In any manufacturing sector, an incentive is a factor (financial or non-financial) that enables or motivates a particular course of action, or counts as a reason for preferring one choice over other alternatives. Eventually, an incentive’s aim is to provide value for money and contribute to organizational success. It is considered as a driving force that produces a higher productivity with the same resources available. And from the perspective of the apparel manufacturing sector, where sewing operators are working on piece-rate basis, doing the same repetitive job day after day, an extensive incentive system is critical to achieve higher productivities.
Incentives can be classified according to the ways in which they motivate people to follow a particular set of procedures. A common and useful taxonomy divides incentives into two broad classes: The Remunerative incentives or Financial incentives and the Moral incentives. Whereas in a Financial incentive a worker can expect some form of material reward, especially money, in exchange for working in a particular way, the Moral incentives exist where a particular choice is widely regarded as the right thing to do, or as particularly admirable, or where the failure to act in a certain way is condemned as indecent. A person acting on a moral incentive can expect a sense of self-esteem, and approval or even admiration from his community.
The most important, relevant and widely practised category of incentives is the Remunerative incentives as at the end of the day it is what a sewing operator is concerned with. Within the Remunerative incentives, now various forms of incentive systems have been devised and are in use throughout the world. Broadly they can be divided into three major categories: Systems directly linked to the number of pieces made by the operator; The efficiency of the operator; and Time taken by the operator in doing the job.
The most basic and widely followed is the straight piece rate system where worker’s pay is directly linked to the number of pieces which he/she produces on a daily basis. However in this plan, quality may suffer as this system promotes only productivity not the quality, which is the prime objective in garment manufacturing. This incentive system is much suited and followed in companies where the nature of the work force is contractual and the management wishes to get maximum output within a limited number of working hours. Secondly, variation is where the worker is paid a fixed amount up to a certain target set by management, even if the worker produces less than the target. However, if the worker exceeds this target output, he/she is incentivized in direct proportion to the number of pieces produced by him at the straight piece rate.Thirdly, there is a set of systems based on the efficiency of the operator.
In this system the operators are classified in three categories according to their efficiencies, for example 70%, 100% and 120% of the target level and then incentivized accordingly. However, a separate level needs to be defined for freshers as they can hardly survive under the same benchmark levels as skilled workers. Another variation of the system works the other way around, i.e. the workers are incentivized on the basis of the overall efficiency. A range of 67% to 100% is defined and incentives are given from 0 to 20% of the operator’s base pay, accompanied by 1% increase in incentive for every 1% increase in output.
While in an organization where employees are only on salary basis, it is easier for companies to define their capacities, the piece-rate system empowers the organization with the flexibility to downsize or upscale the workforce according to the production quantities. However, with the evolution of the apparel industry, many incentive schemes have been devised so that salaried workforce too can be motivated to deliver maximum benefits for an apparel manufacturer.
Here two experts share their views about different incentive systems that are practiced in the industry.
Effective Incentives for the Garment Industry
Brad Mikes Partner, Incentive Payroll Experts, LLC
Over the years processes were implemented in apparel manufacturing to monitor employee pay, employee efficiency and employee quality. For example, an employee that was producing defective garments was also repairing their own defects on their own time. This concept kept the defect level in the plants low while maintaining the incentive to produce more units. Also, just because a company introduces incentives doesn’t mean that employee productivity will improve. First, the correct operational standards must be administered. Second, an incentive that is meaningful must also be instituted.
An employee that was producing defective garments was also repairing their own defects on their own time. This concept kept the defect level in the plants low while maintaining the incentive to produce more units. Just because a company introduces incentives doesn’t mean that employee productivity will improve.
What is a meaningful incentive? Typically it is a rate of pay that is 15-30% higher than the employee guaranteed rate of pay.
If the standard monthly pay is Rs. 5500 based on 26 working days at 8 hours per day, then that equates to Rs. 26.44 per hour. Based on this hourly rate of pay, the incentive rate should be Rs. 30.41/hour or higher (at least 15% or higher). This is usually called the “Base Rate”. The base rate will vary depending on several factors and typically there is more than one base rate depending on the difficulty of the operation (it is typically higher for the higher skilled employees or higher skill operations).
For simplicity, let’s say the Close Collar operation has a standard of 0.5 SAMs (Standard Allowed Minutes) per piece. In our plant, we want the 100% efficient sewing operator to make 30.41 per hour, i.e. 30.41/60 min. = Rs. 0.5068 per minute.
So, if we use this base rate for the Close Collar operation, the amount to be paid per piece for closing the collar is, 0.5000 x 0.5068 = 0.2534.
In this example, the 100% sewing operator should produce 120 units/hour i.e. 60/0.5 120 units x Rs. 0.2534 = Rs. 30.41/hour.
If the operator produces 150 units per hour, they earn Rs. 38.01/hour (150 x 0.2534) at 125% efficiency. If the operator produces 100 per hour, they earn Rs. 25.34/hour (100 x 0.2534) at 83% efficiency. The Rs. 25.34 per hour earned is the same as the monthly wage.
In the US, “make-up” is paid to guarantee the less efficient operator the federal or plant minimum hourly pay whichever is higher. So in this case if an operator produces 100 or less units per hour, they get paid Rs. 25.34 in incentive pay and are “made-up” to Rs. 25.34 + 1.10 = Rs. 26.44.
In this case, this operator is only 83% efficient and is costing the company money. Training or re-training is probably in order.
Typically a manufacturer will realize a 25 to 35% increase in employee productivity by instituting a good incentive system.
Incentives are very difficult to manage without good processes in place. A unit must have a:
- A good operational standards in place,
- A meaningful incentive,
- Must be able to monitor employee efficiency,
- Be able to monitor employee defect levels.
Operational Standards
The unit must have a sound standard (SAMs) applied to each operation. This standard can be generated through time study or, even better, from a pre-determined standard data system. A reasonable operational method should define the standard.
Meaningful Incentive
Companies that have a base rate equal to the minimum rate of pay do not have a good incentive in place. History shows that the base rate should be 15% or higher to incentivize employees.
Employee Efficiency
Employee efficiencies should be monitored and if necessary a training/re-training program should be in place for employees who need to follow the standard method to boost their efficiencies.
Employee Quality
Employee defect levels must be monitored. All defects that an employee produces need to be repaired by that employee on their own time. This will give the employee incentive to make fewer mistakes, which will lead to better overall employee efficiency and pay.
Individual Incentive vs. Group Incentive
Properly engineered plants which implement manufacturing incentives and constantly monitor results can realize a big return on investment, leading to improvement in production cost structures, enhancing both the employee performance and satisfaction levels and ultimately increase the production output.
What has been discussed thus far mostly relates to individual incentive. Group incentive is another way to incentivize the employees. For certain types of products (small production runs or very technical garments for example), a group incentive may be the best way to incentivize production employees. Typically, a group incentive is based on what the entire group produces, what the quality level of the group is, and also attendance levels. The group may split the incentive evenly among all members, or the money may be divided based on individual workload in the group, and/or other factors.
Automated Systems
To effectively administer incentives, a company needs an automated system. Typically there are two system types that companies implement. A “Batch” Payroll system utilizes barcoded bundle tickets that get turned in on an employee production sheet (called a Gumsheet in the US) and are typically scanned once in a day to calculate employee incentives and update production information.
The second system type is “real-time”. A computer device is installed at the sewing machine and every bundle of work is scanned via the device to capture real-time payroll and production information.
Real-time systems are typically several times higher in cost than batch payroll systems due to the large amount of hardware required. But these systems deliver immediate information to what is happening on the shop floor.
Piece-rate Incentive Benefits Motivate Salaried Sewing Operators
Roger Thomas Managing Director, Methods Workshop Apparel Consultancy India
It is a known fact that workers employed under the piece-rate system are highly skilled and motivated as their output is directly proportional to their salary; to be more precise “to make more money, you make more pieces”. The system, driven by labour contractors, saves upon the time consumed in sourcing employees as it is the responsibility of the contractor to take care of the skilled and unskilled workforce requirement of the organization. Not only is there any kind of obligation or headache, the skilled contractual employees require minimal supervision giving the organization the flexibility to size itself according to their manufacturing needs.
However, the three major drawbacks of the piece-rate system which hampers an organization’s growth are: Time wasted in price negotiations in case of product change; Constant resistance to advanced technology; and Method improvement initiatives.
Piece-rate vs. Salaried Workforce
| Salaried Workforce | Piece-rate System | |
| Labour rate per piece | Lower | Up to 46% higher |
| Cost per piece depends upon | Work content | Market rate |
| Operators focus on | Quality | Quantity |
| Attrition rate | Lower | Higher |
| Capacity | Fixed | Varies with labour availability |
| Product change | No problem | Price negotiation |
| Advanced technology | Welcome | Resisted |
| Work study and Method Improvement |
Welcome | Resisted |
It has been observed that the piece-rate employees show resistance to advanced technology, work study and method improvement in the fear of losing work or reduction in piece-rate. Since substantial amount of time is often wasted in price negotiation with the contractor, this causes a loss in production and slows the implementation of the new order.
“There exists a myth in the apparel manufacturing sector that piece-rate employees are cheaper than the salaried employees; however, in reality the labour rate per piece is lower in case of salaried workforce and as much as 46% higher in case of piece-rate workers because this rate is decided in conjugation with the market rate,” explains Roger.
Incentive System for Salaried Sewing Operators
The incentive system has been devised in a manner that all of the employees working on salary-basis are motivated to deliver better quantity and higher efficiencies, including support staff like supervisors, helpers, managers, Q/C’s, etc. Since operators will demand better planning and effective line balancing, they will all help each other to maximize output of their section; besides they will all keep a check on their machines status to reduce the downtime else their earnings will be affected.
Bonus Scheme (Types, Objectives, Earnings)
The following types of bonuses would be made available for the operators to avail linked to their attendance, efficiency, group and individual performance:
Attendance Bonus
The attendance bonus is an initial and very basic form of bonus given to employees. The compensation is based on workers’ regularity – one day’s absence, two day’s absence and three day’s absence or more absences. For example, for 100% attendance they would get Rs. 400; for only one day’s absent Rs. 300; for two day’s absent Rs. 150; and for three day’s or more absent no compensation would be given to them. It motivates the employees to come on time and reduce absenteeism.
Jump-start Bonus
Jump-start bonus is linked with the efficiency of the sewing operator, and as the name goes it is a start-up level bonus. At what level the “jump-start” bonus efficiency will be set will depend on the normal efficiency of the factory; it is a vital concept to get the operators motivated. It is a pointless exercise to set a starting efficiency that is too high for the majority of the operators to reach.
A target level should be set for the employees to achieve and all must be eligible for this bonus. For example the start-up target of 50% efficiency should be set and compensation for this level be given a great deal of thought, we will use an example of Rs. 350 for achieving this level on a monthly basis. Once this has been paid to the successful operators who achieve it, it instils the operator’s trust on the management and motivates them to work at a uniform efficiency level. They now firmly believe that management is prepared to pay and hence they will begin working more effectively to achieve those extra earnings on offer.
Individual and Group Bonus
Under the proposed incentive system, the individual and group incentives have been linked to each other wherein an operator would only get compensation if the whole group is working on a set level of efficiency (the start rate). Usually in a garment manufacturing facility with individual incentives, a sewing operator is only concerned with his/her compensation which is further related to the work done by them only. This contributes towards development of too much WIP; therefore once the individual incentive is linked with the group’s incentive, the operators start working as a team as they would be paid the compensation only if everyone is working towards achieving the group efficiency.
The chart below shows how much a worker could expect to earn if they achieve an individual performance of 80% coupled with a group efficiency of the same level. In Northern India, performance levels are between 35% to 45% and are taken as a norm, this belief MUST be trashed!! Operators are much more capable than this; this low performance is the fault of management expectations, poor planning and a lack of care for the workers, there is no other reason that figures of 65% to 80% performances can be constantly achieved.
Sri Lanka Case Study
The incentive program as discussed above was successfully implemented in a Sri Lankan manufacturing facility, making surf kites and windsurfer sails under strict quality control. The organization comprising of approximately 900 employees, produced in excess of 1000 pieces of each product each month.
The organization had the sales capacity to increase production but was facing difficulties attracting new operators, therefore the importance of linking the incentives to an operator’s productivity and efficiency was emphasised It became extremely important for the organization that its workers were rewarded for their improved performance, linked to productivity and efficiency.
Although the organization already had an incentive scheme in place but it was no more serving the purpose as the targets set were not calculated scientifically. Both Pro-SMV and Pro-Man were installed to ensure fair times and good methods and that operator performances were calculated accurately and with honesty. The system will also be linked to their biometric time and attendance and wages systems so that the incentive payments and wages are combined to make the whole payment system totally foolproof and tamperproof.
With the commencement of the incentive scheme in June 2011, the organization witnessed outstanding gains.
At the start of the first month 12% of the operators were crossing the jump-start point of 50% efficiency; by the end of the first month 84% had crossed the jump-start efficiency mark, indicating the acceptance of the system.
The organization witnessed an increase of 70% productivity in the month of September, just 3 months after implementation and the operator efficiencies have improved from 40% to 68%.
