1) I agree with Freddie. The payment system would be more effective as a piece rate. This should effectively increase the employees’ incentive to produce efficiently. The piece rate will encourage higher production. It will benefit employees for them to know that if they work harder, they will get more money. Under the other system, they could work inefficiently and get paid the same amount as someone who was working much more efficiently. This encourages the inefficient people to not work harder, and the efficient people to feel undervalued for their work. Under the new payment system, the employees are financially motivated to work hard in order to get more earnings. This system will also keep more experienced employees staying at work and dramatically reduce the waste in time and money for training and outfitting new employees. To encourage them to stay, Jones Ironworks needs to raise their wage to some extent. It’s rather worthwhile and reasonable to do it according to the Freddie Jones’ demonstration: paying with piece rate, the actual increase in cost per hour is only around 13% over the current cost, but it can save the company more than 10% in labor productivity and 6% of total payroll due the elimination of the waste in training and outfitting the new employees.
2) I don’t agree with Freddie’s father calculation of the increase in cost per unit with regard to the change into the piece rate payment system. He sticks to use the lower estimated standard hours per unit instead of the actual hours per unit. His claim that it might be reasonable to reduce people’s pay for poor performance, is a terrible idea in a company with such high turnover. If he reduces pay or keeps this system, employee turnover will continue to remain high, which leads to high training costs, and lower efficiency.
3) Freddie’s father should try to see how much more valuable an experienced employee is than a new employee....