Jones Ironworks Case Analysis

1. In the case of Jones Ironworks Freddie and his father disagree on the proposed $10 piece rate. Freddie believes that Jones needs to change its labor wages from a per hour basis to a per production basis. After attending business school for two-years Freddie has gained some insight as to “new” managerial thinking and decision making strategies. One issue Freddie has with the current wage rate system is that it does not provide workers with any financial incentives; Freddie believes that piece rate will increase worker productivity. Freddie also believes that the present pay rate is very low at $3.75 or $4.25, especially considering the poor working conditions. The poor pay and poor conditions have led to a labor turnover of 400 percent. The upside is that the $10 per unit piece rate would represent only a 13 percent increase in the actual cost.

First of all, “piece rate” which can also called commission based pay needs to be discussed. Freddie is looking to give workers financial incentives with the piece rates, but is this really considered financial incentive? Theoretically, the answer would be yes, by paying the worker based on performance, the result for the company will be increased productivity and the result for the worker would be increased pay. In this case, if an employee works 8 hours a day and can produce on average 2.1 units per hour, the worker will produce just under 4 units per day. Since the worker is paid based on completed jobs he would be paid an average of $30-$40 piece rate per day (3-4 total units x $10 per unit produced depending on the day). The piece rate system is meant to reward workers that should a good working ethic. However, problems may occur for the company if every single worker starts to work harder, especially if the worker produces at a rate earning more than the original earnings on a per hour wage basis. For example, a slower worker, in this case producing less than 20 units per week does not produce as many units to be...