From the paper, Piece Rate System, 1895
The advantages of this system of management (Taylor's Productivity Improvement and Operator Remuneration - Incentive System) are :
The manufactures are produced cheaper under it.
The system is rapid in attaining the maximum productivity of each machine and man
The system of management was employed during the past ten years in Midvale with the most satisfactory results.
Productivity Improvement Through An Elementary Operation Rate-fixing department (Productivity Department - Industrial Engineering Department)
The system consists of a principal element: An elementary rate-fixing department (productivity department). This department makes efforts to reduce the time taken in production of components or in performing operations and provides higher wages to operator for attaining the higher quantity of production.
A careful study is made of the time required to do each of the many elementary operations into which the manufacturing of an establishment may be analyzed or divided. These elementary operations are then classified, recorded, and indexed.
The department must have equal dignity and command equal respect with the engineering and managing departments.
In 1883, while foreman of the machine shop of the Midvale Steel Company of Philadelphia, it occurred to the writer that it was simpler to time each of the elements of the various kinds of work done in the place, and then find the quickest time in which each job could be done, by summing up the total times of its component parts, the time required can be reduced.
As part of productivity improvement and time reduction, the best results were attained in the case of work done by metal-cutting tools, such as lathes, planers, boring mills, etc., after a long and expensive series of experiments were made, to determine, formulate, and finally practically apply to each machine the law governing the proper cutting speed of tools, namely, the effect on the cutting speed of altering any one of the following variables : the shape of the tool (i.e., lip angle, clearance angle, and the line of the cutting edge), the duration of the cut, the quality or hardness of the metal being cut, the depth of the cut, and the thickness of the feed or shaving
The problem of productivity improvement and fixing rate that gave extra wages to workmen was solved by the rate-fixing department and the “differential rate,” completely harmonized the men and the management, in place of the constant war that existed under the old system. At the same time the quality of the work was improved and the output of the machinery and the men was doubled, and in many cases trebled. At the start there was naturally great opposition to the rate-fixing department, particularly to the man who was taking time observations of the various elements of the work ; but when the men found that the rates were fixed based on the actual observation, , and that the knowledge of the department was more accurate than their own they accepted the practice
The accurate knowledge of the quickest time in which work can be done, obtained by the rate-fixing department and accepted by the men as standard, is the greatest and most important step toward obtaining the maximum output of the establishment.
Of the two devices proposed for increasing the output of a shop, the scientific rate-fixing department and the differential rate to provide incentive of high wage, the scientific rate-fixing department (productivity improvement department) is by far the more important. The differential rate is invaluable at the start as a means of convincing men that the management is in earnest in its intention of paying a premium for hard work, and it at all times furnishes the best means of maintaining the top notch of production; but when, through its application, the men and the management have come to appreciate the mutual benefit of harmonious cooperation and respect for each other’s rights, it ceases to be an absolute necessity. Instead of incentive based system, the system can use fixed wages which are higher than earlier wages. On the other hand, the rate-fixing department ((productivity improvement department), for an establishment doing a large variety of work, becomes absolutely indispensable. The longer it is in operation the more necessary it becomes.
Practically, the greatest need felt in an establishment wishing to start a rate-fixing department is the lack of data as to the proper rate of speed at which work should be done.
There are hundreds of operations which are common to most large establishments ; yet each concern studies the speed problem for itself, and days of labor are wasted in what should be settled once for all and recorded in a form which is available to all manufacturers.
What is needed is a hand-book on the speed with which work can be done, similar to the elementary engineering hand-books. And the writer ventures to predict that such a book will, before long, be forthcoming. Such a book should describe the best method of making, recording, tabulating, and indexing time-observations, since much time and effort are wasted by the adoption of inferior methods (Taylor himself created the engineering knowledge to determine cutting speeds, feeds and depth of cut of machine tools).
The benefits of elementary rate-fixing by scientifically reducing the time taken results in the following changes in processes and equipment of the organizations.
The careful study of the capabilities of the machines and the analysis of the speeds at which they must run, before differential rates can be fixed which will insure their maximum output, almost invariably result in first indicating and then correcting the defects in their design and in the method of running and caring for them.
In the case of the Midvale Steel Company the machine shop was equipped with standard tools furnished by the best makers, and the study of these machines, such as lathes, planers, boring mills, etc., which was made to reduce time taken, developed the fact that none of them were designed and speeded so as to cut steel to the best advantage. As a result, this company has demanded alterations from the standard in almost every machine which they have bought during the past eight years. They have themselves been obliged to superintend the design of many special tools which would not have been thought of had it not been for elementary rate-fixing.
The productivity improvement effort department has shown the necessity of carefully systematizing all of the small details in the running of each shop, such as the care of belting, the proper shape for cutting tools, and the dressing, grinding, and issuing sairfe, oiling machines, issuing orders for work, obtaining accurate labor and material returns, and a host of other minor methods and processes. These details, which are usually regarded as of comparatively small importance, and many of which are left to the individual judgment of the foreman and workmen, are shown by the productivity department to be of paramount importance in obtaining the maximum output, and to require the most careful and systematic study and attention in order to insure uniformity and a fair and equal chance for each workman. Without this preliminary study and systematizing of details it is impossible to reach a situation where cost reduction happens and the differential rate is paid to workmen in most establishments.
The differential rate system of piece-work consists, briefly, in offering two different rates for the same job, a high price per piece in case the work is finished in the shortest possible time and in perfect condition, and a low price if it takes a longer time to do the job, or if there are any imperfections in the work. (The high rate should be such that the workman can earn more per day than is usually paid in similar establishments. ) This is directly the opposite of the ordinary plan of piece-work in which the wages of the workmen are reduced when they increase their productivity.
The system by which the writer proposes managing the men who are on day-work consists in paying men and not positions. Each man’s wages, as far as possible, are fixed according to the skill and energy with which he performs his work, and not according to the position which he fills. Every endeavor is made to stimulate each man’s personal ambition. This involves keeping systematic and careful records of the performance of each man, as to his punctuality, attendance, integrity, rapidity, skill, and accuracy, and a readjustment from time to time of the wages paid him, in accordance with this record.
This differential rate system automatically selects and attracts the best men for each class of work, and it develops many first-class men who would otherwise remain slow or inaccurate, while at the same time it discourages and sifts out men who are incurably lazy or inferior.
If the plan of grading labor and recording each man’s performance is so much superior to the old day-work method of handling men, why is it not all that is required? Because no foreman can watch and study all of his men all of the time, and because any system of laying out and apportioning work, and of returns and records, which is sufficiently elaborate to keep proper account of the performance of each workman, is more complicated than piece-work. But it is evident that the system is the best in attaining the desired result and presents in the long run the course of least resistance.
It is the opinion of the writer that a system which harmonizes the interests of the two (employer and emploees) and is the basis for harmonious cooperation needs to be developed on the basis of the two following facts :
First . That the workmen in nearly every trade can and will materially increase their present output per day, providing they are assured of a permanent and larger return for their time than they have heretofore received and also are educated and trained in more productive methods developed by employers which will not increase hardship or require extra hours of working.
Second. That the employers can well afford to pay higher wages per piece even permanently , providing each man and machine in the establishment turns out a proportionately larger amount of work and employers study methods and develop new productive methods.
The accurate knowledge of the method with the quickest time in which work can be done, obtained by the rate-fixing department and accepted by the men as standard, is the greatest and most important step toward obtaining the maximum output of the establishment. But it is one thing to know how much work can be done in a day and an entirely different matter to get even the best men to work at their fastest speed or anywhere near it.
The means which the writer has found to be by far the most effective in obtaining the maximum output of a shop, and which, so far as he can see, satisfies the legitimate requirements, both of the men and management, is the differential rate system of piece-work.
This consists briefly in paying a higher price per piece, or per unit, or per job, if the work is done in the shortest possible time and without imperfections, than is paid if the work takes a longer time or is imperfectly done.
To illustrate : Suppose 20 units or pieces to be the largest amount of work of a certain kind that can be done in a day. Under the differential rate system, if a workman finishes 20 pieces per day, and all of these pieces are perfect, he receives, say, 15 cents per piece, making his pay for the day 15 X 20 = $3. If, however, he works too slowly and turns out, say, only 19 pieces, then, instead of receiving 15 cents per piece he gets only 12 cents per piece, making his pay for the day 12 X 19 = $2.28, instead of #3 per day.
If he succeeds in finishing 20 pieces, some of which are imperfect, then he should receive a still lower rate of pay, say 10 cents or 5 cents per piece, according to circumstances, making his pay for the day $ 2 , or only $1, instead of $3.
It is not, however, sufficient that each workman’s ambition should be aroused by the prospect of larger pay at the end of a period. The stimulus to maximum exertion should be a daily one based on a daily task assigned to him.
This involves such vigorous and rapid inspection and returns as to enable each workman in most cases to know each day the exact result of his previous day’s work — i. e ., whether he has succeeded in earning his maximum pay, and exactly what his losses are for careless or defective work. Two-thirds of the moral effect, either of a reward or penalty, is lost by even a short postponement.
As far as possible each man’s work should be inspected and measured separately, and his pay and losses should depend upon his individual efforts alone. It is, of course, a necessity that much of the work of manufacturing — such, for instance, as running roll-trains, hammers, or paper machines — should be done by gangs of men who cooperate to turn out a common product, and that each gang of men should be paid a definite price for the work turned out, just as if they were a single man.
In the distribution of the earnings of a gang among its members, the percentage which each man receives should, however, depend not only upon the kind of work which each man performs, but upon the accuracy and energy with which he fills his position.
In this way the personal ambition of each of a gang of men may be given its proper scope.
The system of differential rates was first applied by the writer to a part of the work in the machine shop of the Midvale Steel Company, in 1884. Its effect in increasing and then maintaining the output of each machine to which it was applied was almost immediate, and so remarkable that it soon came into high favor with both the men and the management. It was gradually applied to a great part of the work of the establishment, with the result, in combination with the rate-fixing department, of doubling and in many cases trebling the output, and at the same time increasing instead of diminishing the accuracy of the work.
As before stated, the success of this system of piece-work depends fundamentally upon the possibility of materially increasing the output per man and per machine, providing the proper man be found for each job and the proper incentive be offered to him.
Illustation of a machining job: A daily task involved removing, with a single 16-inch lathe having two saddles, an average of more than 800 pounds of steel chips in ten hours. In place of the 50-cent rate that they had been paid before, they were given 35 cents per piece when they turned them at the speed of 10 per day, and when they produced less than 10 they received only 25 cents per piece.
It took considerable trouble to induce the men to take up the job if machining 10 pieces per day and earn $3.50 per day, since they did not at first fully appreciate that it was the intention of the firm to allow them to earn permanently at the rate of $3.50 per day. But from the day they first turned 10 pieces to the present time, a period of more than ten years, the men who understood their work have scarcely failed a single day to turn at this rate. Throughout that time, until the beginning of the recent fall in the scale of wages throughout the country, the rate was not cut.
No system of management, however good, should be applied in a wooden way. The proper personal relations should always be maintained between the employers and men ; and even the prejudices of the workmen should be considered in dealing with them.
The employer who goes through his works with kid gloves on, and is never known to dirty his hands or clothes, and who either talks to his men in a condescending or patronizing way, or else not at all, has no chance whatever of ascertaining their real thoughts or feelings.
It is desirable that men should be talked to on their own level by those who are over them.
Each man should be encouraged to discuss any trouble which he may have, either in the works or outside, with those over him. Men would far rather even be blamed by their bosses, especially if the "tearing out” has a touch of human nature and feeling in it, than to be passed by day after day without a word and with no more notice than if they were part of the machinery.
The opportunity which each man should have of airing his mind freely and having it out with his employers, is a safety-valve ; and if the superintendents are reasonable men, and listen to and treat with respect what their men have to say, there is absolutely no reason for labor unions and strikes.
It is not the large charities (however generous they may be) that are needed or appreciated by workmen, such as the founding of libraries and starting workingmen’s clubs, so much as small acts of personal kindness and sympathy, which establish a bond of friendly feeling between them and their employers.
The Differential Rate System of Piece-work (The Incentive System)
The differential rate system of piece-work consists, briefly, in offering two different rates for the same job, a high price per piece in case the work is finished in the shortest possible time and in perfect condition, and a low price if it takes a longer time to do the job, or if there are any imperfections in the work. (The high rate should be such that the workman can earn more per day than is usually paid in similar establishments. ) This is directly the opposite of the ordinary plan of piece-work in which the wages of the workmen are reduced when they increase their productivity.
The system by which the writer proposes managing the men who are on day-work consists in paying men and not positions. Each man’s wages, as far as possible, are fixed according to the skill and energy with which he performs his work, and not according to the position which he fills. Every endeavor is made to stimulate each man’s personal ambition. This involves keeping systematic and careful records of the performance of each man, as to his punctuality, attendance, integrity, rapidity, skill, and accuracy, and a readjustment from time to time of the wages paid him, in accordance with this record.
This differential rate system automatically selects and attracts the best men for each class of work, and it develops many first-class men who would otherwise remain slow or inaccurate, while at the same time it discourages and sifts out men who are incurably lazy or inferior.
If the plan of grading labor and recording each man’s performance is so much superior to the old day-work method of handling men, why is it not all that is required? Because no foreman can watch and study all of his men all of the time, and because any system of laying out and apportioning work, and of returns and records, which is sufficiently elaborate to keep proper account of the performance of each workman, is more complicated than piece-work. But it is evident that the system is the best in attaining the desired result and presents in the long run the course of least resistance.
It is the opinion of the writer that a system which harmonizes the interests of the two (employer and emploees) and is the basis for harmonious cooperation needs to be developed on the basis of the two following facts :
First . That the workmen in nearly every trade can and will materially increase their present output per day, providing they are assured of a permanent and larger return for their time than they have heretofore received and also are educated and trained in more productive methods developed by employers which will not increase hardship or require extra hours of working.
Second. That the employers can well afford to pay higher wages per piece even permanently , providing each man and machine in the establishment turns out a proportionately larger amount of work and employers study methods and develop new productive methods.
The accurate knowledge of the method with the quickest time in which work can be done, obtained by the rate-fixing department and accepted by the men as standard, is the greatest and most important step toward obtaining the maximum output of the establishment. But it is one thing to know how much work can be done in a day and an entirely different matter to get even the best men to work at their fastest speed or anywhere near it.
The means which the writer has found to be by far the most effective in obtaining the maximum output of a shop, and which, so far as he can see, satisfies the legitimate requirements, both of the men and management, is the differential rate system of piece-work.
This consists briefly in paying a higher price per piece, or per unit, or per job, if the work is done in the shortest possible time and without imperfections, than is paid if the work takes a longer time or is imperfectly done.
To illustrate : Suppose 20 units or pieces to be the largest amount of work of a certain kind that can be done in a day. Under the differential rate system, if a workman finishes 20 pieces per day, and all of these pieces are perfect, he receives, say, 15 cents per piece, making his pay for the day 15 X 20 = $3. If, however, he works too slowly and turns out, say, only 19 pieces, then, instead of receiving 15 cents per piece he gets only 12 cents per piece, making his pay for the day 12 X 19 = $2.28, instead of #3 per day.
If he succeeds in finishing 20 pieces, some of which are imperfect, then he should receive a still lower rate of pay, say 10 cents or 5 cents per piece, according to circumstances, making his pay for the day $ 2 , or only $1, instead of $3.
It is not, however, sufficient that each workman’s ambition should be aroused by the prospect of larger pay at the end of a period. The stimulus to maximum exertion should be a daily one based on a daily task assigned to him.
This involves such vigorous and rapid inspection and returns as to enable each workman in most cases to know each day the exact result of his previous day’s work — i. e ., whether he has succeeded in earning his maximum pay, and exactly what his losses are for careless or defective work. Two-thirds of the moral effect, either of a reward or penalty, is lost by even a short postponement.
As far as possible each man’s work should be inspected and measured separately, and his pay and losses should depend upon his individual efforts alone. It is, of course, a necessity that much of the work of manufacturing — such, for instance, as running roll-trains, hammers, or paper machines — should be done by gangs of men who cooperate to turn out a common product, and that each gang of men should be paid a definite price for the work turned out, just as if they were a single man.
In the distribution of the earnings of a gang among its members, the percentage which each man receives should, however, depend not only upon the kind of work which each man performs, but upon the accuracy and energy with which he fills his position.
In this way the personal ambition of each of a gang of men may be given its proper scope.
The system of differential rates was first applied by the writer to a part of the work in the machine shop of the Midvale Steel Company, in 1884. Its effect in increasing and then maintaining the output of each machine to which it was applied was almost immediate, and so remarkable that it soon came into high favor with both the men and the management. It was gradually applied to a great part of the work of the establishment, with the result, in combination with the rate-fixing department, of doubling and in many cases trebling the output, and at the same time increasing instead of diminishing the accuracy of the work.
As before stated, the success of this system of piece-work depends fundamentally upon the possibility of materially increasing the output per man and per machine, providing the proper man be found for each job and the proper incentive be offered to him.
Illustation of a machining job: A daily task involved removing, with a single 16-inch lathe having two saddles, an average of more than 800 pounds of steel chips in ten hours. In place of the 50-cent rate that they had been paid before, they were given 35 cents per piece when they turned them at the speed of 10 per day, and when they produced less than 10 they received only 25 cents per piece.
It took considerable trouble to induce the men to take up the job if machining 10 pieces per day and earn $3.50 per day, since they did not at first fully appreciate that it was the intention of the firm to allow them to earn permanently at the rate of $3.50 per day. But from the day they first turned 10 pieces to the present time, a period of more than ten years, the men who understood their work have scarcely failed a single day to turn at this rate. Throughout that time, until the beginning of the recent fall in the scale of wages throughout the country, the rate was not cut.
Human Relations
No system of management, however good, should be applied in a wooden way. The proper personal relations should always be maintained between the employers and men ; and even the prejudices of the workmen should be considered in dealing with them.
The employer who goes through his works with kid gloves on, and is never known to dirty his hands or clothes, and who either talks to his men in a condescending or patronizing way, or else not at all, has no chance whatever of ascertaining their real thoughts or feelings.
It is desirable that men should be talked to on their own level by those who are over them.
Each man should be encouraged to discuss any trouble which he may have, either in the works or outside, with those over him. Men would far rather even be blamed by their bosses, especially if the "tearing out” has a touch of human nature and feeling in it, than to be passed by day after day without a word and with no more notice than if they were part of the machinery.
The opportunity which each man should have of airing his mind freely and having it out with his employers, is a safety-valve ; and if the superintendents are reasonable men, and listen to and treat with respect what their men have to say, there is absolutely no reason for labor unions and strikes.
It is not the large charities (however generous they may be) that are needed or appreciated by workmen, such as the founding of libraries and starting workingmen’s clubs, so much as small acts of personal kindness and sympathy, which establish a bond of friendly feeling between them and their employers.
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