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CASE STUDY & The Power of Rewards at Industry International

Industry International is a manufacturing firm with about twenty-five hundred employees in a
number of plants. It is often touted as a monument to the power of financial reward systems. In
an industry that has been battered by foreign competition for three decades, it has remained
highly profitable, in large part because its workers are 2 1/2 to 3 times as productive as those of
its competitors. Their compensation is also three times the average salary for U.S. manufacturing
employees. They are not unionized, have no paid vacations, and work 45-50 hours per week.
Much of their income comes from a year end cash bonus. Each year, after company taxes and
dividends have been paid, the board of directors determines the size of the bonus pool, which is
divided among the employees based on their base salary and individual merit ratings. From 1943
to 1994 the bonus percentage ranged from 55 percent to 104 percent; in 1994 it was 61 percent,
meaning that an employee earning a $30,000 base salary and receiving a 100 percent merit rating
would receive a bonus of $18,300.*

*Because Hancock and Papa have never identified the real company that they called Industry
International, it is impossible to update these figures. However, the Lincoln Electric Company,
which operates very much like Industry International, and which had comparable bonuses during
the years covered in this case, gave out average bonuses of $11,800 in 2002 and $10,800 in
2003. The reduced size resulted from the recent recession.

The bonus is kept secret from October until a meeting/celebration in December. When the meeting
ends, the employees rush to their cars, bonus checks in hand, and tie up traffic for hours going to their
favorite places of celebration.

Most employees use the money to pay accumulated bills; in fact, many spend far in excess of
their base salaries and then put off paying bills and loans until the bonus checks come in. Other
employees use the money for less mundane activities. One got his bonus in $100 bills, spread
them on the living room floor and, along with his wife, rolled around on them (among other
activities) in celebration. Some made major purchases like houses, cars, and luxury items in cash.
A few (mostly younger employees) used the money to gamble, hire prostitutes, or buy illegal
drugs. When asked why they spend the money as they do, three answers were commonly given:
to live the good life so valued in the United States, to assert their autonomy (one said “spending
bonus money is the one thing they [management] ain't telling me what and how to do”), and for
the social status that money provides. Other employees commented, “As soon as they [friends
and neighbors] find out you work there, they think you have money coming out of your ears,”
and “They think I'm the richest s … o … b [ellipses added] in the world.” A worker recalled,
“Years ago we made more money than professional football players.”

What they don't tell their envious neighbors is what they go through to get the bonus. Merit
points are based on output, quality dependability and personal characteristics. The first two can
be quantified, leading employees to “work like dogs” until they are dangerously exhausted by
long hours and difficult working conditions; the latter two cannot, creating a highly political
atmosphere in the plant. Most echoed one worker's conclusion that “if you don't go along with
the system [managers], you could be the hardest worker in the world … and you would still be
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way short because you have not gone with the flow and you would be black-balled, and they give
you what they want to give you.”

But things have changed for Industry International. The recession of the mid-1980s led to low
bonuses (55 percent). Many workers lost their homes and cars because they were relying on large
bonuses to pay mortgages and loans. Workers attributed the decline to many things, but primarily
to management greed and incompetence-a “fat managerial level and more men at the top,”
embezzlement, and mismanagement of overseas accounts. Whatever the reason, the recession
made it clear to workers just how dependent they were on Industry International and how much
things had changed: “The whole philosophy [established by the founder and maintained until
1983] was that you worked hard and got compensated for it. You busted your ass, but you got
compensated. Now you bust your ass and you don't get compensated for it.” The employees have
very few options, however. Most are too old to start over somewhere else and are limited by their
education and training to manufacturing jobs. Furthermore, high-paying manufacturing jobs are
becoming very rare in the United States (see Chapters 1 and 11).

So workers talk about resisting management. They fear that management will eliminate the
bonus system, replacing it with a form of profit-sharing that is not as lucrative for the workers.
Many predict a massive walkout or work stoppage if that happens. Others consider unionizing
the firm. Management has persuaded them that the bonus system relies on a nonunion shop, but
if the bonus system is eliminated, they have no reason not to unionize. Others predict that
without the bonuses, employees would quit the company; still others predict plummeting
productivity and quality; others threaten physical violence against management and sabotage of
the plant. “If they got rid of bonus, they wouldn't have the control over anyone. Bonus is what
they have to keep the hold on you.”

Applying What You've Learned

   1. A number of factors need to be present for rule-reward systems to succeed. Which of those
      factors were present at Industry International? Which, if any were absent?
   2. What resistance strategies are available to these employees? What could they do to keep from
      being so dependent on the system? What effects would those actions have on the system?
      Why?

Questions to Think About and Discuss

   1. There is a substantial amount of research evidence indicating that pay is the most powerful
      motivator for U.S. workers, more so than for workers in some other countries.

       See John Campbell and Robert Pritchard, “Motivation Theory,” in Handbook of
       Industrial and Organizational Psychology, Marvin Dunnette, ed. (Chicago: Rand-
       McNally, 1976); and Charles Greene and Philip Podsakoff, “Effects of Withdrawal of a
       Performance-Contingent Reward on Supervisory Influence and Power,” Academy of
       Management Journal 24 (1981): 527-542.

       Why?
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   2. Would this kind of motivation/control system work differently in different societal contexts, for
      example, in a society that was not as consumption-oriented as the United States or in a country
      with extensive social support systems for unemployed workers and their families?

       This question is examined in Richard B. Freeman, ed., Working under Different Rules
       (Washington, DC: Russell Sage Foundation, 1994).

   3. If you were the CEO of Industry International, what kinds of public economic policies would you
      want the government to follow? (Would you want the Federal Reserve Board to focus on
      keeping inflation low or keeping unemployment low? Would you want corporate income taxes
      to be a primary source of government funding, or personal income taxes?) Why?

This case is based on Melissa Hancock and Michael Papa, “Employee Struggles with Autonomy
and Dependence: Examining the Dialectic of Control through a Structurational Account of
Power,” Paper presented at the International Communication Association Convention, Chicago,
1996.

				
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