gregory encina billikopf - for your information you give casual incentives ... for bonuses for...

Incentive pay is generally given forspecific performance results rather thansimply for time worked at the dairy.While incentives are not the answer toall personnel challenges, they can domuch to increase worker performance.

In this chapter we discuss casual andstructured incentives. Although eachrewards specific employee behaviors,they differ substantially. In structuredincentives, workers understand ahead oftime the precise relationship betweenperformance and the incentive reward.

In a casual approach, dairy workersnever know when a reward will begiven.

CASUAL INCENTIVES

The simplicity inherent in the casualincentive approach attracts many dairyfarmers who would not consider astructured incentive. Casual rewardsinclude a pat on the back, a sincerethank-you, a $50 bill, a dinner for two ata local restaurant, or a pair of tickets to

1Pay for Performance1

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Gregory Encina BillikopfLabor Management Farm Advisor

University of California(209) 525-6800

[email protected]

the rodeo (workers may have excellentsuggestions along these lines). You maywant to entitle dairy employees tochoose from a menu of several rewards.One farm employer provides a cataloguefrom which employees can order itemsunder a certain dollar value.

Accompanied by a specificcommendation, “This is for reducing ourtotal harvest-time machinery breakdowns,” the reward is more effectivethan “thanks for all you do.” To be ofuse, these casual incentives must begiven at unexpected intervals.

A bonus given routinely soonbecomes part of the expectedcompensation package. Casualincentives communicate to employeesthat you have noticed their efforts.People thrive on positive feedback.

Drawbacks. Three possibledrawbacks to the casual incentiveapproach may include (1) envy amongdairy employees, (2) feelings amongworkers that the supervisor may beacting out of favoritism, and (3) the useof rewards to maintain social distance.

While there are times when praisingworkers in public is appropriate, at othertimes it may do more harm than good.An example of the latter is whencoworkers hear a direct or impliedcomparison between the rewardedemployee and themselves.

Even though workers are likely totell others about their rewards anyway,the force of the comparison is reducedwhen you give casual incentivesprivately. Perceptions among workersthat rewards are given in a capricious orarbitrary manner, however, may stillremain.

One way of overcoming both envyand favoritism challenges may be byhaving workers nominate others forthese casual awards. The nominatingprocedure should be kept simple.Recognition coming from fellowemployees is unlikely to causeresentment and is one of the mostsincere forms of praise. This type ofrecognition could even be given inpublic. Unfortunately, chances are thatworkers at the dairy will be rewardedfor their popularity.

Sometimes employees are reachingfor a positive stroke: they hope that theirsuperior performance has been noticed.While casual incentives can be veryappreciated rewards, they can also beused to keep a social distance from thepersons to whom they are given. Thismay happen, for instance, if anemployee receives a monetary rewardwhen he was reaching for psychologicalproximity instead. Only you can discernyour employee’s needs in a givensituation. After all, both workers andsituations vary.

Suggestion Plans. Suggestion plansmay also be handled under a casualincentive system. You may want torecognize personnel for suggestionsresulting in savings or increasedproductivity. In one instance, a farmersaved thousands of dollars after anemployee suggested a more frequentadjustment to the scales.3

Employee suggestions that requiresmall capital or labor outlays toimplement, such as what was needed tokeep the scale adjusted, should generallyresult in larger rewards. Expensive ordifficult to implement suggestions maynot yield any pay reward but a simpleacknowledgment to the worker.

You must decide whether to rewardall workers or only the authors of anaccepted suggestion. There may be abalance that rewards teamwork andindividual creativity.

Regardless of approach, a functionalsuggestion system needs managementfollow-through. Receipt of workerrecommendations, as well as possibleaction to be taken, needs to beacknowledged promptly to those whomake the proposals.

2 • DA I RY IN C E N T I V E PAY (4 T H ED I T I O N)

Jack

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Casual rewards include a pat

on the back, a sincere thank-

you, a $50 bill, a dinner for

two at a local restaurant, or a

pair of tickets to the rodeo.

Not every suggestion will beaccepted, yet employees should be keptinformed on the status of suggestions. Astructured incentive plan, discussednext, helps both workers andmanagement improve communications.

STRUCTURED INCENTIVES

Structured incentives can help directemployee efforts. Other benefits includecost certainty and cost reductions for the

dairy farmer. Benefits to employeesinclude higher pay and satisfaction.

Dairymen’s feelings about structuredincentives generally fall into fourgroups:

1. Incentives work well—they haveeither helped motivate or maintain highworker performance. A Stanislaus dairyfarmer spends $5,000 to $7,000 eachyear to implement his incentive programand gets $55,000 to $57,000 back.

2. Challenges posed by incentives —Top concerns about incentives from a

PAY F O R PE R F O R M A N C E • 3

Public praising of an

employee may cause

jealousy between workers.

farm survey4 included: (a) poor qualitywork (or neglect of important goals notdirectly rewarded by the incentive); (b)no change in worker performance; (c)difficulty in setting standards; (d)change in work methods or technology;and (e) excessive record-keeping.

3. Incentives do not apply to presentneeds.

4. Incentives are not used because oflack of information on how to establishthem.

Workers are also divided in theirfeelings about incentive pay. One dairyemployee said incentives are whatfarmers pay when they do not want topay workers a fair wage. Anothermilker, in contrast, was very enthusiasticabout the incentive program the dairy

farmer had instituted: it made him feelpart of a team.

Workers in one study were evenlydivided between those who favoredhourly pay and those who liked piece-rate pay. The most common reason forpreferring piece-rate pay was increasedearning potential. Workers could acquiregreater earnings in fewer hours of work,even though it took more effort to do so.Worker preference for hourly work fellinto three general categories. Workers(1) felt that piece rate was unfair(mostly concerned about what theyviewed as game playing in how piecerates were set), (2) preferred the pace ofhourly paid work, or (3) associated otherbenefits with hourly pay.5 Whenproperly designed to protect bothdairyman and farm personnel, structuredincentives work well.

Examples of structured incentives

A structured incentive (1) must becapable of fluctuating (variable pay) asperformance changes, and (2) is basedon a specific accomplishment-rewardconnection understood by bothmanagement and workers.

Examples of typical incentives:• paid for number of cows milked

or hoofs trimmed• allowing workers to go home

early, with full pay, when theyfinish milking

• end-of-season bonus foremployees who stay to the end

• quality or production incentive• bonus for reducing production

costs or death loss• profit sharing.

Examples of payments or benefitswhich are not incentives:

• most mandated benefits such asunemployment insurance,workers’ compensation

• nonmandated benefits that do notfluctuate, such as housing

• wage increases, vacation, orrewards that, once earned, areseldom lost

• pay tied to time worked (exceptfor bonuses for attendance,difficult shifts, and the like).


Despite the benefits of piece-

rate pay, workers often (1)

feel it is unfair how piece-

rates are determined; (2)

prefer the pace of hourly paid

work; or (3) associate other

benefits with hourly pay.

STEPS IN ESTABLISHINGSTRUCTURED INCENTIVES

This section provides sevenguidelines helpful in deciding whetherto establish, and how to design andtroubleshoot, structured incentiveprograms at your dairy.

(1) Analyze the challenge anddetermine if incentives areappropriate.

(2) Link pay with performance. (3) Anticipate loopholes. (4) Establish standards and determine

pay. (5) Protect workers from negative

consequences. (6) Improve communications. (7) Periodically review the program.

Step No. 1. Analyze the challenge anddetermine if incentives areappropriate

The purpose of an incentive programneeds to be clear and specific. Poor calfhealth or milk quality, slow work, andsick leave abuse are examples ofspecific, measurable problems.

Just because a goal can be measuredin clear and specific terms, however,does not mean incentives are called for.

Incentives may not be appropriate tomotivate employees who lack theresources or skills to perform. Noamount of incentive will help anunskilled AI practitioner to improve hisbreeding record. Because establishingincentives is not simple, dairymensometimes opt for other solutions. Adairy farmer tried several ways toimprove an employee’s milk qualityperformance. A veterinarian was calledin to demonstrate proper milkingtechniques, but the improvement wasshort lived. The worker knew how to dothe job but was not doing it. Theproducer decided not to implement anincentive pay system. Instead, in a lastditch effort, he warned the milker:improve or be fired. The milkerimproved so much that the dairymangave him a raise a few months later.

One three-way classification ofemployee performance is (1) poor, (2)standard, and (3) superior. Standardperformance is what can be expectedfrom a dairy worker just because he hasa job. Rewarding workers withincentives for bringing their poor workup to standard would be like payingtwice for the same job: once for havingthe employee show up, the other forworking. Instead, an incentive pay


SIDEBAR 1-1

Safety Incentives

Safety incentives reward workerswith good safety records (oftenmeasured in terms of reportableaccidents) or for safety suggestionsmanagement considers worthimplementing. Rewards for goodsuggestions can be positive in the areaof farm safety as well as in reducingwaste, improving productivity, or otherareas. However, it seems peculiar tohave to pay workers not to get hurt.After all, it is the worker who has themost to lose by an injury or illness.Instead, farmers may improve theirsafety record through (1) a policyencouraging a safe working climate, (2)worker training, (3) hazard evaluationand correction measures, (4) safety

committees, (5) discipline for violationof safety rules, and (6) carefulemployee selection, including the useof post-offer, pre-employmentphysicals.

In some instances safety incentivesthat deal with reported accidents maybe construed to be illegal, as workersseem to be punished for filing workers’compensation claims.

If you still want to recognize dairyemployees for a long accident-freespell at the ranch, you may want totailor a casual incentive. The rewardshould be given to all and be a simple,low-key, non-monetary prize such as acompany hat or picnic. Along with therecognition, emphasis should be onsafety and on reporting job-relatedinjuries and illnesses, even thoseappearing insignificant.

program can reward workers whocontinue to produce superior work, orencourage those who already producegood work to excel.

Incentives designed to deal withfarm safety seem inappropriate to me.Such incentives may do more to deterthe filing of workers’ compensationclaims than to reduce accidents. Workersmay hide incidents of injury or illness inorder to earn a reward—or avoid thewrath of peers (see Sidebar 1-1).

A farmer who pays well, providespositive working conditions, and has awaiting list of employees who want towork for him, does not normally need toturn to incentives to improve punctualityor attendance, except for seasonal work.

Extra pay may also be provided torecognize particularly difficultconditions, such as staying through extrawet or cold months at the dairy.

Tradition is not always the bestindicator of what programs will workunder incentive pay.

Incentives are often needed tocounteract the effect that crew dynamicshas on performance.6 Dairy workersmay work down to the speed of theirslowest co-worker.

Step No. 2. Link pay withperformance

Some dairy farmers offer end-of-yearprofit sharing plans “because we didwell this year.” Lamentably, there aretoo many factors that affect dairy farmprofits besides worker productivity.Weather and market are two externalconcerns, while farm accountingprocedures can be an internal one.Personnel must trust that the dairyenterprise will report profits in a fair andhonest way.

Dairy employees do not always see alink between their efforts and dairyprofits. Another danger is a streak ofever increasing profits followed byseveral years of deficits simply causedby the price of milk. While manyworkers will be very understanding atreceiving a reduced profit-sharingpaycheck for a year, few will tolerate alonger drought without experiencingconsiderable dissatisfaction. Onemanager shared with me his excitementabout a substantial profit-sharing bonus.As a result, he worked much harder thenext year and felt defrauded when thatcheck ended up substantially reducedwhen compared to the first year. Hesoon left that enterprise.

In another instance, a worker at anequine and cattle facility explained, “Iput the same effort each month, but insome I get the added bonus of getting aprofit-sharing check.” The ranchemployee was explaining that he did notdo anything special to try and get ahigher bonus, but that some months hewould get one while in others he wouldnot. Since he was not putting any effortinto obtaining the bonus, the employeefelt that it was a windfall in thosemonths when he would get something.

Instead of being a motivator, profitsharing can discourage employees. Notonly are profits dependent on the effortsof the whole organization, but profitscan be fickle in dairy farming.


Dairymen may sometimes

provide an incentive for

employees to finish out the

season, such as a per hour

or per-unit incentive to be

given employees who stay

to the end of the season.

Risk sharing is related to profitsharing. Here employees are givenhigher profit-sharing bonuses in goodyears in exchange for getting a lowerbase pay than normal in unprofitableyears. That is, in contrast with thenormal system of profit sharing, in badyears the employees not only did notearn a bonus, but also lost part of theirbase salary; in good years, they earnedbonuses much greater to what theywould have earned normally. It is notsurprising that companies favor risksharing ventures more than employeesdo: “[The employee] gambles alongwith the company... Clearly, at-riskplans shift some of the risk of doingbusiness from the company to theemployee.”7

Any time employees are rewarded orpunished for that which they cannotcontrol, dairy employers are asking for acynical or disillusioned workforce. Allthis having been said, some dairymenmay wish to have a very small profit-sharing bonus as a teaching tool for topand middle management. Much betterthan profit sharing, however, is breakingdown all elements under the control ofemployees or management that affectdairy profits and rewarding personnelfor achieving results.

A Fortune 500 executive, afterexplaining three of his most importantgoals—making an importantcontribution to society, developingexcellent products, and making theorganization a good place to work—made quite an impact as a guest speakerby pretending to momentarily forget hisfourth goal: “The fourth goal . . . theremust be a fourth goal. I mentioned it ina speech at [a nearby university]. Ohyes, the fourth goal is to make a profit.”8

Sooner or later, then, when the profitpotential is there, the dairy enterprisewill make money as employees improvetheir ability to make changes in areasthey control.

Seasonal fluctuations and otherfactors may need to be considered whensetting incentives. When attempting tocontrol mastitis in the herd, for instance,a dairy manager has to considervariables beyond the control of her

workers. Because mastitis is caused byseveral factors, it is desirable to considerthem all. A milker would soon bediscouraged if, no matter how diligentlyhe used any specific preventiontechnique, the mastitis level wassensitive to improper machinerymaintenance or seasonal fluctuationscaused by environmental factors.

One way to categorize incentive payis by whether individuals, small groups,or all dairy personnel are covered.Individual incentive plans offer theclearest link between a worker’s effortand the reward.

Probably the best-known individualor small group incentive pay plan inagriculture is piece rate. Piece rate isnot suited to much of the work thattakes place at a dairy. There are othertypes of individual incentives, however,that can be given at the dairy.

Small group and farmwideincentives work better when it isdifficult to distinguish individualcontributions, or where cooperation andteam work are critical. Group incentivesdo not automatically foster team work,however. More productive workers mayresent less motivated or less talentedemployees.

A supervisor reported that when hiscrews were paid a group incentive, thefastest workers would slow down themost. This is not surprising, given thatthe fastest employees are four to eighttimes more effective than the slowest.Some of them may ask themselves,“Why rush when we will all get paid thesame?” When paid on a strict hourlywage sometimes workers “sort of kickthe tires, take a lot of trips to the


Instead of being a motivator,

profit sharing can discourage

employees. Not only are

profits dependent on the

efforts of the whole

organization, but profits can

be fickle. This is especially

true in farming where there

may be a rash of good years

followed by bad ones.

bathroom” and slow down in otherways. “The faster workers put a lot ofpressure on the slower ones,” explainedone farm manager, “and we have evenhad those who felt so harassed theywanted to quit. The system has createdtension and conflict among theworkers.”

As the tie between individual workand results is diminished, so is themotivating effect of the incentive on theindividual. If you use small groupincentives, it helps to have workerschoose and control their own teams, butthis is seldom possible at most dairies.When workers who have partial controlover results are not included in theincentive pay program, conflicts mayarise.

Step No. 3. Anticipate loopholes Being so specific about a single

result may cause workers to achieve it atthe expense of all others. Examplesinclude the herd manager who reducedthe average number of breedings perconception, but did so by culling severalof the best milk cows.

Allowing workers to “go home”(with a full day’s pay) when they finishmilking has the same motivating effectas most output-based incentive paysystems—and similar problems. Theincentive is to get done as quickly aspossible and go home.

Dairy workers rewarded fordetecting cows in heat may find anunusual number of cows in heat.Instead, workers could be paid fordetecting cows in heat that are laterconfirmed pregnant.

The number one loophole forquantity production incentives is oftenquality. If the dairy farmer does not takeany preventive measures, his milkerswho are paid by the cow (or allowed togo home as soon as they are finished,yet paid for the full shift) is moremotivated to finish quickly than to do agood quality job following all of themilking procedures.

Sidebar 1-2 speaks about keeping upgood quality when paying people forquantity-based performance.

Step No. 4. Establish standards anddetermine pay

This process involves clarifyingexpected performance, consideringagricultural variations, noting when it isfair to eliminate incentives,contemplating potential savings andgains, determining base wage versusincentive pay, anticipating effects oftechnological or biological change, andconverting standards into pay.

Clarifying expected performance.The first task is to establish and definestandards.

• When feeding, how close shouldthe feed be to the cows? Is theemployee supposed to come backand push the feed closer?

• Will mortality calculations part ofa greater calf health programinclude all calves—even thoseborn dead or killed by lightning?Or, will a veterinarian conduct acalf autopsy and decide if it wasa preventable loss?

• What are all the steps required inthe milking procedure?

Agricultural variation. Eachagricultural commodity has its ownidiosyncrasies that can be used todetermine work effort. In one orchardoperation,11 crop density is used todetermine how to pay for thinning fruitload. Weather conditions at a dairy may


Dairy workers rewarded for

detecting cows in heat (as

part of a breeding program)

may find an unusual number

of cows in heat. Instead,

workers could be paid for

detecting cows in heat who

are later confirmed pregnant.

affect ease of work and specific bonusesbased on actual temperatures orprecipitation may be given.

Elimination of incentives. Thespecific circumstances for eliminatingincentives should be clearly related to

the incentive and articulated ahead oftime. Employees on a milk qualityincentive could lose incentive earnings,for instance, if (1) the milk got hotbecause no one turned on the cooler, (2)cows with antibiotics were milked into


SIDEBAR 1-2

Approaches Toward ImprovedQuality while Paying Piece Rate orfor Quantity of Work

Hourly base pay with piece-ratepay. The greater the proportion of paygoing toward hourly pay, the lessimportance given to quantity of work.These farmers may not be getting theirmoney’s worth, however. Hourly paidworkers are substantially slower thanpiece-rate ones without obtainingsizable improvements in quality.9

Speed limit placed on workers. It istrue employees who work faster thantheir skill level will do so by neglectingquality. Unfortunately, limiting workerspeed, to be effective, would have totake place on a worker-by-workerbasis. A maximum speed standardestablished for all employees wouldlikely result in expectations overly highfor some and too easy for others.

Discipline. Minimum standards areset—or workers risk being disciplined.This tactic is perhaps the mostcommonly used and works relativelywell.

Quality incentive. This method maytake more time to set up but has thegreatest potential. Set up randomquality-control inspections or spotchecks. Substandard scores can resultin additional training or discipline.Superior scores earn a bonus. Here isan example outside the dairy industry:a cherry farmer may pay $3 per boxpicked, with a potential multiplier of1.084 for good quality or 1.25 forsuperior quality (about 25 or 75 centsper box, respectively). Three workerspicking 24 boxes each in a day wouldearn $72 (no bonus), $78.05 for goodwork, and $90 for superior work. Thequality bonus has to be high enough as

to provide greater rewards to thecareful employee over the one whopicks more boxes.

Earn the right to work in a piece-rate paid crew. An effectivemanagement tool is to have employeeswork on an hourly paid basis until theycan prove their complete understandingof quality considerations. Only whenworkers have shown a completemastery of quality are they moved to apiece-rate paid situation. For instance, amilker would have to prove sheunderstands milk quality proceduresperfectly before being permitted to gohome after finishing a shift. As acondition of working in the piece-ratesituation, milkers would be expected tokeep up high quality performance. Thisapproach can be effectively combinedwith discipline and the qualityincentive above.

When paying for quantity of

work performed, quality

incentives take more time to

set up but have the greatest

potential. Begin by identifying

a range of acceptable

individual performance. Then

set up random quality-control

inspections or spot checks.

Sub-standard scores can

result in additional training or

discipline, while good marks

earn employees an extra

bonus per unit.

the bulk tank, or (3) line filter changeswere neglected.

It makes little sense to eliminate abonus for reducing calf loss foremployees who commit unrelatedinfractions (e.g., displacing a tool,getting into a fight). Any prolongedelimination of incentives riskssurrendering any motivational effect theincentive program may have had. If thebreach is so serious, perhaps the dairyfarmer should consider workerdiscipline or termination.

Potential savings and gains. A dairyfarmer trying to increase calf health mayask: how much does it cost me everytime a calf dies?12 Unfortunately, manyemployers think more in terms of howmuch they expect workers to earn in anhour—rather than what the incentiveprogram does in reducing costs (e.g.,costs per acre). In a well-designedincentive pay program, a dairymanshould feel that the more his employeesearn, the better off he is.

There may be a point whereimprovements beyond a certain levelrequire a substantially greater effort, yetyield less significant results. Efforts maybe better directed elsewhere. There is asubstantial milk production increasewhen somatic cell counts reduce fromlog scores of 5 to 4 or 3, but a smallerproportional increase in milk quantitiesfor further improvements. For theworker to achieve the firstimprovements, also, is much easier.

Two conflicting principles must bebalanced here: (1) greater worker effortshould result in greater pay; and (2)greater employee earnings should resultin increased profits for the ranch. Youmay need to create a reward structurewith a ceiling beyond which noadditional pay increments are obtained.

Base wage versus incentive pay.Some incentives constitute 100 percentof a worker’s wages. Other incentivesare combined with base wage earnings(Chapter 2). As a rule of thumb, thepercentage of potential wagesrepresented by incentives shouldconsider the (1) amount of control aworker has over rewarded results, (2)importance of the rewarded results tothe overall position, and (3) possible

loopholes not covered by the rewardedresults.

For instance, work quantityincentives can constitute most of anemployee’s wages if she has completecontrol over the outcome, speed isimportant, and quality is taken intoconsideration so it is not neglected.

In contrast, a herd manager does nothave full control over calf health, nordoes calf health represent his only job.This same manager may also beconcerned with herd feed intake,improving milk quality and pregnancyrate, and supervision of milkers. A paysystem for such a manager shouldreflect the wide spectrum of what isexpected of her.

Anticipate effects of technological orbiological change. If new machinery,technology, biological stock or methodsare being contemplated, dairymen woulddo well to postpone introduction of newincentive programs until after suchchanges have been made and theireffectiveness evaluated. Otherwise, thedairy farmer will not be sure whether itwas the technological change or theincentive pay that brought about results.Workers may either be blamed or paidfor something over which they had littlecontrol. For example, thousands ofdollars can be spent on new equipmentthat would automatically improveworkers’ performance. If the incentivewas established before the equipmentwas purchased, it would mean payingtwice for the equipment: the direct costof the equipment plus the cost of thehigher remuneration to the workers. Anychanges in technology or measurementhave the potential for a change instandard and can lead to distrust if nothandled properly.

Converting standards into pay. If nohistorical performance data exists formaking sound pay decisions, you maywant to do the work yourself—or askothers you trust to do it. In no caseshould the people who will eventuallydo the work, or someone who has avested interest in the results (e.g., a herdmanager with relatives in the crew),perform the trial.

When dairymen ask employees towork first on an hourly basis until the


standard is set, workers may perform ata reduced level (while sometimesmaking it look as if they are strugglingor working very hard). Employeesrealize high performance during the trialwill result in lower wages once thebonus is fixed.

Once standards are set, a dairyfarmer may lower the requirements butnever make them harder. A farmerunderestimated worker performance.When the workers earned much morethan the farmer expected, he lowered thepiece rate. The farmer lost credibility,worker morale fell sharply, and manyleft for other jobs.

Step No. 5. Protect workers fromnegative consequences

Employees have a number ofreservations related to the use ofincentives. These include such things asfear of job loss, unfair pay, and ratereductions. In the section on loopholeswe considered how to protect the dairyfarmer when incentives are used. To alsoprotect employees we need to:

• Provide a fair wage. • Tell employees how much they

are earning. • Maintain fair standards. • Hire fewer workers for longer

periods. • Protect senior workers. • Provide timely performance

feedback. • Be sensitive to physical demands. • Encourage workers to take rest

breaks. • Provide a safe environment. • Avoid chance incentives.

Provide a fair wage. Workers aremore likely to feel incentives are anexcuse for low wages when they do notreceive a fair base wage to begin with.(That is, in those cases where there is abase wage plus an incentive, whichwould be the case in most dairy jobs incontrast to say, a fruit picker.)Employees may see incentives as eitherrequiring unachievable goals in order tomake a competitive wage, or onlypartially under their control. In contrast,when added to a generous base wage,incentives may be quite small and still

be well received. Workers may look atthem more as casual incentives; theyprovide positive feedback and a feelingof belonging to a team. If incentives arenot proportional to the amount of workinvolved, however, they are unlikely toprovide the intended long termmotivation.

Tell employees how much they areearning. Pickers at one California farmdid not find out what the piece rate wasuntil the end of each day when they gotpaid—which was strictly on a per buck-et basis. A worker thinning peaches didnot know how much he was earning pertree. In a third example, workers inVoronezh, Russia, who were puttingboxes together for packing fruit, did notknow how much they would get paidper box until the end of the month. Ineach of these cases, the farmer, the farmlabor contractor, and the enterprise man-ager respectively explained, “Our work-ers trust us.” It became obvious, howev-er, that the more buckets picked by thecucumber crew, the more trees thinned,or boxes built, the less they were goingto get paid per unit. One of the workersin the thinning crew expressed frustra-tion at not knowing what the piece ratewas and pointing to the end of the longrow said, “If I knew how much I wasgetting paid per tree, I would have al-ready finished the row and would be onmy way back.” These same principlescan be applied to the dairy operation.

Maintain fair standards. Even afteran incentive standard is fixed, workersmay be hesitant to show the dairyfarmer their full performance potential. Iwill give some examples from outsidethe dairy industry, but similar principlescan be understood at the dairy. A grapegrower called to express a fear that hisemployees were earning too much. “Ihave been thinking of reducing what Ipay per grapevine from 32 cents pervine to 28,” he explained. I explained tothe grower that the piece rate should notbe diminished, that half his crew wasapt to leave—the better half—and theother half would never trust him again.“I was just putting you to the test,” thegrower retorted. “I reduced the piecerate last week, and half the crew alreadyleft ...”


Crew members sometimes exertpressure on overly productive coworkersto have them slow down. They fearstandards will be increased (i.e., theywill have to put in more effort to makethe same amount) either now or infuture years. A worker described how ona previous job he had been offered $1per box of apricots picked. When hepicked 100 boxes for the day within afew hours the rate was suddenlychanged to 50 cents per box. Anotherworker explained, “If we are making toomuch on piece rate we are told to alsoweed, and that reduces our earnings.”14

At a large orchard operation, topmanagement was mistakenly focusingon average earnings per hour (bytranslating piece rate costs into hourlywages). Instead, they needed to focus oncost per acre or cost per job. Whenpiece-rate paid workers made what totop management seemed like overlyhigh wages, their pay rate was reducedwith disastrous results: the bestemployees left, and trust was destroyedfor those who remained.

In order to counteract management’stendency to lower the piece rate, aclever production manager formedcrews where high earning workers werebalanced out with slow ones. This kepttop management satisfied (because theaverage cost per hour was not too high)and yet allowed fast workers to earnmore with less fear of having their

wages cut.15 This practice, of course,does not solve the real problem, nordoes it entirely overcome thedisincentive to faster, more effectivework. For instance, this productionmanager may not want to use a practicaltest to improve the number of superiorcrew workers because of the wrongfuldependence on costs per hour as aproductivity gauge. It just wouldn’t lookgood to his supervisors if workersstarted earning more.

The changes in standard may not beblatant. For instance, when hourly paidworkers get a cost-of-living raise,dairymen may reason that those beingpaid a quantity or quality based bonusdo not need a raise as they are alreadyearning much more. Without the raise,the premium for effort given to incentivepaid workers is thus reduced. Yet thoseworking under a well designed pay forperformance system exert considerablymore effort.

The design of the incentive may bepoor, also. For instance, dairyman maygive employees an incentive forachieving a percentage of improvedproductivity over previous performance,such as improving milk grade. Oncecertain goals are achieved the dairyfarmer needs to be pleased with theimprovement rather than requiring apercentage improvement each year.There comes a point where the better weare at something, the harder we need to


SIDEBAR 1-3

Do Piece-Rate Paid Crew WorkersLeave after Making a Wage Goal?

Some farmers resist increasingincentive pay levels whencompensating seasonal crew workers.They have hypothesized that workershave a certain earnings goal for eachday and that once this goal is achieved,workers will go home. Economistswould explain this phenomenon as theincome effect: increases in incomeallow those in the work force to takemore time for leisure activities.

But economists also speak of thesubstitution effect: the greater the

wages, the more a worker forfeits byengaging in leisure time. A study innumerous crops showed that fewer thanthree percent of crew workers out ofmore than 440 left work after reachinga wage goal for the day. About 11percent of the respondents had at sometime left earlier in the day, but thereasons given were (1) getting overlyhot or tired or (2) not making asufficient wage (i.e., low wages or notenough to pick). In either case, theseworkers were generally willing to staylonger if the earning opportunities weregreater. Workers need to maximizeearning opportunities when they can befully employed. Leisure could comelater, during “down time.”13

work to make the next level ofimprovement. An “S” shaped curve canbe used to illustrate the phenomena.Improvement at first may be slow, thenvery fast, and then slow again. In somecases, of course, there may be another“S” shaped curve waiting for us evenwhen we thought we had improved allwe could.

In one farm operation employees“reached an expected threshold andthere was no further change” after that.The more workers improved, the harderit was to surpass previous performancelevels and gain an incentive reward.This employer dropped his incentiveprogram. I wonder if performancereverted to a lower level, too.

To conclude this set of exampleswith a more positive one, a prominentCalifornia vineyard operator called infrustration: “We have an employee whois earning $45 per hour by the piece! Wemust be doing something wrong!” Likethe other farmer, they wanted to cutpiece rates, but fortunately thesegrowers called before making thechange. I was able to explain that $45per hour for the best employee was notout of line to what the researchindicated. The best farm worker in acrew was capable of four to eight timesthe performance of the worst. Icongratulated this farm enterprise, theyhad achieved trust from the workers!

Sometimes dairymen get paid less

for their milk or have to pay more forthe commodities they purchase in orderto feed the cattle. When dairy farmersare forced to cut incentive wages inorder to stay in business, they are likelyto lose workers’ trust. Part of aneffective labor management policy is tocarry over dairy income to protectworkers’ future earnings. This will helpbalance out some of the rough spots soinherent in agriculture.

Some jobs require extra effort whileothers mean extra time (e.g., time spentimproving quality). Incentives shouldcompensate employees for the extraamount of time required to accomplish ajob. For instance, if employees spendabout half an hour more per milkingshift to improve milk quality, theincentive should pay more than the halfhour per shift the dairy farmer wouldhave had to pay on an hourly basis.

Hire fewer workers for longerperiods. Workers are less likely to slowdown when they realize there is plentyof work to do. When time frames are notcritical, it is often preferable to hirefewer, better-qualified people to do thejob. You can manage to save moneywhile providing a longer season andhigher pay rates for employees. Whilemost of the work in the dairy parlor andaround the animals is pretty constant,this principle needs to be taken intoconsideration when hiring people whowork in crops.


Dairymen will not derive the

full benefits of quantity based

pay until workers are

confident that high earnings

today will not translate into

reduced rates in the future.

Rather than just firing long termemployees who do not do as well underan incentive pay program, or in order tohave fewer employees, dairy farmerswill want to have a policy of reducingtheir work force by attrition rather thanby terminations.

Protect senior workers. Dairyfarmers may, through a careful selectionprocess, avoid hiring employees whocannot perform the job. Those whoemploy workers without first testingthem may want to introduce incentivesto encourage the most productiveworkers to stay and produce. Dairymenwho have poor performers in their staffmay wish to deal with this issue beforeintroducing an incentive pay program.

Sooner or later dairy farmers need todeal with long time employees who areno longer in their prime. Many dairyfarmers rightfully feel a sense ofresponsibility for these workers andoften find less strenuous tasks for them.For instance, some dairymen mayemploy older workers to do tasks thatare strictly paid by the hour and leavemore strenuous jobs for others. It is notuncommon for senior workers to outdoyounger ones, of course, andassumptions about worker capabilitiesbased on age are often unfounded.

Provide timely performancefeedback. Effective performanceappraisal and communication is critical.Supervisors need to provide effectivetraining and appraise workerperformance in a timely fashion. Dairyfarmers who have workers earn the rightto work on a quantity-based bonus (seeSidebar 1-2) by showing completeunderstanding of quality issues ahead oftime, are likely to end up with fewermiscommunications with theiremployees.

The simple act of making a list ofcriteria that are important to you andsharing those with workers will go along way towards improved quality.Taking the next step, of sharing withemployees how well they are doing, cancement good habits. It also helps toprovide samples of what is consideredgood quality work.

Be sensitive to physical demands.The physical demands of speed or

quantity based performance are suchthat workers need to work fewer hoursthan when paid by the hour,16 or riskhealth problems. This is especially sowith more physically demanding jobs inthe summer heat. Generally, themaximum workers can perform whenpaid by the piece is seven to eight hours.It is important to provide plenty of coldwater and have it sufficiently close tothe work being performed so workerswill drink it. It may be necessary toprovide worker training on theimportance of drinking sufficient water.Encouraging workers to drink early(before they become thirsty) and atfrequent intervals may reduce bodyfatigue.17

Encourage workers to take restbreaks. One disadvantage of quantitybased pay incentives is that employeesmay want to forego their breaks.18

Making sure employees take theirbreaks is likely to reduce injuries andmistakes as well as increase workerpreference hourly paid work. Whilethose who perform hourly paid taskstake breaks on the dairyman’s time,those on productivity incentives wouldhave to do so on their own time. Oneway to encourage employees to takebreaks when paid by the piece is tobring warm bread or cold sodas out tothe crews. Even more effective, is toinsist that workers take a rest and paythem for the break time, either on anhourly basis or as a proportion to theincentive they would have earned.

Provide a safe environment. Thehard pace of some incentive pay workmay increase back or other work-relatedinjuries.19 Farmers should considerergonomic measures that facilitate, tothe greatest extent possible, a workenvironment free of injury and illness.Some suggest worker pace should belimited to protect workers from injury.Unfortunately, as we said whendiscussing this issue as it related toquality, limiting the total performance ofworkers would only be effective on aworker-by-worker basis, as optimumpace varies among employees.

Dairy farmers may want to go to anoccupational medicine facility to designappropriate warmup or stretching


exercise programs for workers. Effectiveemployee selection, training, andsupervision can also do much to reduceinjuries.

Avoid chance incentives. Chanceincentives use luck (e.g., a chance atwinning a TV or trip) to reward specificworker behaviors or results. Often thosewho are poor are especially attracted togambling, hoping for things they areunlikely to achieve unless they getlucky. Employers who use chanceincentives are gambling for theemployee.

In the short run, some chanceincentive programs may produce thespecific behaviors or results dairymenare looking for. But how appropriate—or to use a stronger word, how ethical—is the use of such chance incentives?

Key questions dairy farmers mightask themselves before implementing achance incentive are: Is it fair to eachworker? Who benefits from theincentive? Is the incentive being offeredbecause paying each worker would costtoo much? Or because what each workerwould get would seem too little? Are allworkers rewarded for their work efforts?Is this incentive sustainable in the longrun producing good results for both theowner-operator as well as theemployees?

Step No. 6. Improve communications

To improve communication with andbetween employees:

• Build positive interpersonalrelations.

• Explain the program. • Prepare a bargaining style. • Provide feedback. • Be open for suggestions.

Build positive interpersonalrelations. Positive interpersonal relationsbetween management and employees, aswell as among employees, are a mustbefore installing a successful incentivepay program. Incentives often add sometension and stress, especially at first,before results showing success are clear.Added demands for positive two-waycommunication, feedback, andteamwork will increase. If interpersonal

conflicts already exist, they should beworked out first, rather than hoping theywill dissipate after the incentiveprogram is established.

Explain the program. A simpleprogram will help build trust. Atminimum, all workers need to knowwhat is expected of them and how theirperformance will translate into pay. Ithelps when the incentive plan ispresented to workers for review andcomments before implementation.Workers might spot not so obviousshortcomings or obstacles, and they aremore likely to accept the performancechallenge when they are involved.Better yet, is to involve workers in thedesign of the incentive pay programfrom the outset.

If an expectation is set thatemployees can very easily make the topincentive goal (e.g., for improvingquality), the incentive may act as ademotivator. Instead, dairy farmersshould encourage employees to try theirbest and begin by shooting for thelowest level. If the accomplishmentexceeds the workers’ expectations, allthe better.

Prepare a bargaining style. Somenegotiation on pay rates may betraditional. Know how much you paycompared to others, and consider allfactors in terms of how your dairycompared to other dairies and otheremployers workers may want tocompare themselves against (moreabout this in Chapter 2).

One farmer encountered stiffresistance from employees regardingwages. They pointed out the neighbor’shigher wages. The farmer aggressivelytold workers they could look for workelsewhere if they did not like the rates.This situation ended up in a labordispute, as workers felt they had beenconstructively discharged (i.e., forced toquit) in order to save face.

Instead, this farmer could havecalmly explained how he arrived at thepay level and told employees he hopedthey would be able to work for him atthis wage. Perhaps the neighbor paysmore but keeps employees for a shorterseason or does not provide as manybenefits.


By posting wages where they can bereadily seen by all applicants, thedairyman avoids (1) surprising workers,(2) haggling, or (3) taking a chance on aconfrontation that may get ugly and outof hand.

Provide feedback. Dairymen need toprovide frequent feedback to employees,regardless of the usual pay interval. Forinstance, milkers may be paid on a bi-weekly basis but receive more frequentperformance feedback. Feedback maybe given in person or posted tosafeguard worker anonymity.

An effective method of providingmeaningful feedback is through aseparate paycheck, or “adder,”20 for the

incentive. For greatest effectiveness,adders should be given at a differentdate than the usual payday, or at thevery least, in a separate check. Thisreminds the recipient that the extracompensation is for a specific purpose(e.g., such as a wet winter or harvestmonths involving long hours) and willlast only as long as the condition merits.

Be open for suggestions. After theincentive is in place, workers may notbe pleased with it. A dairy farmer whoemployed five workers was approachedby two of them. They asked for a raiseand the elimination of the incentive payprogram set up a year earlier.

The producer, rather than ask the


If an expectation is set that

employees can easily

make the top incentive

goal (e.g., for improving

quality), the incentive may

act as a demotivator. A

herd manager, for

instance, may start each

month assuming he will

earn the full possible

award for reducing calf

mortality. This herdsman

will be discouraged when

he sees his bonus

vanishing as each month

comes to an end. Dairy

farmers can encourage

employees to try their best

but set up more realistic

expectations of what can

be achieved.

other workers if they also wanted toeliminate the incentive, asked everyone,“What can we do to improve theincentive pay system?” In the end, heended up with a successful program,with workers earning $300 a month inincentives.21

Step No. 7. Periodically review theprogram

Record keeping and statisticalanalysis are critical to determine thesuccess of the incentive pay program.Good controls are crucial so incentivepay results can be isolated and correctlyattributed to the pay system. If a dairyfarmer introduces other changessimultaneously, she may never know theimpact of the incentive program. Thereare a number of statistical tools that maybe used to analyze results. Yourcomputer spreadsheet may already allowyou easy access to these tools. You maywant to consult with a statistician, laborspecialist, farm advisor or county agenton what statistical tools to use.

Results may indicate directions forchange or improvement. Once theprogram is in use, changes must involveworkers in order to maintain the trustthat is so essential to the success of anincentive pay program.

Dairy farmers can benefit fromkeeping records even if they are notproviding incentives. These records canhelp establish base lines essential forestablishing standards for futureperformance.

In some cases, incentive programsare dropped too soon, without giving thesystems sufficient time to work. Severaldairy farmers who have establishedsuccessful incentive programs havementioned the need for patience—sometimes having to wait severalmonths for the program to function well.

SUMMARY

Incentive pay has the potential toincrease worker productivity if properlydesigned and maintained.

Even though employees know thatattention to detail, increased

productivity, or suggestions may bringabout rewards, casual incentives arecharacterized by the inexact orunexpected timing and amount of thereward.

Dairy farmers’ structured incentivesare most likely to succeed if they have(1) accurately established standards; (2)clearly linked superior performance withpay or a valued reward; and (3)carefully considered what type ofperformance the incentive stimulates.Effective incentives are designed so themore an employee earns, the more thefarmer benefits.

CHAPTER 1 REFERENCES

1. Billikopf, G. E. (1992). Establishing andTrouble Shooting Incentive PayPrograms (Chapter 83) (pp. 793-802).Large Dairy Herd Management, (VanHorn, H. H., and Wilcox, Editors) ,Champaign, IL: American DairyScience Association.

2. Billikopf, G. E. (1995, October). APMPStudy on Incentive Pay. Quote fromAmerican Nurseryman magazine portionof study.

3. Brown, W. A. (1994, January) TheExecutive Program for AgriculturalProducers (TEPAP), Texas A&MUniversity, Austin, Texas.

4. Billikopf, G. E. (1996, November-December) APMP Incentive-Pay StudyReport and Crew workers split betweenhourly and piece-rate pay (Vol. 50-6)(pp. 5-8). California Agriculture.

5. Billikopf, G. E. (1996, November-December). Crew Workers SplitBetween Hourly and Piece-Rate Pay(Vol. 50-6) (pp. 5-8). CaliforniaAgriculture.

6. Billikopf, G. E., and Norton, M. V. (1992,September-October). Pay MethodAffects Vineyard Pruner Performance(Vol. 46-5) (pp. 12-13). CaliforniaAgriculture.

7. Milkovich, G.T., and Newman, J.M.(1999). Compensation (6th ed.) (pp.317-318). Boston: Irwin/McGraw-Hill.

8. Donaldson, G., and Lorsch J.W. (1984).Decision Making at the Top. New York:Basic Books. In Lax, D.A., andSebenius, K.S. (1993). Interests: TheMeasure of Negotiation (2nd ed.) (p.131). Negotiation: Readings, Exercises,and Cases by Lewicki, R.J., Litterer,J.A., Saunders, D.M., and Minton, J.M.


9. See Billikopf, G. E., and Norton, M. V.(1992, September-October). Pay MethodAffects Vineyard Pruner Performance(Vol. 46-5) (pp. 12-13). CaliforniaAgriculture, and Billikopf, G. E., andKissler, J. (1988). Hourly Versus Piece-Rate Paid Vineyard Pruners (pp. 13-14).Cited in Billikopf, G.E. AgriculturalEmployment Testing: Opportunities forIncreased Worker Performance.Giannini Foundation Special Report88-1. Oakland, CA: GianniniFoundation of Agricultural Economics,University of California.

10. Billikopf, G. E., and Norton, M. V.(1992, September-October). Pay MethodAffects Vineyard Pruner Performance(Vol. 46-5) (pp. 12-13). CaliforniaAgriculture, and Billikopf, G. E., andKissler, J. (1988). Hourly Versus Piece-Rate Paid Vineyard Pruners (pp. 13-14).Cited in Billikopf, G.E. AgriculturalEmployment Testing: Opportunities forIncreased Worker Performance.Giannini Foundation Special Report 88-1. Oakland, CA.: Giannini Foundationof Agricultural Economics, Universityof California.

11. Saldaña, A. (1998, April 14). Personalcommunication. Naumes OrchardDivisions. Modesto, CA.

12. Collar, C. (1991, February 5) Incentivesfor Reducing Calf Mortality. EmployeeIncentive Pay in Dairies conference.University of California. Modesto, CA.

13. Billikopf, G.E. (1995, January-February).High piece-rate wages do not reducehours worked (Vol. 49-1) (pp. 17-18)California Agriculture.

14. Billikopf, G. E. (1996, November-December). Crew workers split betweenhourly and piece-rate pay (Vol. 50-6)(pp. 5-8). California Agriculture.

15. Saldaña, A. (1998, April 14). Personalcommunication. Naumes OrchardDivisions. Modesto, CA.

16. Billikopf, G.E. (1995, January-February).High piece-rate wages do not reducehours worked (Vol. 49-1) (pp. 17-18)California Agriculture.

17. You may want to review the AmericanCollege of Sports Medicine PositionStand on “Exercise And FluidReplacement.” Among the suggestionsoffered there, for instance, include theidea of keeping water cold and“flavored to enhance palatability andpromote fluid replacement.” Make sureto consult with your physician, however.

18. Billikopf, G. E. (1996, November-December). Crew workers split betweenhourly and piece-rate pay (Vol. 50-6)(pp. 5-8). California Agriculture.

19. Sandoval, L. (1990) Personalcommunication. Agricultural Workers’Health Center.

20. Belcher, D. W. (1974). CompensationAdministration. Englewood Cliffs, N.J.:Prentice-Hall.

21. Wagner, R. (1991, February 5). DairyFarmer Experiences With Incentives.Employee Incentive Pay in Dairiesconference. University of California.Modesto, CA.

Unless otherwise indicated, photos inthis chapter were taken by the chapterauthor.


gregory encina billikopf - for your information you give casual incentives ... for bonuses for...

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