Operations Management: An Integrated Approach, 5th Edition

COMPENSATION

Worker compensation is the third part of work system design. Companies need to develop compensation systems that reinforce the behaviors needed to meet the company's objectives.

Compensation systems are typically based either on time spent working or on output generated. Time-based systems compensate the employee according to the number of hours worked during the pay period. Compensation is not linked to employee performance but to employee presence at the workplace. Output-based or incentive systems link employee pay to performance. Employees are paid based on their output and not on the number of hours they work.

Time-Based Systems

Time-based compensation systems are normally used when measuring output per employee is not applicable—say, for managers, administrative support staff, and some direct laborers. Consider an employee working in your company's research and development group. This employee is doing creative work, which is not easily measured in terms of output. The advantage of the time-based system is its simplicity. For the company, wages are easily calculated. For the employees, the pay is steady, and they know what they will get in their regular paycheck.

Time-based compensation systems

Pay based on the number of hours worked.

Output-Based Systems

Output-based (incentive) systems, or piece-rate systems, or commission systems can be linked to Frederick ...