices  office the  incentives  survey  i n c e n t i v e s were These l a t t e r  separate  for  questions,  about the of  or  questions  from the  e x h i b i t e d i n the use  37.  and  respecting  l e s s importance to the  s u p p l i e d some i n f o r m a t i o n  C h a p t e r I I , page  t h e i r head  main i n t e r e s t o f  i n B r i t i s h Columbia.  preferences  a  questionnaire.  types of  employees.  free-standing and  and  answers to q u e s t i o n  t o t e n , were o f  utilized  This  i n t o g r o u p s f r o m s m a l l , medium  i n t o groups o f  groups of  firms.  a q u a l i f y i n g question  r e s u l t s , p r o v i d i n g r e a s o n s why were n o t  already  t e s t e d on  the wording, o f  survey  of d i f f e r e n t  numbered t h r e e  incentives  survey have  p r e p a r e d and  of questions,  B r i t i s h Columbia.  survey centered  exten-  5  o f terms accompanying the The  hoped  f o r an  financial  o f most i n t e r e s t i n t h i s  sample o f a d o z e n d i f f e r e n t i n the  I t was  the n e c e s s i t y  types of  tentative questionnaire  assisted of  t o be  described. A  identification.  actual considered  different  136 types of f i n a n c i a l incentives f o r s p e c i f i c management groups. Survey Procedure and Response The questionnaire, the explanation of terms used, a stamped return envelope and the covering l e t t e r dated June 8, 1962 were mailed to a systematic random sample of 130 firms, being one i n f i v e from a 650-member group. was returned.  No unaccepted  mail  Two follow-up l e t t e r s dated July 4 and July 17,  1962 were mailed with another copy of the questionnaire to the outstanding non-respondents as of those dates.  Nevertheless,  numerous personal and telephone interviews were required to obtain r e p l i e s from non-respondents.  About h a l f of the r e p l i e s  were received by mail, with h a l f of these being anonymous. Two-thirds  (18) of the f i n a l non-response group of 28  were d i s t r i b u t e d i n areas of B r i t i s h Columbia outside of Greater Vancouver and New Westminster.  Wood processing plants  and sawmills accounted f o r two-thirds (12) of the "no-show" group i n non-metropolitan areas.  The d i s t r i b u t i o n of these  throughout, B r i t i s h Columbia made communication by other than mail i n f e a s i b l e . The "no-show" metropolitan group was not dominated by any one industry.  The questioning of l o c a l non-respondents gathered  excuses of "too busy", "short staffed", "holiday season", "the i n d i v i d u a l who knows i s out of town", or simply "please count us out t h i s time". A l l respondents  answered questions one arid two, but t h e i r  137 r e p l i e s to other questions dropped o f f due to "lack of time", "pressure of business", "information not available", "no experience with incentives", "private company, not available for publication", "referred to head o f f i c e for reply", and similar reasons. The largest single non-response  to the questionnaire arose  from d i s q u a l i f i c a t i o n as "not manufacturing i n B r i t i s h  Columbia".  This was reported by 19 firms or about 15% of the o r i g i n a l mailing, which reduced the net sample to 111 firms.  As this  condition was i n accordance with the defined boundaries of the universe desired f o r the survey, i t was accepted as a legitimate reduction of sample.  On the basis of these r e p l i e s the s i z e  of the group being sampled was adjusted to approximately 550 firms a c t u a l l y carrying on manufacturing operations i n B r i t i s h Columbia. The t o t a l response by 83 firms was approximately 75% of the net mailing to 111 firms.  This i s compared i n Table XVIII  to the t o t a l number of manufacturing firms i n B r i t i s h  Columbia  and to the s p e c i f i c group of manufacturers being sampled. I t was considered that the member firms of this group represent the more forward and progressive concerns i n B r i t i s h Columbia; thus the results may not r e f l e c t conditions e x i s t i n g among other firms i n B r i t i s h Columbia.  138  TABLE XVIII COMPARISON OF SAMPLE RESPONSE, GROUP OF MANUFACTURERS, AND THE MANUFACTURING INDUSTRIES OF BRITISH COLUMBIA Small . 1-74  Medium 75-399  A. A l l Manufacturers i n B r i t i s h Columbia Number of firms on 1958 b a s i s 8770 Per cent o f t o t a l number of establishments 94.3% T o t a l employees (M = 1000) 90M Average number of employees per plant 10 3  B. Group of 550 Manufacturers (Universe) Estimated tiumber of firms* 340 Per cent of respective sizegroup i n B. C. 3.97o Estimated t o t a l employment (M = 1000) 3.4M Per cent of respective sizegroup i n B. C. 47 3  Large 400*  A l l Co.s 25(Avg.)  446  84  9300  4.87o  0.97o  70M  73M  100% 233M  157  870  25  170  45  555  387  547o  27M  39M  397o  537  0  0  0  C. Response from Sample Number of mailings made to companies 68 Number of responses received 43 Response as per cent of respective size-group i n : Sample of 111 firms 397o Universe of 550 firms 7.87o B.C. manufacturing industry 0 . 5 7 o  34 31  0  9 9  287o  87o  187o  207o  77o  11%  60.5M 26%  111 83 75% 15% 0.9%  B r i t i s h Columbia, Department of I n d u s t r i a l Development, Trade and Commerce, A L i s t of I n d u s t r i a l Firms i n B r i t i s h Columbia Segregated i n Size Groups According to Employment Reported i n Each Plant Location. V i c t o r i a , B. C : Bureau of Economics and S t a t i s t i c s , 1958, page i i i (as of July 1962 t h i s report had not been updated; and B r i t i s h Columbia, Department of Labor, Annual Report of Department of Labor - 1959. Victoria, B. C : Department of Labor, 1960, page F 39.  The response of 83 r e p l i e s from the adjusted universe numbering 550 firms actually manufacturing products i n B r i t i s h Columbia provided an estimate that 40% of them + and - 10 percentage points at 95% confidence l e v e l were using f i n a n c i a l incentives for the management groups, as reported by answers 6 to question two on the questionnaire.  A lesser response  was  made to other questions, and was reported i n Chapter IV with the discussion of the r e s u l t s from s p e c i f i c questions.  Based on size-group reported on survey returns or on 1958 l i s t of firms i n footnote "a", on previous page. Based on average number of employees per plant i n Part B of Table XVIII, page 138. ^McCarthy, op_. c i t . , page 650. E(p) - p' *  1.96  Where E(p) i s the estimated proportion i n the universe at 95% confidence l e v e l ; N = size of universe = 555; n = sample size = 83; p = proportion i n sample = .4; and q = 1 - p . 1  1  1  SURVEY QUESTIONNAIRE FORM  j  141  THE UNIVERSITY OF BRITISH COLUMBIA VANCOUVER  8,  CANADA  FACULTY OF COMMERCE AND  BUSINESS ADMINISTRATION  June 8, 1962  Dear S i r : The use of F i n a n c i a l Incentives for both salaried and hourly employees may be of value to management i n developing better employee performance and more p r o f i t a b l e manufacturing industries i n B r i t i s h Columbia. As part of his work towards the Master of Business Administration degree at the University of B r i t i s h Columbia, Mr. B. A. Robinson i s studying applications of F i n a n c i a l Incentives. I n this connection, he would l i k e to ascertain the present use and a c c e p t a b i l i t y of various F i n a n c i a l Incentives for personnel (excluding sales s t a f f ) , of B. C. manufacturing i n d u s t r i e s . You have been selected as part of a random sample, and your cooperation i n scoring and returning the enclosed survey form w i l l be greatly appreciated. A l l survey data w i l l be reported i n aggregate without disclosure of source or company i d e n t i t y . The results of this work may be published, and i f i t i s , we w i l l be glad to send you a summary i f you wish to return the request s l i p . Thanking you for your cooperation, I am Sincerely,  W. 0. Perkett Assistant Professor WOP/lw  Request to: Mr. B. A. Robinson c/o Prof. W. 0. Perkett Commerce and Business Administration University of B r i t i s h Columbia Vancouver 8, B. C. PLEASE SEND ME A SUMMARY OF FINANCIAL INCENTIVE SURVEY Name Company Address City  .  142 EXPLANATION OF TERMS USED  MANUFACTURING INDUSTRY consist's of any o r g a n i z a t i o n ,  company, or  m a n u f a c t u r i n g department whose>purpose i s t o i n c r e a s e materials  the worth of  by p e r f o r m i n g work thereon, as opposed to a s a l e s  marketing products or s e r v i c e s , p u b l i c u t i l i t i e s ,  organization  or s i m i l a r a c t i v i t i e s .  FINANCIAL INCENTIVES c o n s i s t of a d d i t i o n a l employee income over and above an e s t a b l i s h e d b a s i c s a l a r y or wage, designed t o i n c r e a s e  the t o t a l  y e a r l y earnings,  a c t u a l o r c a l c u l a t e d , and a t the same time t o encourage  more p r o d u c t i v e ,  efficient  performance of the i n d i v i d u a l o r of the group  w i t h which he works, and/or t o encourage c r e a t i v i t y  i n methods, processes  or products .  BASIC SALARY OR WAGES i n c l u d e s b e n e f i t s as h o l i d a y s , insurance  plans  regular  pay, overtime, and such employee  pension p l a n s , h e a l t h , a c c i d e n t ,  and group  life  or s i m i l a r allowances which a r e not based on, o r changed  w i t h i n d i v i d u a l performance.  TOP  MANAGEMENT c o n s i s t s of the top management group r e s p o n s i b l e  long-term r i s k d e c i s i o n s . President,  In l a r g e r companies t h i s w i l l  Vice-Presidents,  for  usually  include  and r e l a t e d p o s i t i o n s o o f c o n t r o l l e r ,  t r e a s u r e r and s i m i l a r p o s i t i o n s on the same l e v e l ; a l l of whom are p r o b a b l y employed under i n d i v i d u a l c o n t r a c t w i t h bonuses, o p t i o n s , or other  s p e c i f i c f i n a n c i a l arrangements.  management group w i l l who  likely  a r e probably enjoying  In s m a l l e r  companies t h i s top  c o n s i s t of Owner-President and managers  specific  f i n a n c i a l arrangements w i t h the owner.  MIDDLE MANAGEMENT i s t h a t p a r t of management comprised o f p r o f e s s i o n a l , line,  or s t a f f p e r s o n n e l charged l a r g e l y w i t h making only  operating  d e c i s i o n s , and whose f u n c t i o n s  management and t h e f i r s t - l i n e  short-term  l i e between those of t o p  supervisor.  FIRST-LINE SUPERVISOR i s t h e i n d i v i d u a l on the management team f o r t h e d i r e c t s u p e r v i s i o n o f the o f f i c e ,  clerical  or.production  responsible worker.  143 SURVEY OF FINANCIAL INCENTIVES IN B. C. MANUFACTURING INDUSTRIES, For Management, O f f i c e , and P l a n t Employees ONLY, SALES STAFF EXCLUDED„  1. TOTAL NO. OF ALL OUR EMPLOYEES FOR HIGHEST WEEK IN 1961 WAS 1-74 P  , 75-399 •  , over 400 Q  (Check Group),  ; OUR HEAD OFFICE IS IN B.C, •  2. WE USE FINANCIAL INCENTIVES FOR EMPLOYEE GROUPS AS CHECKED ( v/ BELOW.  TYPE OF INCENTIVE  TOP MANAGE'MT Officers, Vice-Pres Managers  , NOT IN B.C. ) IN BOXES  TYPE OF EMPLOYEE GROUP MIDDLE FIRST-LINE OFFICE, PLANT or MANAGE'MT SUPERVISOR CLERICAL PRODUCTION WORKER P r o f e s s i o n Foreman or WORKER . - a l , L i n e , Supervisor Hourly & & Staff Piecework  a.CASH BONUS f o r i n d i v i d u a l or group e f f o r t based on: ( l ) P l a n n e d goal & budget (2)Better Production (time, c o s t , q u a l i t y ) (3)Predetermined Job Standards ( 4 ) C r e a t i v i t y i n Methods, P r o c e s s e s , or Product (5)Other •  b.PROFIT SHARING based on a predetermined f i x e d °L of p r o f i t s , as: ( l ) C a s h , % of p a y r o l l (2)Cash, f o r unusual nonrecurring specific effort ( 3 ) D e f e r r e d or T r u s t e e d Employee Fund ( 4 ) F i x e d % of P r o f i t s by p e r s o n a l agreement (5)Other c.STOCK PLANS i n v o l v i n g company stock u s u a l l y : ( l ) S t o c k Bonus i n l i e u of Cash I n c e n t i v e (2)Stock O p t i o n f o r l a t e r Purchase (3)Employee Stock Purchase Company may c o n t r i b u t e too (4)0ther  I I \  1  •  144 2.  (Continued)  TYPE OF MANAGEMENT GROUP TOP  TYPE OF INCENTIVE  MIDDLE  FIRST-LINE  MANAGE'MT MANAGE'MT SUPERVISOR  OFFICE,  PLANT or  CLERICAL PRODUCTION  d.DEFERRED INCOME u n t i l retirement at lower tax (1) Deferred Salary ( 2 ) Special i n d i v i d u a l l i f e insurance coverage (3) Other e.INCREASES IN SALARIES & WAGES (1) Based on unusual nonrecurring specific effort. (NOT ON s e n i o r i t y or cost of l i v i n g ) . ( 2 ) B a s i c salary and wages higher than l o c a l average (3)0ther f.OTHER FINANCIAL INCENTIVE (1)Guaranteed Annual Wage ( 2 ) S a f e t y Bonus f o r reduction of accidents (3)0ther  3.  PLEASE SELECT FROM THE LIST OF FINANCIAL INCENTIVES LISTED UNDER QUESTION 2 ABOVE, THOSE INCENTIVES WHICH YOU CONSIDER LIKELY TO BE MOST SUITABLE FOR EACH GROUP OF MANAGEMENT:Choice, i n order of importance  Reason f o r s e l e c t i o n  A. TOP MANAGEMENT 1.  ' • ;  2.  3. 4.  1. 2.  3. ;  4.  B. MIDDLE MANAGEMENT 1.  ;  1.  2.  2.  3.  3.  4.  4.  145 (Continued) C. FIRST-LINE SUPERVISOR 1.  1..  2.  2._  3.  ;  3._  4.  4.  IN YOUR COMPANY WHAT HAS BEEN THE APPROXIMATE PERCENTAGE INCREASE IN AVERAGE TYPICAL REMUNERATION  (EXCLUDING OVERTIME) SINCE 1951 FOR EACH  OF THE FOLLOWING CATEGORIES:(The  use of a r e p r e s e n t a t i v e  job i n each group w i l l  assist  i n making e s t i m a t e ) 7o I n c r e a s e s i n c e 1951  TOP MANAGEMENT  (1)  MIDDLE MANAGEMENT  (2)  FIRST-LINE SUPERVISOR  (3)  CLERICAL & OFFICE WORKERS  (4)  PLANT or PRODUCTION WORKERS  (5)  WE DO NOT USE FINANCIAL INCENTIVES FOR OUR MANAGEMENT EMPLOYEES FOR THE FOLLOWING REASONS BY EMPLOYEE GROUP:Code f o r Reasons (A) Too d i f f i c u l t  Indicate to administer.  (B) Other i n c e n t i v e s than i a l are better  financ-  motivators.  codes  reasons by p l a c i n g  (A, B, C, D, E ) uriddr groups  where a p p l i c a b l e . TOP MANAGEMENT  (C) Funds a v a i l a b l e f o r such rewards a r e l i m i t e d . (D) Employees a r e now f u l l y  letter  MIDDLE MANAGEMENT  rewarded. (E) O t h e r ( S p e c i f y ) FIRST-LINE SUPERVISOR  146 WHAT TYPES OF FINANCIAL INCENTIVES HAS YOUR COMPANY DISCONTINUED, AND FOR WHICH EMPLOYEE GROUPS WERE THEY USED ? A. Type of Incentive Discontinued  B. Employee Group or Groups Covered  1.  1.  2.  C. Why were they  discontinued?  1.  2.  7.. RATHER THAN RELYING ON ONLY ONE TYPE OF FINANCIAL INCENTIVE, WHAT GROUP OF FOUR WOULD YOU CHOOSE TO GIVE THE BEST COMPANY-WIDE RESULTS ?  (CHECK) (four ) (only )  A. Cash bonus f o r c r e a t i v i t y i n methods, processes & product.  A.  B. Stock option plan at p r i c e less than market.  B.  C. Deferred salary plan with tax b e n e f i t .  C.  D. Cash bonus f o r reaching planned goal.  D„  E. Incentive payment f o r reducing labor costs.  E.  F. Wages paid proportional to production volumes.  F  G. Bonus f o r good safety record on the job.  G.  H. Salary l e v e l s higher than the l o c a l average.  .  0  H.  I. Bonus f o r improvement i n production (time, cost, q u a l i t y ) .  I.  J . Supervisory s a l a r i e s at least 20% higher than plant wages.  J.  K. Generous expense accounts.  K.  L. Bonus f o r reduction of 'Waste material & Scrap" i n shop.  L.  147 WHAT TYPES OF FINANCIAL INCENTIVES (see l i s t i n g under q u e s t i o n 2.) YOUR COMPANY CONSIDER LEAST APPLICABLE TO THE FOLLOWING GROUPS ? C o n s i d e r e d LEAST a p p l i c a b l e f o r : -  Reason f o r R e j e c t i o n  A. TOP MANAGEMENT 1.  1.  B. MIDDLE MANAGEMENT 1.  2.  3.  C. FIRST-LINE SUPERVISOR 1.  3.  3.  DOES  148  9.  FOR WHICH EMPLOYEE GROUP OR GROUPS, DO YOU CONSIDER THESE FINANCIAL INCENTIVES MOST SUITABLE ? Please i n d i c a t e your choice by using (1) for TOP MANAGEMENT (2)  11  MIDDLE MANAGEMENT  (3)  " FIRST-LINE SUPERVISOR  (4)  " OFFICE, CLERICAL WORKER  (5)  " PLANT or PRODUCTION WORKER Insert numbers on each l i n e for as many s u i t a b l e a p p l i c a t i o n s as you wish.  Employee Stock Purchase Plan  A.  P r o f i t Sharing Plan, based on p a y r o l l and/or e f f o r t  B.  Increase i n pay, for unusual non-recurring e f f o r t .  C.  Guaranteed Annual Wage Plan  D.  Cash bonus based on meeting planned goal or budget  E.  Pay rates generally higher than l o c a l average. . .  F.  10. ACCORDING TO YOUR ESTIMATE OF THEIR VALUE FOR INCREASING LONG-TERM COMPANY PROFITS AND PROGRESS, HOW WOULD YOU RANK (FROM 1 to 6) THE FOLLOWING:-  A. CASH BONUS FOR YOUNGER MANAGEMENT  Rank i n 1 to 6 order of va lue .  A.  B. PIECEWORK PAY FOR PLANT OR PRODUCTION WORKER. . . .  B.  C. PROFIT SHARING FOR TOP EXECUTIVES ONLY, . „ „ . „ „  C„  D. COMPANY FINANCED TRAINING PROGRAMS FOR MIDDLE MANAGEMENT . E. PRODUCTION BONUS FOR FIRST-LINE SUPERVISORS „ „ „ „  D.  F. CASH BONUS FOR OFFICE, CLERICAL WORKER FOR EXCEEDING QUOTAS„ .  THANK YOU FOR YOUR COOPERATION. Please return questionnaire survey t o : Mr. B.A. Robinson, c/o Prof. W.O. Perkett, Commerce and Business A d m i n i s t r a t i o n , U n i v e r s i t y of B r i t i s h Columbia, VANCOUVER 8, B. C.  E. F.  149  C/o Prof. W. 0. Perkett, Faculty of Commerce & Business A d m i n i s t r a t i o n , UNIVERSITY OF BRITISH COLUMBIA, Vancouver 8, B. C.  July 4, 1962.  Dear S i r : Last month we sent you a "Survey of F i n a n c i a l Incentives i n B. C. Manufacturing I n d u s t r i e s " , requesting your opinion anonymously. I f you have returned t h i s survey please accept our thanks and disregard t h i s l e t t e r . Even i f you do not use f i n a n c i a l incentives i n your f i r m , your answers and opinions on the other questions are v i t a l to our study. A reply from you w i t h completion of survey w i l l be warmly appreciated. Thanking you s i n c e r e l y i n a n t i c i p a t i o n of your cooperation, I am, B. A. ROBINSON.  150  C/o Prof. W. 0. Perkett, Faculty of Commerce & Business A d m i n i s t r a t i o n , UNIVERSITY OF BRITISH COLUMBIA, Vancouver 8, B. C.  July 17, 1962.  Dear S i r : Last month we sent you a "Survey of F i n a n c i a l Incentives in B. C. Manufacturing I n d u s t r i e s " , requesting your opinion anonymously. I f you have returned t h i s survey please accept our thanks and disregard t h i s l e t t e r . Even i f you do not use f i n a n c i a l i n c e n t i v e s i n your f i r m , your answers and opinions on the other questions are v i t a l to our study. A reply from you with completion of survey w i l l be warmly appreciated. Thanking you s i n c e r e l y , i n a n t i c i p a t i o n of your cooperation, I am, B. A. ROBINSON.  P.S. . Enclosed i s another copy of form. Please l e t us have a reply even i f you cannot answer a l l questions. Many thanks, B.A.R.  151  APPENDIX B ADDITIONAL DATA, FROM OTHER SOURCES National I n d u s t r i a l Conference Board, 1 9 3 9 , 1 9 4 6 and 1 9 5 4 The data obtained from early surveys concerning the use of incentives and bonuses f o r s a l a r i e d personnel often are not comparable.  A nationwide survey (the Conference Board Study  of Personnel P o l i c y No.  20)  i n 1 9 3 9 covering  2 , 7 0 0  companies  in a l l types of business employing f i v e m i l l i o n persons indicated that i n 5 1 . 7 % of the companies, wage incentive plans of some kind were being used.  1  companies reported that  A 1 9 4 6 survey covering 6 0 0 manufacturing 77.47o  of the companies used some form  of f i n a n c i a l incentives according to Table XIX, which also shows similar 1 9 3 9 data covering 9 0 0 companies.  o  The National I n d u s t r i a l Conference Board, The Management Almanac 1 9 4 6 , New York: National I n d u s t r i a l Conference Board 1 9 4 6 , page 1 0 9 . 2  National I n d u s t r i a l Conference Board, Personnel A c t i v i t i e s i n American Business (Revised), Survey of Personnel P o l i c y no. 8 6 , New York: National I n d u s t r i a l Conference Board, 1 9 4 7 , page 1 2 .  152 TABLE XIX USE OF INCENTIVES IN 1939 AND 1946  Production Workers Supervisors Executives O f f i c e and C l e r i c a l  1946  1939  49.7% 15.2 10.8 6.0  51.7% 18.3  x  4.8  No data available. National I n d u s t r i a l Conference Board, 1947 The incidence of p r o f i t - s h a r i n g plans, year-end bonuses, and incentive plans f o r s a l a r i e d personnel was available only as i s o l a t e d data (Tables XX and XXI) which were not suitable for purposes of comparison. TABLE XX PROFIT SHARING PLANS FOR SALARIED PERSONNEL 1954 Number of Companies Using General Merit Awards Have P r o f i t Sharing Reflecting Cost of L i v i n g Have Year-end_Christmas Bonuses  446  a  1947° 446 6.2%  17.3% 42.4%  7.1% 35.4%  National I n d u s t r i a l Conference Board, Personnel Practices i n Factory and O f f i c e , F i f t h E d i t i o n , Survey of Personnel Policy no. 145j New York: National I n d u s t r i a l Conference Board, 1957, page 91, Table 282. b National I n d u s t r i a l Conference Board, Personnel Practices i n Factory and O f f i c e (Revised), Survey of Personnel Policy no. 88, New York: National I n d u s t r i a l Conference Board, 1948, page 45, Table 139.  153 TABLE XXI SALARIED EMPLOYEES PAID INCENTIVES 1939 Replies from Companies None Paid Supervisor Foreman Executives Officers Department Heads Key Personnel Superintendents Department Heads Planning and Production Department Personnel Buyers  a  1947  230  466  68.7% 8.7 6.1  76.8% 8.4 1.3 .4 .6 .4 1.7 .6  .9 .4 .4 .4  b  .2 .4  aNational I n d u s t r i a l Conference Board, Survey of Personnel P o l i c y no. 59, 1940, page 24. ^National I n d u s t r i a l Conference Board, Survey of Personnel P o l i c y no. 88, 1948, page 45, Table 138. Canada, Department of Labor, 1954. A study performed by the Canadian Department of Labor on Methods of Wage Payment i n Canadian Manufacturing i n 1954 reported that more than three times as many (67%) plant employees 3  were paid by time as by "payment-by-results" schemes (20%). Almost h a l f of these (10%) were on piecework and 9% on incent i v e bonus schemes, with 13% of the employees not being covered Canada, Department of Labor, Economics and Research Branch, "Methods of Wage Payment i n Canadian Manufacturing, October 1954", The Labor Gazette, A p r i l 1956, Ottawa, Ont.: Supt. of Government-Publications, page 438.  154 by the survey.  Production bonus schemes tended to be found in  larger establishments while piecework schemes were found i n plants much smaller than the average-sized concern u t i l i z i n g a 4 production bonus scheme. No similar study for either hourly-rated workers or s a l a r i e d personnel has been performed  since, except that i n  1957 a b r i e f review found that the percentage of plant workers 5  on timework had increased from 67% i n 1954 to 73% i n 1957. Management personnel were not covered i n either survey. Bureau of National A f f a i r s , In 1957  1957  the Bureau of National A f f a i r s Inc. issued a  "Personnel P o l i c i e s Forum" based on data from 50 companies which reported the p r i n c i p a l ways i n which executives were compensated for their services. Bonus plans were c a r r i e d i n 44 per cent of companies represented i n the Forum.  In about h a l f of the companies with  such plans, a l l executives were e l i g i b l e for bonuses; i n others bonuses were generally given only to o f f i c e r s and plant or branch managers.  On the average, such bonuses made up 20 per  Ibid, page 438. ^Canada, Department of Labor, Economics and Research Branch, Ottawa, Ontario, private communication, July 1962. ^Bureau of National A f f a i r s , "Executive Compensation, Survey No. 45", Personnel Policies•Forum, December 1957, Washington, Di C.: The Bureau of National A f f a i r s Inc.  155 cent o f an e x e c u t i v e ' s annual pay  i n l a r g e r companies  between 10 and 15 per cent i n s m a l l e r f i r m s .  and  7  Stock o p t i o n programs f o r e x e c u t i v e s were conducted  by  a t h i r d of the l a r g e r f i r m s and a s i x t h of the s m a l l e r companies. Most of these companies l i m i t e d the number of shares t h a t c o u l d be o f f e r e d to the e x e c u t i v e group as a whole, as w e l l as to i n d i v i d u a l executives.  In most cases, an e x e c u t i v e c o u l d buy  the company s t o c k a t 95 per cent of the market p r i c e  and  8 was  given from f i v e to ten years to pay f o r i t . P r o f i t - s h a r i n g p l a n s f o r e x e c u t i v e s were i n e f f e c t i n  38 per cent o f the l a r g e r f i r m s and 56 per cent o f the s m a l l e r ones.  A number o f these plans were combined w i t h pension  w h i l e a few o t h e r s were t i e d i n w i t h savings p l a n s . o f p r o f i t shared was  g e n e r a l l y a f i x e d percentage  plans,  The amount  of net  profit.  D e f e r r e d compensation not r e l a t e d to a p r o f i t - s h a r i n g p l a n 9 o f f e r e d by o n l y a few  was  companies.  U n i t e d S t a t e s , Department o f Labor,  1960  and  The U. S. Department of Labor i n a 1960  1961 survey o f 8 j o b  c l a s s i f i c a t i o n s w i t h pay l e v e l s f o r 77 o c c u p a t i o n work l e v e l s Bureau o f N a t i o n a l A f f a i r s , " E x e c u t i v e Compensation, Survey No. 45", op_. c i t . , page 6. 8 I b i d . , page 7. 9  I b i d . , page 8.  156  covered for  companies employing  3 0 , 6 0 0  a total  of  1 4 , 0 0 0 , 0 0 0  workers.  companies were m a n u f a c t u r i n g workers.  A total  more t h a n Almost  1 0  100  persons  1 9 , 0 0 0  each  o f these  c o n c e r n s w i t h more t h a n  9 , 0 0 0 , 0 0 0  o f 1 6 0 6 e s t a b l i s h m e n t s were s t u d i e d  f o r pro-  f e s s i o n a l a n d a d m i n i s t r a t i v e o c c u p a t i o n s , 1 1 4 6 b e i n g manufacturing  concerns, and  6079  were s t u d i e d  f o r t e c h n i c a l and 11  clerical  occupations, 3 1 3 2 being manufacturing  This  survey, mostly o f manufacturing  the u s e o f s a l a r i e s  bonuses ranged  reflected  167»  to  357 ; 0  Cash  i n f r o m 317o t o 4 8 % o f t h e  the u s e o f Christmas from  industry,  t o g e t h e r w i t h c a s h bonus p a y m e n t s .  bonuses i n t o t a l were i n e f f e c t establishments;  concerns.  bonuses o r year-end  profit  s h a r i n g ranged  4 % t o 1 0 7 ; a n d t h e u s e o f o t h e r s i n c l u d i n g management o  from incentive  bonuses a n d l e n g t h o f s e r v i c e bonuses r a n g e d up t o 1 4 % o f establishments  surveyed  (Table XXII).  F o r e m p l o y e e s who a c t u a l l y r e c e i v e d  c a s h bonuses t h e s u p p l e -  m e n t a r y payments a d d e d c o n s i d e r a b l y more t o t h e i r that  shown i n T a b l e X X I I I  salary  earnings  than  ( a s p e r c e n t i n c r e a s e on a v e r a g e  f o r t h e c a t e g o r y i n v o l v e d ) , page  158.  ^ U n i t e d S t a t e s Department o f L a b o r , N a t i o n a l Survey o f P r o f e s s i o n a l A d m i n i s t r a t i v e ; T e c h n i c a l and C l e r i c a l Pay, W i n t e r 1 9 5 9 - 6 0 , B u l l e t i n n o . 1 2 8 6 , W a s h i n g t o n , D. C : Superi n t e n d e n t o f Documents, 1 9 6 0 , p a g e 2 ; c a t e g o r i e s c o v e r e d were T y p i s t s , Stenographers, Draughtsmen,Accountants, S u p e r v i s o r s ( t a b u l a t i n g machines), Engineers, D i r e c t o r s o f Personnel, and Attorneys. "^Ibid.,  page 3 1 .  TABLE XXII PER CENT DISTRIBUTION OF ESTABLISHMENTS BY TYPE OF SUPPLEMENTARY CASH BONUS PLAN* FOR SELECTED OCCUPATIONAL GROUPS, WINTER. 1959-60^  Cash Bonus Plan  Accountant & Personnel Auditor Mngmt.  Engrs. & Scientists  Clerical  Clerical Supvr.  30  11  16  9  100  100  100  100  100  100  100  39  44  48  44  36  31  41  34 4 2  34 5 5  35 8 6  27 9 8  16 6  28 10  14  23 6 2  61  56  52  56  64  69  59  Attorneys  Draughtmen  Establishments with employees i n occupational groups No. of e s t ' t s . i n 1000's Per cent Supplementary cash bonus plan Christmas or year-end P r o f i t sharing Other No supplementary bonus plan  cash  2.5  8.5  11.2  3  Supplementary cash bonus plans applicable to a majority of employees i n jobs studied within selected job groups i n each establishment. b United States Department of Labor, B u l l e t i n no. 1286, op_. c i t . , page 30. Note:  Because of rounding, sums of i n d i v i d u a l percentages may not equal t o t a l s .  158  TABLE X X I I I BONUS PAYMENTS AS PER CENT OF AVERAGE S A L A R I E S Bonus Payments as P e r C e n t o f Average S a l a r i e s  op.  -  3.0%  -  Directors o f Personnel D i r e c t o r s b f Research Mathematicians  10.97o  4.8%  Accountants Attorneys Chemists Engineers  57o  to  bonuses i n c r e a s e d s p e c i f i c  207 . o  Even  b o n u s e s was l o w e r compensation A  though  recipients'  1286,  basic  average b a s i c pay o f those  t h a n non-bonus e a r n e r s , t h e i r  earnings  receiving  average  gross  i n c l u d i n g b o n u s e s was h i g h e r .  survey o f t h e u s e o f cash bonuses f o r p r o f e s s i o n a l and  a d m i n i s t r a t i v e p o s i t i o n s was made i n S t a t e s Department o f L a b o r . in  Job Category  U n i t e d S t a t e s Department o f L a b o r , B u l l e t i n n o . e x t . , page 8 . . ..  These by  8.7%  3  1 9 6 0 - 6 1 .  T a b l e XXIV.  1959-60  by the U n i t e d  A r e v i e w was made o f c o n d i t i o n s  Changes i n t h e u s e o f b o n u s e s a r e summarized i n  159 TABLE XXIV COMPARISON OF DISTRIBUTION OF SUPPLEMENTARY CASH BONUS PLANS FOR  1959-60 AND  1960-61* Per Cent of  Establishments with employees i n professional and administrative occupations studied: Number  9,680  Per Cent 100 Cash bonus plans applying i n both 1959-60 and 1960-61 survey periods 44 Bonuses paid i n both periods 41 Bonuses paid i n 1960-61 period only 1 Bonuses paid i n 1959-60, but not i n 1960-61 period 1 Bonuses not paid i n either period 1 Cash bonus plan discontinued i n 1960-61 period 1 Cash bonus plan i n i t i a t e d i n 1960-61 period (less than 0.5) No cash bonus plan applying either i n 1959-60 or 1960-61 period 53 Information not available 2 Establishments with employees i n professional and administrative occupations studied who were e l i g i b l e to p a r t i c i p a t e i n cash bonuses paid i n both 1959-60 and 1960-61 survey periods: Number Per Cent Bonus added about the same to employee's pay i n both periods Bonus added more to employee's pay i n 1960-61 period Bonus added less to employee's pay i n 1960-61 period Bonus paid i n both periods, year-to-year comparison not available  3,927 100 56 13 28 3  United States, Department of Labor, B u l l e t i n No. 1310, National Survey of Professional, Administrative, Technical and C l e r i c a l Pay; Winter 1960-61, Washington, D. C : Superintendent of Documents, 1961, page 23, Table No. 5: "Per cent d i s t r i b u t i o n of establishments with supplementary cash bonus plans applying to professional and administrative occupations studied  160 by comparison between bonuses paid i n 1959-60 and 1960-61 survey periods." "Coverage i n t h i s table i s l i m i t e d to the 9,680 establishments -in the 1960-61 survey which had employees i n the professional and administrative occupations studied. An establishment was considered as having a cash bonus plan i f 1 or more of i t s employees i n the professional and administrative occupations studied were e l i g i b l e to p a r t i c i p a t e . Bonus information relates to the year preceeding the 1959-60 and 1960-61 survey periods."  161  APPENDIX C EXAMPLES OF INCENTIVE PLANS AND MIDDLE-MANAGEMENT PARTICIPATION Scanlon Plan Following f i n a n c i a l d i f f i c u l t i e s at the Adamson Company, a s t e e l concern, the cooperative incentive bonus plan to become known as the Scanlon Plan was  i n s t a l l e d i n 1938 by Joseph  Scanlon and Clinton S. Golden, then Vice-President of the Steel-workers' Union. man,  1  With an understanding of the working  of the potentials of cooperative, management, and of worker  e f f o r t s , Scanlon developed a plan that compensated the working force f a i r l y for increased production without burdening company which was  often hard pressed f i n a n c i a l l y .  the  Scanlon  sought to u t i l i z e each worker's superior know-how about his own p a r t i c u l a r job together with management i n a more "mature r e l a t i o n s h i p " of mutual understanding and cooperation to replace the o l d relationship of c o l l e c t i v e bargaining which often was near primitive warfare. The plan provided that the workers would get a bonus i f and when the r a t i o of labor and salary costs to the sales value of production dropped below a r a t i o based on what was  Frederick G. Lesieur, The Scanlon Plan. New John Wiley & Son, 1961, page 18.  York:  162 considered to be normal past experience. feature of the plan was  2  The outstanding  the handling of suggestions for plant  and work improvements by a worker-management screening committee which brought former antagonists together for common, comparative 3  consideration of company problems. 4 operated i n many plants  Variations of this plan  and were often applied to management  levels r i g h t up to the president of the company. The Scanlon Plan had a f l e x i b l e design without a s p e c i f i c formula; the plan seemed to work best i f i t grew from the mutual wants and needs of both worker and management groups. Joe Scanlon considered that the best results accrued when a strong union existed because t h i s permitted the worker to speak up with his suggestions without fear of r e p r i s a l s .  5  The Scanlon Plan i s usually i n i t i a t e d with money incentives as a purpose - with a monthly bonus being paid to everyone i n the plant - but the plan may best be thought of as a plan for psychological reorganization of the company.  Through the  Frederick G. Lesieur, The Scanlon Plan, op. c i t . , page 66. 3  Ibid., pages 166-7. 4 Ibid., pages 22-34. LaPoint Machine Tool Company i s an outstanding application. ~*Ibid., page 114. 6 Harold J . L e a v i t t , Managerial Psychology, Chicago: The University of Chicago Press, 1958, page 180.  163 operation of production  committees every man's take-home pay  i s t i e d to the productive e f f i c i e n c y of the company as a whole not j u s t to h i s own i n d i v i d u a l productivity.  This adds to  the f u l f i l m e n t of h i s own i n d i v i d u a l needs by supplying a means of meeting better the two s o c i a l needs of belongingness and esteem.  7  Thus the employee on h i s job i s not only working  for himself, but also the the team or company' - which tends to increase the individual's "ownership a t t i t u d e " and to push the whole organization towards oneness.  This i n turn requires  an honest "feed-back" by the company which must now face up to c r i t i c i s m of poor decisions as well as receive c r e d i t f o r p r o f i t a b l e decisions. The Scanlon Plan i s a multiple incentive plan - money incentives, greater opportunities for independence, and greater g  p a r t i c i p a t i o n i n planning and decision making. The multiple incentive system has paid handsome d o l l a r dividends to management and worker a l i k e . I t s cost i s that management and everyone else must ' operate i n a glass house.^ This approach provides e f f e c t i v e economic education i n industry through group f i n a n c i a l incentives and group interaction  7  See Chapter I I , "Needs of the Employee", page 28.  8 Chris A r g y r i s , Personality and Organization, New York: Harper & Bros., 1957, page 182. 9 ' '" Harold J . L e a v i t t , op_. c i t . , page 183.  164 based on actual facts about production, sales, and costs. Honest communication encourages the understanding of company operations, and the better recognition of important problems with the r e s u l t thatnecessary adjustments are made and s a t i s f a c t o r y solutions are evolved through j o i n t deliberations of management and workers.  10  L i n c o l n E l e c t r i c Company Incentive Management Plan The incentive management plan operated by the L i n c o l n E l e c t r i c Company grew from the necessity f o r cooperation when J . F. L i n c o l n took over the management of an operation of which he knew less than the men i n the plant.  The record 11  of bonuses and t o t a l average earning i s outstanding.  The  plan u t i l i z e d high wage rates, p r o f i t sharing with incentive bonuses, suggestion system, employee stock plan, an Advisory Board, and a way of operating that closely emulated the "Spartan philosophy" of i t s president.  The s i n c e r i t y of the management,  with i t s t r a d i t i o n a l frankness and w i l l i n g p o l i c y of f u l l disclosure, are some of the basic reasons why the plan has 12 continued to be a very s a t i s f a c t o r y operation since 1934. "^James Torbert, "Making Incentives Work", Harvard Review, September/October 1959^ page 86. *' -  Business  " J . D. Glover and R. M. Hower, "The L i n c o l n E l e c t r i c " , The Administrator, Homewood, R. D. Irwin Inc., 1957, page 549.12 Ibid., page 576. L 1  165 The sincere frankness of the L i n c o l n brand of cooperation encouraged the development of each man's latent a b i l i t y .  This  cooperation was u t i l i z e d to the f u l l e s t to everyone's advantage 13 including that of the consumer.  The Advisory Board i s a j o i n t  management-worker committee which resulted from attempts to increase job content and worker r e s p o n s i b i l i t y by giving the worker knowledge of, and r e s p o n s i b i l i t i e s f o r , improvements. The Board operates on the theory that management cannot know everything about a l l plant operations, that the workers are experts i n their f i e l d s , and that t h i s "know-how" i s valuable.. L i n c o l n E l e c t r i c Company i s not unionized and has the advantage that workers can be advanced on merit or pushed back for incompetence without regard to s e n i o r i t y . L i n c o l n says: "...each worker i s rewarded for h i s i n d i v i d u a l contribution. His s k i l l i s recognized. He i s made outstanding as an i n d i v i d u a l i n h i s own and his contemporaries' estimation.  James F. Lincoln, Incentive Management, Cleveland, Ohio: The Lincoln E l e c t r i c Company, 1951 (1960 p r i n t i n g with Addendum to Appendix), page 11. "The fundamental effect that determines success or f a i l u r e of incentive management i s the development of the i n d i v i d u a l through h i s desire to r i s e i n h i s usefulness i n industry and through h i s desire to work together with h i s co-workers from top to bottom to produce better products more e f f i c i e n t l y . I f a l l do t h i s , success i s assured under normal leadership following the same philosophy." With this attitude and i n the face of r i s i n g cost of materials the product prices over many years have dropped when those of competitors are increasing; as shown by Chart on page 282. 14 L i n c o l n , Ibid., page 112.  166 S h e r i f and C a n t r i l  consider  success of the L i n c o l n E l e c t r i c plan  i s due  that  t h e dominant n a t u r e  Company I n c e n t i v e Management  t o t h e manner i n w h i c h L i n c o l n " e m p l b y e e s  t h e m s e l v e s more a s  and  ' b u s i n e s s men'  identify  regard  themselves w i t h  t h e company a n d i t s w e l f a r e , n o t w i t h o t h e r w o r k i n g p e o p l e i n  15 the l a r g e r world  outside."  M i d d l e management p a r t i c i p a t e d ment  i n this  e n v i r o n m e n t and r e c e i v e d b o n u s e s  1  ' i n c e n t i v e manage-  i n 1942  amounting t o  6 times base°salary; and p l a n t workers e n j o y e d bonuses •I  often  e x c e e d e d t h e i r b a s e wages.  which  c.  T h e s e b o n u s e s h a v e b e e n made  p o s s i b l e " t h r o u g h i n c r e a s e d p r o d u c t i v i t y " and a r e r e g a r d e d b o t h w o r k e r a n d management a s s o m e t h i n g t h e e m p l o y e e s  by  have  " e a r n e d , n o t a s s o m e t h i n g d i s p e n s e d b y t h e management a s largesse". ''' 1  Management i n d i v i d u a l s team".  They h o l d  them o n l y u n t i l  displace  them.  periodic  assessment by t h e i r  keen, but  t o o must " e a r n t h e i r a better  to  to regular  the competition i s  effective.  U n d o u b t e d l y t h e w o r d s o f Mr. L i n c o l n ment j u s t  individual rises  Management members a r e s u b j e c t supervisors  p l a c e s on t h e  apply  t o m i d d l e manage-  as t h e y do t o a l l o t h e r employees when he  defined  15 M. ment , New  16  S h e r i f a n d R. C a n t r i l , The P s y c h o l o g y o f E g o - I n v o l v e York: J o h n W i l e y 6c S o n s , 1947, p a g e 373.  X I b i d . . page  249.  "^Ibid.,  570.  page  167 two steps i n Incentive Management: (1)  Employees' f e e l i n g that t h e i r reason for existence i s to b u i l d a better product to.be sold at a better p r i c e ;  (2)  Every man rewarded i n accordance with h i s contribution to the success of that venture.  S p e c i f i c information on the manner of middle management operation under this plan can only be pieced together from many sources. But one concludes that as individuals middle management were active, important members of the team and were proportionately w e l l rewarded compared to t h e i r subordinates.  Cause and e f f e c t  are usually interlocked i n the pattern of human behaviour and i t i s doubtful indeed that Lincoln E l e c t r i c Company would have obtained the same results i f the outstanding bonus opportunities had not been available to middle-management people. Nunn-Bush Shoe Companv Share-Production Plan A Share-Production Plan sparked by company problems and the observation that wages bore an almost constant r e l a t i o n s h i p to sales prices i n the period from 1926 to 1934 through boom and depression was started at the Nunn-BUsh Shoe Company. 19 Though similar to the Rucker Plan,  the Share-Production Plan  was developed independently i n 1935 by the Nunn-Bush Shoe James F. Lincoln, "Incentive Management", Canadian Purchaser. March-1956, page 59. * 19 A l l e n W. Rucker, "Pay Proportionate to Productivity", Proceedings of the American Pharmaceutical Manufacturer's • Association, June 1934; and Appendix C f o r bibliography of Rucker a r t i c l e s .  Company and has remained e s s e n t i a l l y constant i n character 20 over the years.  Labor s share i n the Nunn-Bush plan was  based on 36%% of the value added to the product after the cost of raw material was production.  deducted from the sales value of  The Nunn-Bush company has operated under a  union contract without strikes since  1914.  Even though the Share-Production Plan may  be an outstand-  ing plan for the production worker, i t i s not clear that superv i s o r s p a r t i c i p a t e d d i r e c t l y i n the plan i n an incentive 22 manner.  Mr. Nunn recognized that management, and middle  management i n p a r t i c u l a r , should " p a r t i c i p a t e i n the f r u i t s oo  of t h e i r e f f o r t s d i r e c t l y , rather than to be only hired but a v a i l a b l e information does not indicate how  men",  this p a r t i c i -  pation20 was accomplished at the Nunn-Bush Shoe Company. Henry L. Nunn, Partners i n Production, Englewood C l i f f s , Prentice-Hall Inc., 1961, page 83. 21 * „, Ibid., page 14. 22 I b i d . . page 36. "Finding a s a t i s f a c t o r y formula for supervisors posed a special problem. A plan was f i n a l l y devised under which supervisors were kept at their current s a l a r i e s as long as production remained at i t s present l e v e l . I f output went up, their s a l a r i e s were to be r a i s e d , but not i n d i r e c t proportion to the increase. Likewise i f produce t i o n should go down, their salaries were to be reduced, but again on a graduated b a s i s . " I b i d . , page 139.  169 The Rucker Plan The "Rucker Share of the P r o d u c t i o n " plan was developed by an American c o n s u l t i n g f i r m .  I t was based on research  o r i g i n a l l y computed by A l l e n W. Rucker i n " 1 9 3 2 ^ on United 2  States Census of Manufacturing data from 1899 to 1929 covering approximately 300,000 manufacturing.firms.  He found that  f a c t o r y p a y r o l l s are d i r e c t l y p r o p o r t i o n a l to factory production v a l u e . Factory p a y r o l l s r i s e and f a l l w i t h production value i n a simple percentage r e l a t i o n s h i p . Therefore production value output per $1.00 of r e g u l a r wages input i s a near constant.25 This " l a b o r share of p r o d u c t i o n " f o r a l l U. S\ manufac96  t u r i n g combined was c o n s i s t e n t l y 39.395% of production v a l u e , w i t h only a small d e v i a t i o n of p l u s or minus 1.663% f o r years 1914 to 1939 and 1947 to 1 9 5 7 .  27  Management's share i s 60.605%,  This p r i n c i p l e a l s o p r e v a i l s i n i n d i v i d u a l f i r m s , _ . 28 or countrxes.  industries,  The accounting records required to prepare t h i s r a t i o were few and the c a l c u l a t i o n s simple and c l e a r to a l l employees. 24 Rucker, 1934, l a c . c i t . 25 The Eddy-Rucker-Nickels Company, The Rucker P l a n : 4 New Approach to Higher P r o d u c t i v i t y and Improved Labor Cooperation, Cambridge, The Eddy-Rucker-Nickels Company, 1960, page 4 . ^ I b i d . , page 5. 27 A l l e n W. Rucker, "How to Be R e a l i s t i c i n I t s Measurement and I t s Improvement", Cost and Management, March 1957, page 100, 28 A l l e n W. Rucker, 1934, op_. c i t . , page 6.  The Rucker incentive plan was a p r a c t i c a l application and extension of only f i v e basic records.  I t was proposed by  Rucker that these records were a l l that was needed by manu-  29 facturers "to maintain e f f e c t i v e control". The Rucker Plan treats productivity, not i n the convent i o n a l p h y s i c a l measure of product output per labor man-hour input,  but i n terms of 'economic productivity' (e) repre-  sented by the production value (V) or 'economic output' i n 31 d o l l a r s , divided by the wages (W) or 'economic input': e =  The economic productivity (e)  W  is determined from the regular  accounts of any given firm and then used as a constant to 32  compute the "wages in proportion to productivity".  Thus  29 A l l e n W. Rucker, 1957, op_. c i t . , pages 97-104; Richard L. Hapgood, "A P r o d u c t i v i t y Guide for Manufacturing Management", The C o n t r o l l e r . May 1960; and A l l e n W. Rucker, "Clocks for • Management Control", Harvard Business Review, September/October 1955, page 73. • 30  A l l e n W. Rucker, Gearing Wages to Productivity, Cambridge, The Eddy-Rucker-Nickels Company, 1962, page 13. 31 Ibid., page 27. Economic output or production value i s defined as "the aggregate r e a l i z e d amount of business gross income over and beyond the cost of purchased materials, supplies and components". I t i s the sum t o t a l of factory "conversion charges" which are paid by customers as a part of product p r i c e s , I.e., "own factory production value added to raw materials by conversion and f a b r i c a t i n g processes" (page 24), or the United States Bureau of Census term "value added by-manufacture". Wages are the " t o t a l p a y r o l l of a l l  171 for each 1% increase i n production value, the plan provides for a 1% increase i n wages (and salaries of management i f , they are included i n the group) without threatening the production cost per u n i t produced.  The company's a b i l i t y to  increase sales volume by lowering prices to meet competition and to provide stable employment i s increased. The Rucker Plan i s a group-incentive plan which may  be  applied to a l l hourly-rated plant workers and to s a l a r i e d management personnel.  I t u t i l i z e s a "share of the production"  committee comprising representatives from workers and superv i s o r s . I n the most successful i n s t a l l a t i o n s these committees 33 are as aggressive as i n the Scanlon  companies.  American Can Company and Hewitt-Robins Incorporated The American Can Company i s a widely d i v e r s i f i e d operation including paper, glass, and metal containers and respective raw material sources.  In applying the Rucker Plan to i t s  operations the company has developed p r o d u c t i v i t y standards for 100 d i f f e r e n t plants or operations including general s t a f f groups throughout the world.  The company emphasizes that the  hourly-rated plant labor" (page 23). 32  ' Ibid., page 29.  " "  33 Frances Torbert, "Making Incentives Work", Harvard Business Review, September/October 1959, page 88.  incentive plan i s not based on improved p r o f i t s but "pays for improved economic productivity over standard and for nothing e l s e " . * ^ The American Can Company extended the plan from 300 top management i n 1958  to 3000 i n 1959  down to assistant  .foremen, and i n spite of the s t e e l s t r i k e i n 1959, progress i n improving  realized  their economic productivity i n many  plants and were confident of continuing improvement. Mr. Rucker has contributed to the advancement i n our knowledge of productivity...we w i l l always use t h i s plan as a management incentive Mr. Stock, our president, was emphasizing that production improvement productivity i s the key to the Company's success ( i n naming) our plan 'Management Production Improvement Incentive Plan'. Many years ago the Hewitt-Robins Corporation, which manufactured a wide l i n e of bulk-material handling equipment such as conveyors, feeders, screens, gears and speed reducers, established a p r o f i t sharing plan "based on how well the corporation as. a whole did i n any year".  They r e a l i z e d that  t h i s approach could not gear the added or incentive pay for i n d i v i duals i n each plant d i r e c t l y to that plant's own  Robert W. Eidson, Management Production Improvement Incentive Plan, Chicago, September 23, 1960, Cambridge: The Eddy-Rucker-Nickels Company, 1961. 35  Ibid.  superior performance mance. ^  or r e l a t i v e l y poor perfor-  3  A f t e r some years of studying incentives and discarding many plans, they f i n a l l y adopted the Rucker Plan i n 1960 as a solution to t h e i r many complex problems i n bettering productivity.  At the time of t h e i r report, less than a year a f t e r the  i n s t a l l a t i o n of the new plan i n two plans, the short-term experience i s most encouraging the performance i s well above standard, and hence well above past several years. They found that their supervisory groups generated more "highly p r a c t i c a l suggestions"  through group meetings and  a d e f i n i t e note of improved teamwork, v e r t i c a l l y between a l l l e v e l s of supervision, and h o r i z o n t a l l y between a l l operating departments The functioning and e f f e c t of the Rucker Plan at Hewitt-Robins i s best summarized by the following statement,by Kullander: Incentive pay f o r a l l participants i n each plant i s i n d i r e c t proportion to the improvement i n that plant i n economic p r o d u c t i v i t y . The incentive rate i s the same percentage on regular pay as the percentage improvement i n economic productivity over standard. Each p a r t i c i p a n t gains at the same rate as the management team, performance and i n the same proportion. The incentive opportunity f o r f i r s t - l i n e and mid-management i s f u l l y comparable to that f o r hourly-rated labor and provides the means f o r  36 Donald E. Kullander, A F i r s t Line and Mid-Management Incentive, Cambridge, Eddy-Rucker-Nickels Company, 1961. 3 7  I b i d . . page 9.  h a l t i n g and perhaps r e v e r s i n g t h e e r o s i o n o f pay d i f f e r e n t i a l s between management p e r s o n n e l a n d t h e i r hourly-rated subordinates.3° 39 The  Advantages o f the Rucker (1)  Plan  I t i s b a s e d on s o u n d e c o n o m i c r e l a t i o n s h i p s  U. S. B u r e a u o f C e n s u s (2)  Statistics.  I t i s a GROUP i n c e n t i v e p l a n , r e q u i r i n g no  s t u d i e s , and i s e a s i l y understood. "standards" (3)  shown b y  Union grievance  time over  are eliminated.  I t p r o v i d e s a n e f f e c t i v e medium f o r i n c r e a s i n g p r o -  ductivity  and p r o f i t s  and f o r b u i l d i n g harmonious  relations  b e t w e e n l a b o r a n d management. (4) It  I t covers ALL f a c t o r y workers, d i r e c t  c a n a l s o be e n g i n e e r e d  f o r coverage o f Executive, Mid-  Management, S u p e r v i s o r y , o r C l e r i c a l (5)  I t i s ideally  where e s t a b l i s h m e n t  and i n d i r e c t .  personnel.  s u i t e d t o " J o b " o r "Custom" shops  of individual  as w e l l a s t o a l l t y p e s  standards  i s impractical,  o f p r o d u c t i o n p l a n t s w h i c h do n o t  w i s h t o i n c u r t h e expense o f i n v o l v e d i n c e n t i v e systems. (6) response  I t s " p a r t n e r s h i p " f e a t u r e s encourage g r e a t e r worker i n increasing productivity,  materials,  and r e d u c i n g  I b i d . , pages  improving  quality,  overhead.  6-7.  Eddy-Rucker-Nickels  Company s t a t e m e n t ,  Mimeo.  saving  175 (7)  I t s Productivity Bonus i s earned.  No " p r o f i t - s h a r i n g "  or "give-away" i s involved. (8)  I t i s a basis for negotiating less c o s t l y labor  contracts; wage increases can be geared to the Company's Productivity improvement. (9)  I t i s a basis f o r s c i e n t i f i c a l l y computing the optimum  competitive  p r i c e ; for measurement of productivity improvement;  and as a control f o r c a p i t a l  expenditures.  The Disadvantages of the Rucker Plan (1)  The cost of operation i s probably more than f o r  p r o f i t sharing plans but less than that f o r i n d i v i d u a l time and motion study based plans. (2)  Most plans demand the i n t e g r i t y of management; t h i s  plan requires probably more than average trust by workers i n the figures provided by management.  176  Rucker Share of Production P l a n Bibliography 1933-1940 Key  to Industrial Recovery, a booklet, privately published, which tirst described the principle of l a y Proportionate to Productivity as developed by Allen W . Rucker as the basis of the Rucker Share of Production Plan; 1933. Pay Proportionate to Productivity, an exposition of the "Share of P r o d u c t i o n " Principle, Proceedings of the American Pharmaceutical Manufacturers Association; June 1934. L A B O R ' S R O A D T O P L E N T Y , T h e Return to the American Svstem of Productivity; Allen \ V . Rucker; published by L . C . Page C o . , Boston, 1937. R E P O R T O F U . S. S E N A T E F I N A N C E C O M M I T T E E ; Sub-committee under S. Res. 215. T h e testimony of Allen W . Rucker on the Rucker Share of Production Plan as a new and basic principle of compensation; December 12, 1938.  1941-1947  A Basic Method for Incentive Pay on a Plant-wide Basis; a memorandum prepared by Allen \ V . Rucker at the request of the War Production Board, Washington, D . C . in September 1943. NATIONAL INDUSTRIAL CONFERENCE BOARD R E P O R T , Studies in Business Policy N o . 15, Measuring Labor's Productivity, p p . 5-9; published by N . I . C . B . , New Y o r k , February 1946. P A P E R M E R C H A N D I S I N G , The Rucker Share of Produclion Plan, by R. L . H a p g o o d , September 1947. A M E R I C A N NEWSPAPER PUBLISHERS ASSOCIATION B U L L E T I N , September 26, 1947. P A P E R & P U L P M A G A Z I N E , Employees Share Plan, October 1947. T H E A M E R I C A N W A Y , this Can Be It, syndicated column bv George Peck, October 5, 1947. Reprinted by T H E R A I L R O A D W O R K E R S J O U R N A L , Published by T h e Railroad Yardmasters of N o r t h America, Inc., October 1947. FACTORY MANAGEMENT & MAINTENANCE ( M c G r a w - H i l l ) , New Wage Plan Guarantees Share of Production, V o l . 105, N o . 11, pp. 74-75, November 1947.  1948-1949 HARVARD BUSINESS REVIEW, Payroll Flexibility Through Employee Trusts, by Gustave Simons, p. 447, July 1948. I R O N A G E , Bonus Based on Production Value, July 1948. READER'S D I G E S T , Making Money With Workers, by F . Burton H e a t h , September 1948. Originally published by U . S. Junior Chamber of Commerce in F U T U R E , V o l . 10, N o . 11, p. 8, September 1948. T O O L & D I E J O U R N A L , Production Incentives, E d i t o r i a l , October 1948. FACTORY MANAGEMENT & MAINTENANCE ( M c G r a w - H i l l ) , Share oj Production Plan, by A . J . W o o d field, November 1948. LABOR RELATION BULLETIN. FURNITURE MANUFACTURERS A S S O C I A T I O N , Plant Installs Unique Incentive Wage System, January 4, 1949. M I L L & F A C T O R Y , Share of Production Plan Cuts Cost and Improves Morale, by James A . M c C a u l e y , September 1949.  1950 A M E R I C A N B U S I N E S S , How to Up Production, A p r i l 1950. CHANGING TIMES, T H E KIPLINGER MAGAZINE, The Rucker Plan: Them as Earns Gits, July 1950. BERATUNGSBRIEF, #85 and #87, WIRTSCHAFTSP O L I T S C H E G E S E L L S C H A F T V O N 1947, Frankfurt, Republic of West G e r m a n y , September 23 and October 10, 1950. I N D U S T R I A L C A N A D A (Toronto), Mathematics in Industrial Relations, by W . J . Whitehead, December 1950.  /  H A R V A R D G R A D U A T E SCHOOL OF BUSINESS A D MINISTRATION, Instruction Sheets, Section E A - P 129, Millis Drug C o m p a n v , Boston, 1950. I N D U S T R I A L P E A C E IN O U R T I M E , Hubert Somervell, pp. 119-120, M a c m i l l a n , L o n d o n , N . Y . , 1950.  1951 B U S I N E S S M A N A G E M E N T (Toronto), Measured Partici. pation in the Income oj Industry, by W . J . Whitehead, January 1951. P L A N T A D M I N I S T R A T I O N (Toronto), The Rucker Share oj Production Plan, February 1951. CANADIAN B U S I N E S S (Montreal), There's Money jor Both Pockets, by Adelaide Leitch, April 1951. " C O M M E N T D'IMPROUV'ER LA PRODUCTIVITE E T L E N I V E A U D E V I E " , Proceedings Cinqueme C o n ference Internationale des Problemes Sociaux de L ' O r ganisation du T r a v a i l , Paris, France, June 1-3, 1951. DEU BETRIEBSBERATER, Ueier Beteiligung der Arbeitnehmer, Issue #16, June 10, 1951. DEUTSCHE ZEITUNG UND WIRTSCHAFTSZEITUNG, Vom Rucker Plan, #85, October 24, 1951. H E S S 1 S C H E W I R T S C H A F T , Was will der Rucker Plan, #19, November 15, 1951.  1952 S U C C E S S F U L E M P L O Y E E B E N E F I T P L A N S , p p . 189198, published by Prentice-Hall, Inc., N . Y . , 1952. DEUTSCHER BETRIEBSW1RTSCHAFTER-TAG (Berlin), Proceeding of Fifth Meeting, 1952. D I E A U S S P R A C H E (Frankfurt), "Produktivitaet", M a r c h 1952. PRODUCTION ENGINEERING & MANAGEMENT, Do Incentive Plans Always Increase Productivity, by Richard L . H a p g o o d , A p r i l 1952. P R O G R E S S I N P R O D U C T I V I T Y A N D P A Y , A l l U . S. Manufacturing Combined (A Research R e p o r t ) ; published by T h e E d d y - R u c k e r - N i c k e l s C o m p a n y , Cambridge, Massachusetts, November 1952.  1953 T H E W H O L E M A N G O E S T O W O R K , The Life Story oj a Businessman, by H e n r y L . N u n n , President, N u n n - B u s h Shoe C o m p a n y , p. I l l , published by Harper & Bros., N . Y . , 1953. R E S E A R C H I N S T I T U T E O F A M E R I C A , Labor Report, V o l . 10, N o . 4, p p . 28-30, " S h a r i n g Production G a i n s " , published by T h e Research Institute of A m e r i c a , Inc., N . Y . , February 18, 1953. WIRTSCHAFTSPOLITISCHE GESELLSCHAFI" VON 1947, Beratungsbriej, by D r . H u b e r t Gross, Frankfurt, G e r m a n y , February 13, 1953. BUFFALO B U S I N E S S , Leadership and Citizenship, by Charles M . White, reprint of an address before the 109th A n n u a l Convention, published by Buffalo Chamber of Commerce, M a r c h 19J3. T H E I R O N A G E , Productivity: Profits jor Everyone; M a r c h 26, 1953. PRODUCTION ENGINEERING & MANAGEMENT, Pay as They Produce, by Allen W . Rucker, A p r i l 1953. L A B O R F O R E C A S T A N D R E V I E W , The Rucker Share oj Production Plan, by C a r l M . Reinig, Columbus, Ohio, A p r i l 4, 1953. S T E E L , Incentives Pay Off at Reznor, The Rucker Plan, by Allen W . Rucker, June 15, 1953. T H E F I N A N C I A L T I M E S , Rucker Explains Theory oj Basic Constants in Wage Growth Policy, M o n t r e a l , C a n a d a , August 28, 1953. P L A N T A D M I N I S T R A T I O N , Wm. Stone Sons, Ltd. Shares Productivity Benefits, T o r o n t o , C a n a d a , November 1953.  1954 S T E I G E N D E P R O D U K T I V I T A E T ; S T E I G E N D E LE1STUNG; STE1GENDER L O H N , by A . W . Rucker, published by Droste-V'erlag, Dusseldorf, G e r m a n y , 1954.  2  177  T H E D I R E C T O R , the Rucker Plan Comes to Britain, T h e Journal of the Institute of Directors, London, E n g l a n d , V o l . 5, N o . 9, June 1954. T H E COMMERCIAL A N D FINANCIAL CHRONICLE, Labor.Management Relations: How Accountants Can Help, bv A . W . Rucker, Julv 22, 1954. „ P L A N T A D M I N I S T R A T I O N , Four-Tear Experience with the Rucker Plan, T o r o n t o , C a n a d a , November 1954. DVNA, REV I STA D E LA ASOCIACION NACIONAL D E I N G E N I E R O S I N D U S I'Rf A L E S D E E S P A N A , Un Nuevo v Basico Principio en la Compensacion a los Abreros, by A . W . Rucker, N o . 11, pp. 533-540, M a d r i d , November 1954 and N o . 12, December 1954. V O I C E 01' I N D U S T R Y , Britain Now Has the Rucker Plan, pp. 34—35, published in Britain, December 1954. BUSINESS — T H E J O U R N A L O E M A N A G E M E N T IN I N D U S T R Y , "Fair Shares" IVhen Productivity Rises, published in Britain, December 1954. T H E COMMERCIAL A N D FINANCIAL CHRONICLE, .Meeting Employee Demand jor "Partnership in Progress", bv A . W . Rucker, V o l . 180, N o . 5382, pp. 16-17, December 2, 1954. / H A R V A R D B U S I N E S S R E V I E W , the Economic Challenge of Longevity, by A . W . Rucker, V o l . 32, N o . 6, pp. 100-101, November-December 1954.  1955 FACTORY MANAGEMENT A N D MAINTENANCE, A y Plantwide Incentive Plan on top of an Individual Incentive, bv J . H . I'ohlman, President, Pohlman F o u n d r y , Inc., published by M c G r a w - H i l l , J anuarv 1955. T H E T E X T I L E W E E K L Y , New Productivity Plan Intro, duced into Britain, V o l . 55, N o . 1407, p p . 641-642, p u b lished by T h e National Federation of Textile Works Managers' Associations, Manchester, E n g l a n d , M a r c h 4, 1955. E N G I N E E R I N G I N D U S T R I E S B U L L E T I N , Mr. Rucker Explains His Plan, Issue N o . 134, pp. 121-125, published by the Engineering Industries Association, Great Britain, April 1955. T H E M A C H I N I S T , Incentive Plan Refects Factory Productivity — the Rucker Principle, by Jack H o l l i n g u m , L o n d o n , England, April 8, 1955. T H E COMMERCIAL A N D FINANCIAL CHRONICLE, Economic and Financial Aspects of Productivity Measurement, by A . W . Rucker, Vof. 132, N o . 5450, p.'6, July 28, 1955. T H E C O N T R O L L E R , Productivity: Its Meaning, Its Measurement• Its Industrial Future, an address before the Eastern Conference by A . W . Rucker and published by the C o n trollers Institute, pp. 373-376, 390, N . Y . , August 1955. L A B O R F O R E C A S T A N D R E V I E W , A Possible Solution Jor Higher Labor and Material Costs, published by T h e State Publishing C o m p a n y , Columbus, Ohio, August 18, 1955. E X E C U T I V E , the Rucker Plan, V o l . 1, N o . 1 p p . 25-29, published by the British Junior Chamber of Commerce, L o n d o n , E n g l a n d , August 1955. /  / H A R V A R D B U S I N E S S R E V I E W , -clocks" jor Management Control, by A . W . Rucker, V o l . 33, N o . 5, p p . 68-80, September-October 1955. I N C E N T I V E P A Y P L A N S , Rucker Share oJ Production Plan, p p . 10314-10322, published by the Institute for Business Planning, Inc., October 1955. THE DIRECTOR, Fewer Sales—Higher Profits, T h e Journal of the Institute of Directors, L o n d o n , England November 1955.  T H E COMMERCIAL A N D FINANCIAL CHRONICLE, What Becomes oj "Labor Savings" jrom New Capital Investment, by A . W . Rucker, December 20, 1956. G E W E R K S C H A F T L I C H E M O N A T S H E F T E , Zum Ruckerplan, Bund-Verlag G m b H . , H o l n , Germany, February 1957. C O S T A N D M A N A G E M E N T " , Productivity — How to be S Realistic in Its Measurement and Its improvement, by A . W . Rucker, p p . 97-104, published by T h e Society of Industrial and Cost Accountants ol C a n a d a , M a r c h 1957. T H E COMMERCIAL A N D FINANCIAL CHRONICLE tapping a Growth Potential to Assure Business Progress, by A . W . Rucker, V o l . 186, N o . 5656, pp. 14, 33, July 18, 1957. OFFICE EXECUTIVE, Productivity — How to Measure and Improve It Realistically, by A . W . Rucker, pp. 23—26, December 1957.  1958-1959 B U F F A L O B U S I N E S S , Management Research Creates Incentive Plan that Works, by Daniel R. Pohlman, VicePresident Operations, Pohlman Foundry Company, published by the Buffalo Chamber of Commerce, September 1958. T H E COMMERCIAL A N D FINANCIAL CHRONICLE, New Measures oj Economic Productivity Jor Manujacturing Industry, bv Allen W . Rucker, October 23, 1958. I N C E N T I V E S F O R E X E C U T I V E S , the Rucker Plan —A y/f Basic New IVay to Added Executive Earnings in Proportion to "Economic Productivity", published by T h e E d d y Rucker-Nickels C o m p a n v , Cambridge, Massachusetts, 1958. M A N A G E M E N T M E T H O D S , How to Control Profit and Policy With A Production Value Index, by Albert L y n c h , published by Management Methods magazine, Greenwich, Connecticut, January 1959. S T E E L , Keeping Wages In Line — Morion's Employees Boost Productivity, published bv Pen ton Publishing C o m p a n y , Cleveland.'Ohio, April 13', 1959. A M E R I C A N B U S I N E S S , How to Measure Profit Contribution, by A . W . Rucker, pp. 7-9 and 39-41, published by Dartnell Corporation, Chicago, Illinois, Julv 1959. H A R V A R D B U S I N E S S R E V I E W , Making Incentives Work, / ' by Frances Torbert, V o l . 38, N o . 5, pp. 81-92, SeptemberOctober 1959. P A P E R I N D U S T R Y , Economic Productivity — A New tool Jor Improving Economic EJjiciency, Editorial, V o l . 41, N o . 6, September 1959. T H E COMMERCIAL A N D FINANCIAL CHRONICLE, "Labor Savings" — Fact or Fancy?, by A . W . Rucker, November 26, 1959. O F F I C E E X E C U T I V E , Employee Incentive Plans — A Comparative Analysis, bv D . ~ R . Pohlman, Vice Pres.-Oper., Pohlman Foundry C o . , V o l . 34, N o . 12, p p . 25-29, Publ. by National Office Management Assoc., December 1959.  1960 I N D U S T R I A L M A N A G E M E N T , New Horizons in Group Motivation, by H . E . Strong, President, Strong-Narovec & C o . , Publ. bv T h e Industrial Management Society, February 1960. T H E C O N T R O L L E R , A Productivity Guide Jor Manujactur. . ' ing Management, by R. L . H a p g o o d , V o l . 28, N o . 5, p p . ''' 207-213, pub. by Controllers Institute, M a y 1960.  1956-1957 T H E M A N U F A C T U R I N G C L O T H I E R , Greater Productivity through teamwork — the Rucker Plan, V o l . 21, N o . 5, p p . 770-771, published by W . E . Yates, L t d . , Wellington Mills, Bramley, Leeds, E n g l a n d , November 1956.  T H E EDDY-RUCKER-NICKELS COMPANY Management HARVARD  Consultants  S Q U A R E , C A M B R I D G E 38, M A S S .  178  APPENDIX D TABULATED DATA OBTAINED FROM SURVEY Organization of Appendix D The data from the survey was  c l a s s i f i e d i n tables, normally  with each table r e f l e c t i n g data a r i s i n g from the r e p l i e s to a single question.  Because the questions on the survey were  arranged i n a scrambled order to reduce bias i n responses, they were not numbered i n an orderly manner. Tables XXV  Therefore  to XXXI, appearing i n this Appendix, were arranged  as nearly as possible i n the order i n which the data were used when the hypotheses were evaluated. Table XXV  shows the increase i n the remuneration  of  employee groups during the ten years p r i o r to 1961, obtained from r e p l i e s to question no. 4.  The use of various types of  f i n a n c i a l incentives as r e f l e c t e d by r e p l i e s to question no. 2 for a l l sizes of companies, for d i f f e r e n t sizes of companies, and for d i f f e r e n t employee groups was reported i n Tables XXVI, XXVII and XXVIII respectively.  This information was applied  to the evaluation of the f i r s t , second, and t h i r d  hypotheses.  Data obtained from questions no.s 3, 8, and 9 on the " d e s i r a b i l i t y " and " s u i t a b i l i t y " of d i f f e r e n t types of f i n a n c i a l incentives were reported i n Tables XXIX, XXX and XXXI.  These  tables r e f l e c t e d free-standing "choices" or preferences for  179 different  types  of f i n a n c i a l  i n c e n t i v e s as d i s t i n g u i s h e d  from the a c t u a l usage r e p o r t e d XXVIII.  i n T a b l e s XXVI, XXVII  Data r e q u i r e d to evaluate  the  fourth  were c o n s o l i d a t e d i n T a b l e XXXII from T a b l e s XXX  and  hypothesis  X X V I , XXIX,  XXXI.  S u p p l e m e n t a r y i n f o r m a t i o n was t o XXXVI.  Reasons o b t a i n e d  financial  i n c e n t i v e s and  previously  reported  from the  survey  Incentives  employee g r o u p s and  f o r not  using  i n Tables XXXIII  i n c e n t i v e s chosen to g i v e i n T a b l e s XXXV and  T h e s e " c h o i c e s " w e r e compared w i t h  usage o f f i n a n c i a l  XXXIII  incentives.  and  c o n s i d e r e d most s u i t a b l e f o r  company-wide r e s u l t s w e r e r e p o r t e d respectively.  i n Tables  for discontinuing incentive plans  i n o p e r a t i o n w e r e summarized  XXXIV r e s p e c t i v e l y . specific  and  the  best XXXVI actual  180 TABLE XXV REPORTED APPROXIMATE INCREASE IN AVERAGE TYPICAL REMUNERATION (EXCLUDING OVERTIME) FOR 1961 OVER THAT FOR 1951, BY EMPLOYEE CATEGORIES (REPLIES TO QUESTION # 4 ) Per Cent Increase i n 1961 over 1951 A l l Co.s Top Management Middle Management F i r s t - L i n e Supervisor Salaried Management C l e r i c a l and O f f i c e Workers Plant or Production Workers Hourly-Rated Workers Number of Companies Reporting Increases Number of Companies Responding to Survey Per Cent of Companies Granting Increases  Small  a  Medium  Large  54  53  48  59  54  55  45  59  57  61  55  40  55  57  50  54  48  54  44  43  54  53  57  52  51  54  51  48  26  11  11  4  83  43  31  9  31%  25%  36%  45?  a Due to incomplete r e p l i e s to t h i s question the confidence i n t e r v a l i s wide, + and - 17% at 95% confidence level.b Much of the reported information was tagged "approximate", while omissions were excused with comments such as "unknown", "unavailable", or " c o n f i d e n t i a l " . kjohn E. Freund and Frank J . Williams, Modern Business S t a t i s t i c s . Englewood C l i f f s , N. J . , Prentice-Hall Inc., 1958, page 231. Where confidence i n t e r v a l at  957o  and N = Universe, n = Sample, p  1  =  -  1.96  »/ «. N  \j  n  p  N -  = proportion, q  1  1  l l q  '•  n  = 1 - p . 1  181 TABLE XXVI USE OF FINANCIAL INCENTIVES BY INCENTIVE TYPE AND EMPLOYEE GROUP FOR ALL SIZES OF COMPANIES (REPLIES TO QUESTION # 2 )  A.  CURRENT MOTIVATORS  Incentive Types  TM  b  (a) Cash bonus f o r e f f o r t (b) P r o f i t sharing (c) Stock plans and options  12 23 8  Number of incentive types used 43 Number of companies using 33 Number of companies reporting 83 Per cent of companies reporting use 40% B.  Use by Employee Group MM FLS OW PW Totals for Incent. Types 15 17 5 4 53 20 17 7 13 80 7 28 7 4 2 42 33  41 33  32 19  13 11  83  83  83  83  40%  40%  23%  13%  3  3  3  1  14  13  16  13  10  59  1  7  8  DEFERRED-HOLDING EFFECT  Incentive Types (d) Deferred income, insurance 4 (e) Increase i n salary, high basic r a t e s 7 (f) Other incentives, safety bonus Number of incentive types used 11 Number of companies using 10 Number of companies reporting 83 Per cent of companies reporting use 12% b  c  16 13  19 16  17 11  18 14  83  83  83  83  15%  19%  13%  17% (continued)  182 TABLE XXVI (Continued) Use by Employee Group TM MM FLS OW PW C.  BOTH CURRENT MOTIVATOR AND DEFERRED-HOLDING Number of incentive types used 54 Number of companies using 35 Number of companies reporting 83 Per cent of companies reporting use 42%  58 36 83 43%  60 36 83 43%  49 21 83 25%  31 17 83 20%  a TM - Top-Management group, MM - Middle-Management group, FLS - F i r s t - L i n e Supervisor group, OW - O f f i c e Worker group, and PW - Plant Worker group. b Incentive types (a), (b), ( c ) , (d), (e), and (f) are the same groups of incentive types l i s t e d i n question no. 2 of Survey Form sample i n Appendix A. This group can be divided into sections as follows:  e ( l ) - Increase for unusual, nonrecurring s p e c i f i c e f f o r t e(2) - Basic rate, higher than l o c a l average e(3) - Other, increase for merit, etc.  TM  MM  FLS  OW  PW  3  5  7  5  4  3 1  5  6 3  5 3  5 1  3  183 TABLE XXVII USE OF FINANCIAL INCENTIVES  (CURRENT MOTIVATORS ONLY) BY  INCENTIVE TYPE AND EMPLOYEE GROUP, ACCORDING TO COMPANY SIZE (REPLIES TO QUESTION # 2) Use by Employee Group TM MM FLS OW PW SMALL COMPANIES (less than 75 employees) (a)beash bonus f o r e f f o r t (b) P r o f i t sharing (c) Stock, plans and options  3 11 2 Number of plan-types used 16 Number of companies using 15 Number of companies reporting 43 Per cent of companies reporting use 35%  4 9 2 15 14 43 33%  4 8 2 14 13 43 30%  2 6 1  3 3 1  9 7 43 16%  7 6 43 14%  8 11 4  10 11 4  12 9 4  3 7 2  1 4 1  Number of plan-types used 23 Number of companies using 16 Number of companies reporting 31 Per cent of companies reporting use 51%  25 17 31 55%  25 19 31 61%  12 11 31 35%  6 5 31 16%  1 1 2  1  1  1  1  1  Number of plan-types used 4 Number of companies using 2 Number of companies reporting 9 Per cent of companies reporting use 21%  2 2 9 21%  2 2 9 21%  1 1 9 11%  MEDIUM COMPANIES (75 to 399 employees) (a) Cash bonus f o r e f f o r t (b) P r o f i t sharing (c) Stock plans and options  LARGE COMPANIES (400 and more employees) (a) Cash bonus f o r e f f o r t (b) P r o f i t sharing (c) Stock plans and options  See same note on Table XXVI. ^See same note on Table XXVI. " P l a n - t y p e s are d i f f e r e n t types of f i n a n c i a l incentives which may be included i n one incentive plan. C  n  0 9 0%  184 * TABLE XXVIII USE OF FINANCIAL INCENTIVES (CURRENT MOTIVATORS ONLY) BY TYPE AND EMPLOYEE GROUP, ACCORDING TO COMPANY HEAD OFFICE LOCATION (REPLIES TO QUESTION # 2)  TM  MM  FLS  Reported by Companies with Head O f f i c e i n B. C. 11 10 14 (a) Cash bonus for e f f o r t 12 9 15 (b) P r o f i t sharing 1 2 2 (c) Stock plans and options Number of plan-types used 24 27 25 Number of companies using 21 20 21 Number of companies reporting 53 53 53 Per 'cent of companies reporting use 40% 38% 40%  OW  PW  5 7 1  3 4 1 8 7 53 13%  A.  B.  Reported by Companies with Head O f f i c e (a) Cash bonus f o r e f f o r t (b) P r o f i t sharing (c) Stock plans and options -  13 12 53 23%  outside B. C. 1 1 1 2 2 3 4 3 3  Number of plan-types used 8 Number of companies using 5 Number of companies reporting 19 Per cent of companies reporting use 26%  6 5 19 26%  6 5 19 26%  0 2 3  0 1 2  5 5 19 26%  3 3 19 16%  C.  Use of Incentives for Middle Management as Reported by Companies Using Incentives f o r O f f i c e and Production Workers Co.s that Do Not Co.s that Do Use f o r OW & PW for OW St PW Number using "Current Motivator" 10 9 types f o r MM jO Number using "Deferred" types for MM JL 9 14 Total using incentives f o r MM 21 _7_ Number using no incentives f o r MM TOTAL number of companies reporting 30 Per cent of companies reporting use of incentives for Middle / Management 30%  21 667„  (continued)  185 Capital l e t t e r s are used to designate employee groups as i n Table XXVI. k Small l e t t e r s (a) to (f) are used to i d e n t i f y plan-types. See footnotes to Table XXVI. TABLE XXIX FINANCIAL INCENTIVES CONSIDERED MOST (AND LEAST) SUITABLE FOR MANAGEMENT GROUPS, IN ALL SIZES OF COMPANIES (REPLIES TO QUESTIONS # 3 AND # 8) Unrestricted Choices (Not as Votes per Company)  CHOICE:  Most (M), Least (L)  Top Mngmt. M L  Middle l s t - L i n e A l l Mngmt. Mngmt. Supvr. Groups M M M L L L Net -  Type of Incentive (a) Cash bonus for e f f o r t (b) P r o f i t sharing (c) Stock plans, options SUB-TOTAL "CURRENT MOTIVATORS" No. of co.s reporting Ratio of choices^  c  11 19 15  8 4 4  13 16 13  4 5 6  15 11 6  8 12  39 46 34  14 +25 17 +29 22 +12  2  3  44 29 .505  (d) Deferred income, i n s r . 10 (e) Increases i n salary & wages, basic rates higher than l o c a l average 11 (f) Other: guaranteed wage 0 SUB-TOTAL "DEFERRED HOLDING" 22  43 29 .49  32 29 .37  7  5  9  2  9  17  25 , -7  8 9  12 0  9 10  16 2  4 6  39 2  21 +18 25 -23  17  20  TOTAL (a) to (f) of a l l incentives  66  60  52  TOTAL (a, b, c, e only).  55  55  48  a  Sub-total for types a, b, c, and e ONLY are given in l a s t  186 l i n e above f o r comparison. ^Ratio of choices obtained as per example, c  See Table XXXII for comparison of these NET  ^29  =  *^°^  Scores,  d Comments on the Choice of F i n a n c i a l Incentives for Employee Groups - ' One intention of the study was to discover by i n d i r e c t means how much interest companies had i n various f i n a n c i a l incentives for d i f f e r e n t employee groups i r r e s p e c t i v e of whether incentives were actually being used. This information was to supplement and provide a check on information r e f l e c t e d from the actual use of f i n a n c i a l incentives as reported i n Tables XVI and XVII. A l i s t i n g of f i n a n c i a l incentives considered most a p p l i cable to each management group was requested i n question no. 3, while the discovery of those least suitable was the purpose of question no. 8. These data were reported i n Tables XXIX and XXX, and consolidated i n Table XI for analysis i n respect to evaluation of the fourth hypothesis on page 96 of Chapter IV. The t o t a l number of incentives chosen for each management group also provided a measure of company interest i n applying f i n a n c i a l incentives to these employee groups. The "Current Motivator" sub-totals of the number of plan-types chosen were 44, 43, and 32 for top-management, middle-management,, and f i r s t - l i n e supervisor groups respectively. Plan-types of incentives group several i n d i v i d u a l incentives similar i n purpose together. The difference between 32 and 43 f o r FLS and MM i s j u s t s i g n i f i c a n t at 95% confidence l e v e l . This d i f f e r e d for the FLS group i n respect to the actual use of f i n a n c i a l incentives, but t h i s difference was not s i g n i f i c a n t . The difference between 32 and 41 f o r FLS i n the "choice" and "use" groups as per Tables XXIX and XXVI respect i v e l y i s n o t • s i g n i f i c a n t , with a 27% p r o b a b i l i t y that this or a greater difference could occur by chance. The inclusion of type (e) votes along with the "Current Motivator" group provided a t o t a l choice score of 55,-54, and 48 f o r TMj MM, and FLS respectively. This brought FLS more into l i n e with the interest shown f o r TM and MM. I t i s possible that this r e f l e c t e d the reliance placed by B r i t i s h Columbia industry on the anticipated incentive value of salary and wage increases. F i n a n c i a l incentives may be e f f e c t i v e i n an expanding business cycle or a rapid-growth industry i f granted at frequent i n t ervals, but they have l i t t l e true incentive value when competition i s s t i f f and company p r o f i t s do not permit t h e i r continuation i n the face of continued improvement i n i n d i v i d u a l performance. See also comments following Table XXXI.  187 TABLE XXX FINANCIAL INCENTIVES CONSIDERED MOST (AND LEAST) SUITABLE FOR EACH MANAGEMENT GROUP, ACCORDING TO COMPANY SIZE  3  (REPLIES TO QUESTIONS # 3 AND # 8) Reflecting Unrestricted Choices Considered Suitable f o r ....Top Middle l s t - L i n e A l l Mngmt. Mngmt. Supvr. Mngmt. Most Suitable = M; Least = L  M  L  M  SMALL COMPANIES (under 75 employees) (a) Cash bonus 4 - 1 4 (b) P r o f i t sharing 9 1 5 (c) Stock plans and options 4 2 3 Sub-Total of "Current Motivator" group 17 12 Per cent of Group Interest 46% 32% MEDIUM (75-399 employees) (a) Cash bonus 6 8 (b) P r o f i t sharing 8 (c) Stock plans and options Sub-Total of "Current Motivator" group 22 33% : Per cent of Group Interest LARGE (400 and over employees) 1 (a) Cash bonus 2 (b) P r o f i t sharing Stock plans and options 3 (c) , Sub'-Total of "Current Motivator" group 6 Per cent of Group Interest 40%  5 2 2  7 9 8  L  M  L  0 4 112 2 3 3 17 3 1 6 8  2 6 11  8 22% 3 1 3  24 3 6 % 2 1 0  2 2 2 6 40%  See comments following Table XXXI.  M  10 7 4 21 31%  1 2 0  1 1 1 3 20%  L  37 100% 1 3 4  23 24 20  9 6 9  67 100% 0 2 2  4 5 ' 6  15 100%  3 5 2  188 TABLE XXXI CHOICES FROM SELECTED LIST OF FINANCIAL INCENTIVES CONSIDERED MOST SUITABLE FOR SPECIFIC EMPLOYEE GROUPS (REPLIES TO QUESTION # 9) A. SUMMARY OF ALL SCORES BY ALL COMPANIES Incent, Number of Choices Made Question # 9 Group ALL Survey Item TM MM FLS p_w PW EMP. Type A. Stock purchase plan 6 6 22 16 9 59 (c) B. P r o f i t sharing 76 9 10 23 20 14 (b) C. Increase i n pay, e(l) unusual e f f o r t 5 10 14 9 7 45 11 D. Guaranteed annual wage 4 6 28 3 4 (f) E. Bonus for meeting goal 6 13 15 44 5 5 (a) F. Pay higher than l o c a l 7 10 14 20 13 e(2) 64 TOTAL OF ALL CHOICES 66 73 70 55 52 316 3  B. APPLICATION OF "CURRENT MOTIVATORS" A, B AND E BY COMPANY SIZE (Representing incentive types e b and a respectively) Number of Choices Made Company ALL Number of Companies Replying TM MM FLS OW PW EMP. Size 6 58 12 19 15 9 Small Medium 17 22 23 22 9 7 83 _6 38 Large 10 11 7 5 5 A l l Companies 179 35 51 49 38 20 21 9  C. TOTALS FOR ITEMS A, B, C AND E (EXCLUDED D AND F) BY COMPANY SIZE (Incentive types a, b, c, and e ( l ) only) " Number of Choices Made Company Size TM MM FLS OW PW ALL 84 Small 22 21 18 10 13 98 Medium 23 26 26 13 10 42 Large 11 12 8 6 5 224 56 59 52 29 28 A l l Companies - Totals - Per cent of t o t a l 25% 26% 23% 13% 13% 100% Si  Incentive type e ( l ) i s "Salary Increases f o r Unusual Nonrecurring S p e c i f i c E f f o r t " . See Appendix A, and comparison made i n Table XXXII. • (continued)  189 "Comments on Contents of Tables XXX and XXXI In questions no.s 3, 8, and 9 the respondent was asked to choose incentives he considered most suitable for various employee groups. Multiple choices could be made, so questions became an i n d i r e c t p o l l of the "popularity" or of the r e l a t i v e interest taken i n the different-employee (TM, MM, and FLS) groups. The separation of the "choice vote" by d i f f e r e n t sizes of companies to indicate i n t e r e s t i n providing "Current Motivator" type of f i n a n c i a l incentives for the three groups of management i n questions no.s 3 and 8 showed that i n medium-sized companies the interest i n TM, MM and FLS was e s s e n t i a l l y balanced or equal (Table XXX). In the larger concerns interest i n the FLS group lessened, and i n the small firms the i n t e r e s t i n both the MM and the FLS group was less than the interest shown i n the TM group. Question no. 9 of the Survey requested that for each of f i v e employee groups, any number of selections be chosen from a limited l i s t of f i n a n c i a l incentives. The incentives offered could be applied to any employee group and were representative examples from each type-group of incentives except type "(d) Deferred Income". This type was omitted to reduce the confusion on the respondent's part because deferred income i s e a s i l y confused with pensions and fringe b e n e f i t s . About equal interest was shown i n the use of a l l incentives for the three management groups, TM, MM and FLS i n medium-sized companies.  190 TABLE XXXII RELATIVE INTEREST IN DIFFERENT GROUPS OF FINANCIAL INCENTIVES Source Table:  XXXI Most Suitable Choices ( A l l Emp.)  XXIX Most Suitable Less Least Suitable (Mngmt. Only)  XXVII Actual Use  ( A l l Employees) No. Ratio Use Types of Choices Order Net Order of Order of of Incentive Votes Types Co.s Use (a) Cash bonus 44 4 2 17 +25 2 53 .25 (b) P r o f i t sharing 76 1 1 80 1 23 .34 +29 (c) Stock plans - and options 2 28 4 7 .10 59 +12 4 (d) Deferred income Omitted 14 5 .07 5 - 7 (e) Salary increase and 16 .24 basic rates +18 59 3 55 3 3 (f) Other: guaranteed annual 0 8 28 wage -23 ....  c  e  d  Number of Companies Reporting  68  1.00  Types of incentives as l i s t e d i n item 2 on Questionnaire i n Appendix A. ^Type (d) Deferred Income was not represented i n question reported i n Table XXXI. Votes r e f l e c t e d here are differences between Most Suitable choices and Least Suitable choices. ^Average of 45 for e ( l ) "Increase i n pay for unusual e f f o r t " and 64 for e(2) "Pay higher than l o c a l average" as taken from Table XXXI,-Part A. (continued)  19Qa e  e(l) e(2) e(3)  Separated into types of incentives as follows: Number of Companies Increases f o r unusual, non-recurring, specific effort 6 Salary and wages higher than l o c a l average 8 Increase f o r merit, or general conditions _2 16  Ratio of Use .09 .12 .03 :24  This i s a breakdown of the results from question no. 2, and an extension of the data reported i n Table XXIX. Refer also to comments to Tables XXX and XXXI.  TABLE XXXIII REASONS FOR NOT USING FINANCIAL INCENTIVES FOR MANAGEMENT GROUPS (REPLIES TO QUESTION # 5)  TM  CODE  a  A l l Companies ALL MM FLS MGT.  3 9 3 3 1 1 2 4 8 8 8 24 6 6 19 7 1 2 2 , -1 61 19 20 22 Number of companies reporting reasons 22 (A) (B) (C) (D) (E)  % 15% 6% 40% 31% 8% 100%  Per cent of responding companies which were not using 47% incentives Code for Reasons (A) Too d i f f i c u l t to administer;  Reported Frequency of Reasons for Non-Use Large (over 400) Small (75 orLess) Medium (75 to 399) ALL ALL ALL MM FLS MGT. TM TM MM FLS MGT. TM MM FLS MGT, 1 1 1 2 2 2 4 5 1 1 1 1 1 3 10 8 6 3 4 3 3 2 3 2 2 2 11 6 1 2 4 4 3 2 2 2 3 1 2 2 _5  8  8  6  31%  58%  86%  a  (C) (E) -  (B) Other incentives than f i n a n c i a l are better - motivators; Funds available for rewards are limited: (D) Employees are now f u l l y rewarded; Other reasons (as reported): "Bonuses became expected" "Lost incentive value" "Not national policy""Not considered necessary"  192 TABLE XXXIV REASONS FOR DISCONTINUING INCENTIVE PLANS (REPLIES TO QUESTION # 6) Type  Group Covered  d(2) a  A l l employees A l l employees  b(l) a(2) a a(4)  Salaried Production workers Production workers Suggestion plan for a l l except TM and MM C l e r i c a l and hourly-rated production workers A l l employees  a a & b  a(5)  Year-end for MM and FLS  b  P r o f i t sharing for MM and FLS  Reason Plan Was  Discontinued  Not adequate, d e f l a t i o n defeated ends Became part of earnings (regular basic). Company reorganized. Too complicated. Other incentives found to be better. Uneconomical, cumbersome, heavy administration costs; d i d not pay i t s way. Found to be no incentive. (1) Bonuses d i f f i c u l t to discontinue; (2) Most employees do not f u l l y appreciate stocks or f u l l y understand their value. Tend to become expected; lose incent i v e value; replaced by salary increases. Group f e l t that they had so l i t t l e control over p r o f i t that a l l incentive was l o s t .  Types of f i n a n c i a l incentives i d e n t i f i e d here by code are the type-groups used i n question no. 2 on Survey Form. Refer to Appendix A for a breakdown of each of the following typegroups of f i n a n c i a l incentives: (a) Cash bonus (b) P r o f i t sharing (c) Stock plans (d) Deferred income (e) Increase i n s a l a r i e s and wages (f) Other f i n a n c i a l incentives The use-of a l e t t e r alone "(a) to ( f ) " when not followed by a number i n brackets to designate a separate type i n the group, w i l l r e f e r to the group as a whole and include a l l types i n that group as l i s t e d on Survey Form.  193 TABLE XXXV INCENTIVES CHOSEN TO GIVE BEST COMPANY-WIDE RESULTS (REPLY TO QUESTION  #7) Frequency of Choice  Company Size:  Small  b Applicable to Top Management B. Stock option priced low C. Deferred salary, tax benefit K. Generous expense accounts  Medium  Large  3  All Co.s  6 2 _0 8  4 3 _1  „ n  8  3  19  11 6 _9 26  7 9 ii 27  2 1 _3 6  20 16 23 59  Applicable to F i r s t - L i n e Supervisors E. Incentive f o r lower labor cost 9 J . Salaries 207 higher than plant wages 4 _1 L. Bonus for waste reduction T o t a l f o r FIRST-LINE SUPERVISORS 14  5 6 _1  7 5 _2  12  14  21 15 _4 40  Applicable to Production Workers F. Wages proportional to production G. Bonus f o r safety record I. Bonus f o r production improvement T o t a l f o r PRODUCTION WORKERS  3 1 _9_  2  T o t a l f o r TOP MANAGEMENT Applicable to Middle Management A. Cash bonus f o r c r e a t i v i t y D. Cash bonus, f o r reaching goal H. S a l a r i e s , higher than l o c a l T o t a l f o r MIDDLE MANAGEMENT  o  T o t a l for ALL GROUPS  4 1  3 u  16  13  _3 5  64  60  28  13 5 _1  9 2 23 34 152  "A" through "L" designate choices offered i n question no. 7 from-which a group-of FOUR ONLY were chosen: Incentives have been rearranged i n groups of three under employee group f o r which they are most suitable. (continued)  194  cComments on the Group Influence on Company-wide Results Many incentives have been developed which are of s p e c i f i c value or i n t e r e s t to one employee group such as stock, options for top management, incentives for f i r s t - l i n e supervisors to reduce labor costs, and bonuses for production workers for improving l e v e l of q u a l i t y . From a l i s t of twelve such f i n a n c i a l incentives i n Question no. 7 the respondents were requested to make a choice of four incentives considered to give the best company-wide r e s u l t s . This l i s t offered three incentives considered s p e c i f i c a l l y applicable to each of three management and one production-worker groups. Each incentive l i s t e d was e s s e n t i a l l y s p e c i f i c and suited to only one employee group, but i t was not obviously tagged with the group name. The intention was to i d e n t i f y the incentive but reduce the possible bias towards any one employee group. Middle-management people have a variety of interests and r e s p o n s i b i l i t i e s , and because no incentives have been originated that are of s p e c i f i c interest to them, the p a r t i c u l a r incentives considered as applicable to middle management were more of a general nature than those applied to other groups. This may have biased survey r e s u l t s by encouraging choices in this area because they have a general appeal, instead of considering them as s p e c i f i c f o r middle-management group, thus any bias towards middle management would tendto be negative. See "Limitation (4)" i n Chapter I. The measurement used was a "group-vote" i n d i c a t i n g the employee group which, i f motivated with incentives, was considered most able to influence company-wide r e s u l t s . This suggested both the application of teamwork and the u t i l i z a t i o n of a l l factors l i k e l y to influence long-term company results rather than a l i m i t e d day-to-day approach only. The items "A" to "L" offered i n Question no. 7 were scrambled i n the survey form, but i n the summary of results given i n Table XXXV, they have been rearranged under the a p p l i cable employee group. The l i m i t a t i o n of choices to four i n number only, offered variety for the respondent as well as providing a ranking of the accumulated r e s u l t s . T o t a l scores for each group w i l l be the main measurement used, as t h i s w i l l tend to reduce the bias shown for any one incentive type.  195 TABLE XXXVI FINANCIAL INCENTIVES RANKED BY VALUE FOR INCREASING LONG-TERM COMPANY PROFITS AND PROGRESS (REPLIES TO QUESTION # 10) Employee Group and Weighted Rank 5  Order of Choice  All Companies  Medium 2.4 2.8  Large MM(1) 2.4 FLS 2.6  3.0 3.0 4.7 5.0  PW MM(2) TM OW  2.9 3.1 3.6 4.6  Small FLS 2.4 TM 2.9 3.0 MM(2) PW 3.2 MM(1) 4.2 OW 4.6  ranking t h i s question  29  12  12  5  Number of companies reporting  83  43  31  9  0  1. 2. 3. 4. 5. 6.  FLS MM(2) TM' MM(1) PW  OW  2.4 2.8  TM FLS MM(1) MM(2) PW OW  2.8 3.4 4.8 5.0  Number of companies  Code from Questionnaire Items "A" to "F" i n terms of employee groups: * • • Item A. - MM(2) or Middle Management (Secondary interest) B. - PW or Production Worker C. - TM or Top Management C. - MM(1) or Middle Management (Primary interest) E. - FLS or F i r s t - L i n e Supervisor F. - OW or O f f i c e Worker eighted rank obtained by averaging ranks given each item over number of respondents. Comments on Group Influence on Long-term Companv Progress  c  To focus the purpose of the question a s p e c i f i c but generally acceptable company objective was established, namely better long-term company p r o f i t s and progress. Then i n l i n e with the subject matter of the survey, an opinion-type question u t i l i z i n g a choice of incentives as the v e h i c l e of opinion was used i n the survey. Incentives offered i n question no. 10, which were to be  196 ranked i n order of estimated value, were considered to be generally applicable to any group of employees, but each incentive was associated or linked with a s p e c i f i c employee group. Emphasis was directed at s p e c i f i c employee groups by i d e n t i f y i n g one group with each incentive offered. Two items were used for middle management: MM(1) - Company-financed t r a i n i n g program f o r middle management; MM(2) - Cash bonus for middle management. It could be expected that t h i s would bias the results i n favor of middle management. I t may have, but with the exception of returns from medium-sized companies placing a t i e on these MM items, other sizes of companies d i f f e r e n t i a t e d between MM(1) and MM(2) by at least one f u l l rank number. Item MM(1).for a company-financed t r a i n i n g program i s not a t y p i c a l f i n a n c i a l incentive, but i t was linked s p e c i f i c a l l y to MM to o f f e r a medium for showing d i r e c t interest towards that group. Respondents were asked to make, t h e i r choices i n the order of the estimated r e l a t i v e value of these " l i n k e d incentives" for increasing the long-term company p r o f i t s and progress. • The d i r e c t approach used here was i n contrast to the i n d i r e c t nature of question no. 7 and might have introduced considerable personal b i a s . See "Limitation (4)" i n Chapter I.  

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