The changing face of manufacturing: New compensation practices in the German and American metal working industries

Coast Eng Pracace,Vol 2, No 4, pp 697-705, 1994

Pergamon 0967-0661(94)00032-8

Copyright © 1994 Elsc~ex S~¢ace Ltd l~mtcd m GreatBnuun All nghts re,scrve,d 0967-0661/94 $7 00 + 0 O0

THE CHANGING FACE OF MANUFACTURING: NEW COMPENSATION PRACTICES IN THE GERMAN AND AMERICAN METAL WORKING INDUSTRIES N. H a r v e y

Natzonal College of Industrial Relauoas, Sandford Road, Ranelagh, Dublin, Ireland

Abstract. This paper examines changing practices in the German and American metal working industries what are the factors giving rise to change, what are the types of changes being considered, and what arc the changes taking place It will be argued that the way firms do business m both countries is coming under considerable pressure to change from an increase in global competition and a shift in focus towards quahty competitiveness The dominant pay system, based on piece-rates, ~s ~ll-smted to emerging practices. Instead, firms need to develop new pay systems that encourage and reward group, not indw~dual, solutions, and that leads towards greater involvement of workers into deczs~on-making In the U S , there ~s much experimentation with new forms of pay systems particularly Galnshanng. In Germany, while there is much talk about the need to change, as yet, there is little movement away from the classic piece-rate system When movement occurs, it tends to be towards pay-for-knowledge K e y words. Piece-rates; cell manufactunng; Gainshanng; pay-for-knowledge, production islands; lean and mean production, JIT, SPC, employee involvement, group work. from Japan, especially m the metal working sector, 18 forcing German firms to alter their producaon process For example, some of the German firms vlsRed were machme-tool bmlders that take four to five months to braid a pamcular product These were coming under mtense pressure from Japanese firms which were capable of dehvenng castommed products both cheaper and more qmcldy As customers can now request change m the des~gu of a product up unttl the moment product ~s delivered, flexdahty is becoming a crucial m&cator of success Though well used to conUnuous change m product spectfical~ons, m machinery set up and operaUon, often at t r r e g a d a r penods, these machine tool budders are forced to de-bureaucratlse, where possible, the productmn process I-ligh-tech soluuons, such as Flexible Manufactunng Systems (FMS) or Computer IntegraUon Manufactunng Systems (CIMS) are not considered feasible Too costly to braid and to run, they often lack the flexlblhty that comes through human tmUatwe and mvenuon Instead, solutmns premtsed o n m a k a n g b e t t e r u s e o f workers' gkalls are seen as the most opttmal way to react to compeUUon, especmlly from Japan, and especially m the near future (Kohler and SchultzWild, 1985)

1 METHODOLOGY Eleven firms m the U S and another six m Germany were stuched All are metal working firms winch are malang s~gmficant change m process technology In the U S, tins was cell manofacUmng, m Germany, producUon tslands In all instances, detailed lnterwews were conducted vdth workers, m a n a g e r s and umon representaUves In ad&Uon to tins, numerous &scussaons took place with researchers at the Insatute for Social Research (ISF) m Mumch, and at the Institute for Work and Technology (IAT) m Gelsenklrchen

2. THE PRESSURE TO CHANGE Under conchtmus of lnternauonal compeUUon, ~t lS argued, firms need to compete on the baszs of intangible factors, such as product quahty, speed of delrvery to the marketplace, and vodemng product &versay (Sorge and Streeck, 1988, Dertouzos et al, 1989) Less affected by tins are German firms, given, m the first re.stance, their export-oriented focus and, second, thetr long tra&Uon of producing htgh quahty, customlsed products Stall, movements towards greater mtegraUon m Europe, and continued compeUUon 697

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More affected by these developments 1S the U S because of the large batch focus Amencan manufacturing, as a whole, has come under considerable pressure, not least because foreign firms have been doing more business m the U S, but also because compeuUveness has focused much on quahty, and away from pnce The Japanese, m pamcular, have been able to braid products of lugh quahty, but also lower price F~rms from newly mdustnallsed countries, using smular technology, have been able to undercut U S prices further stall Amencan manufacturers, as a result, long since used to producing for their own large and relatively homogenous domestic market, have had to develop new markets outside the U S, at the same tune changing the very way they do business, m the producaon process and m marketing Tlus has brought Amencan firms into greater compeUUon with foreign firms on thetr o w n ground and abroad, but on terms, ~t may be stud, that are often more favourable to forelgn firms Tins was dearly the case with the Amencan firms stu&ed Many saw the mternaUonal market as the primary growth area, paracularly since the domesac market was for many already saturated Ftrms winch mass produce were more adversely affected Conversely, the few firms that custonuse their producUon more easdy adopted to the market mstablhty of recent years (Harvey, 1993)

3 DEVELOPMENTS IN TECHNOLOGY The American firms studied, while not qmte moving away from a lugh batch focus, were braiding greater flextblhty into the producaon process m order to be more respouswe to customers' needs Tlus came about with the tmplementaUon m all firms stuched of a new process technology referred to as cell or cellular manufactunng Tlns ~s where the factory floor ~s &v~ded into srrmU cell-hke coonfiguraUons staffed by, to use current terminology, cell operators Within these cells, cell operators are expected to perform a wide range of tasks, mclu&ng quahty mspe~on and dehvery, and the metal part lS expected to be nmcluned m full A m o n g the many benefits cited for cells are a reducUon m costs and lead trine, and improvements m quahty and productavlty (Black, 1983, Hyer and Wemmerl6v, 1984, Huber and Hyer, 1985, Fry et al, 1987, Wemmerl6v and Hyer, 1989) Whtle cells appear to be the dotmnant emerging technology m the American metal working industry (Knauss and Matuszak, 1989), there zs, as yet, no dominant process technology emerging m Germany Much talked about is the concept of group work ('Gruppeuarbelt') as part of a new technical contiguraUon referred to as producuon islands The latter are smular to cells m that what is revolved is the fragmentation of the factory floor

into small single-purpose umts de(heated to the production of a family of parts Workers m these islands are lughly slolled and assume new respeuslblhttes Like cells, they are prenused on malong better use of technology through skalled and co-operaUve labour Tlus research has been written up in prevaous papers (Han,ey and v Behr, forthconung) The concentraUon here is on compensaUon

4 TECHNOLOGY AND WORK ORGANISATION The research m Germany and US clearly m&cated that the focus of attenUon was on changing work orgamsaUon as well as technology A xaew emerging once more m the seclal sciences, broadly referred to as the 'mtegraUon thesis' (MacDuflie and Kechan, 1988, Etthe, 1988), is the Idea that firms need to make sumlar adJustments m the socml and techmcal systems, the latter being the systems of slalls, know-how, and comrmtment that make up the system of work orgamsatton that envelopes technology In the U S, the term 'world class manufacturing' has come into vogue to describe many of these changes Instead the term 'new manufacturing envaronment' is preferred, being that ~t ~s more neutral, and ~t will conanue to be used to refer to a new business para&gm that ~s emerging German firms though makang far less use of cliches, are no O,tVerent in their embracement of new ~deals brought about by new compeUUon

5 THE NEW MANUFACTURING ENVIRONMENT. WHAT DOES IT MEAN9 Much ts changed m the new manufacturing environment In assuming new responslbflllaes, workers are expected to contribute more, productwely and secaally, the latter mainly m terms of contnbuung thetr knowledge and knowhow through pamapaUon m team or group work Sloll levels are increased as workers are requtred to be more moUvated, more nmovatlve, and more respenslve to change No less affected are managers, parUcularly engineers As authority is decentrahsed on the shopfloor, workers and managers are expected to co-operate more closely Engineers, more accustomed to worlong off the shotgloor, are now expected to work alongmde producaon workers, n'onmg out problems as they occur In some instances, ttns necessstates deferring judgement to workers In both Germany and America, tugher-level management noted the reluctance of engineers to work on the shopfloor, but sttil took steps to ensure that more cooperatton was occumng Most obvmus here was the re-braiding of office faoinaes on or near cells or islands, thus increasing the mteracUon between wlnte- and blue-collar staff

The Changing Face of Manufacturing

As some managers lose authonty, others lose their jobs as more redirect tasks are transferred to chrect labour The 'lean and mean' pinlosophy, as it is commonly referred to in the U S business circles, has greatly affected Amencan firms gwen the Ingher ratio of mchrect to direct staff At one American plant, entire managenal levels have been depleted In one instance, a quality supervisor was re-employed as a product.ton worker New forms of orgamsaUon are emerging that often cut across departmental hnes with far less Inerarchy than was thought possible before Most cited are those teams comprising both design and productaon people A long-standing cntaclsm of the Amencan system, for instance, has been the separatton of funcuons hke productmn, sales and marketing into separate and chscrete entlUes of the firm Often products are designed, produced and marketed with httle co-operation Now, with the pressure to introduce new products to the marketplace in shorter l a m e , concurrent engmeenng 1 is beconung increasingly popular, especially m the Inghly lnternattonallsed automotwe industry In Germany, for example, productton islands were prenused on a concept of group work (Gruppenarbeit), in winch workers, regularly meetmg in groups, would make decisions for the island as a whole American firms, stmllarly, orgamsed teams around cells, or, alternatwely, in the Japanese way in a customersupplier arrangement In the latter, lndmdual team members are drawn from each step of the productaon process so that a team is comprised of representatives from the whole process, from design through sales Members volunteer and receive trmmng in group techmques such as brainstorming, committee effectiveness, reacinng consensus, etc Orgamzattonal changes are slgtuticant, whether ~t is called group work (Germany) or teamwork (America) In the new manufactunng en~ronment, as job classlficataons are broadened, flatter pay structures should be the norm One of the Amencan firms stuched went from over tinrty labour classtficattons to just one, and implemented a pay for knowledge2 system to encourage workers to learn new skalls Aside from encouragang workers to learn and use 1 Concurrent engmeermg, also called 'stmultaneous engmeermg' or 'design for manufactumbdlty', is the integration of the engmeermg and manufactunng opcrauons into one orgamc element The oppomte of tlns is 'sequentml engineering' where each funcnonal group hands off rcsl:lOnslbdlty to the next group, and so on down the lme, with httle mteracUon between each As sequentml engmeermg represents the old way of doing business, concurrent engineering ts the new approach to deslgmng and manufacturmg products See (Haddad, 1993) 2pay for knowledge Is a type of compensaUon system where workers are prod extra for the number of extra skdls they learn (BNA, 1988)

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more skills, the componsaUon system should also accommodate the need for workers to partacipate m group work Tlus way, concewably, the responsibility for quahty and dehvery rehabthty can be placed on workers, preferably being lntemalised m the group Further, instead of being focused on one's own job, as is typical under the Taylonst logm, workers are encouraged to take a systematm or hohsUc vmw, noting where their job fits into the overall process, including the final product, noting customers' concerns, and how it relates to other worker's jobs Compensataon practtces that seem well-stated to the new manufacturing enwronment include pay for knowledge and salaried rates (Schonberger, 1986) Both encourage the development of a polyvalent (multt-skalled) workforce performing a range of tasks winch cut across trachUonal job lines To stay competmve, firms need to adopt all or most all of the tenets of the new manufacturing environment How well tins transltmn wtll occur will vary from firm to firm, from industry to mdustry, and from country to country, but clearly, T aylonsm is under attack Or, rather, the old system based on mchvlduahsm and fragmentalaon is now gmng nse to an approach centred on the group where reform is both broad and farreaching All of the firms stuched, m the U S and m Germany, were changing many aspects of their business, from design to sales Most were well into tlus process with nuxed results One overlooked aspect of tins debate about the new mantffactunng envtronment m compensation Most managers m the U S and m Germany have a fatr Idea of the type of teclmologms, as well the accompanying orgamsaUon of work, that make up tins new manufactunng envtronment Few, however, have any idea of what type of compensaUon pracUce ~s necessary to fit the system, m the way m winch p~ece-rates fitted Taylonsm Componsatton practices are dealt w~th next

6 THE PAY SYSTEM IN GERMANY AND THE U S Despite the clear contrast m product market strategy - - Germany with tts focus on custonusatton, and Amencan firms more oriented towards Ingh-batch production - - f i r m s m both countries pay workers according to a slmdar lOglC the harder one works, the more one m prod It ts Taylonsm m form and m content This way the compensatton system remforces the norms of the produclaon process Under Taylonsm, much fragmentatton of work occurs as a job ts broken down into tts smallest elements Because the firms stuched were revolved

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m metal workang, maclumng was a common task performed However, maclumng m most firms, especlally m the American ones, was separated from assembly, winch is often done m separate areas, m some cases m separate factories, perhaps even mdtfferent countries, anywhere that wages were cheaper Further separataon occurs the soft maclumng is separated from the hard machining, the turmng from the nulhng, with different workers, often at dtfferent skall and pay levels, perfornung dtfferent functmns In Germany, set-up men do one function, wlule others operate the maclunery In the U S, a productaon worker may operate a gnnder and a gnnder only, perfornung smular tasks on that macinne over and over agmn Even m cells, and indeed m islands, the tendency was for workers to stay on one maclune, eRher because more money could be made flus way, or because, workers, long since used to workang flus way, refused to change Through a process of reductaon and slmpltficataon, both the effort and the tame it takes to complete a pamcular task is numnused, thus making it eas,er to sub~tute cheaper for more expeuswe labour, mechamcal for human labour Tins way, the posslblhty of error is numrmsed and the slall level reqmred slgmficantly reduced In reducing the productaon process to a myriad of short, repetatave tasks, co-or&nataon becomes increasingly dtfficult Tins ,s a bigger problem for German firms winch, as has been pointed out, are partacularly bureaucratac m orgamsataon Slall levels are s,gndicanfly lugher, though work ,s sttll subchwded, with dtfferent workers doing drfferent funcUous What can be automated ,s automated, and cheap labour is used for the simple, repetRwe tasks, w~th the more-complex tasks, such as set-up, being done by stalled macinmsts The ingher the batch size m German plants, the more hkely one Is to find low-skdled workers In both cotmtnes, nevertheless, the compeusataon system, largely mchvldually based, is used to ensure a mentahty of hard work, though a new parachgm is emerging, winch values co-operatave and comrmtted work In America, once tasks are simplified, they are analysed by an mdusmal engineer, and placed on a standard accorchng to the amount of tame it takes to carry out the task Productavlty ,s directly linked to pay by equaUng the standard w~th a pamcular labour grade and, therefore, pay level Most of the American plants had hundreds of dtfferent standards, and as many labour classtficataous In practace, workers may be allowed to earn up to, typically, 160% of the standard thus bml&ng m a safeguard, called an incentive rate, to ensure ingh productavaty The system ~s structured further such that the task reqmred ~s done w~thout rmstakes, m the nummum lame and v,ath rmmmum effort LRtle more Is asked of the worker Once the upper

hnut ,s broken, a new study is done and the job reevaluated at a dtfferent standard The average worker normally would earn about 130%, and a more-productave worker Is hkely to slow down work so as not to exceed the top hnut The practace is smular m Germany Each worker is orchnanly allocated a certam tame to perform a speclfic task for example, ff a worker, who ~s expected to produce six parts m one hour, produces eight parts instead, he would earn 133 per cent In practace most workers earn between 125 per cent to 150 per cent It ~s, as m America, an mcentave system winch is based on the quanUty of parts produced In Amenca, quahty concerns are expressed to the extent that by slmplL~ng the process, it is assumed that fewer mastakes will result In flus way, quahty becomes secondary to quantaty, m the same way as skalls become secondary to hard work Inefficlen6aes do result quahty suffers, mventones, and therefore costs, remmn lugh, parts get lost or stolen as no one takes respons,bdlty for the dehvery of parts But the costs, ~t ,s argued, are more than offset by the gains made by increasing preductawty German firms focus to a large extent on maintaining lugh quahty m&rectly, largely as an mchrect outcome of @ailed work In flus way, German workers ¢hd not have to be reformed of the need to mamtam qnahty In the U S, by contrast, getting workers to flunk of quahty necessaated a complete handset change That stud, the Amencan firms guched recorded considerable reductaons m scrap and waste largely by mahng the cell operator respouslble for the quality of parts produced m the cell

7. COMPENSATION PRACTICES IN THE FIRMS STUDIED As noted, the new manufactunng environment places a prermum on slalled and co-operattve work Both German and Amencan firms were taking steps m that ¢hrecUon w~th the re-grouping of maclunery into cells and islands staffed by (relaUve to the funcUonal layout that cells and islands replace) lughly skilled workers, preferably rotating In prmc,ple, the compeusatmn system should both support and encourage these developments The evidence from the research was clear pay systems are not changed and often run counter to much of the reform that is undertaken That is, management undertake reform m some, but not all, areas Most hkely not to change was the compensalaon system despRe the fact that m all but one of the American firms stu~ed, there was much talk of the need to change the mcentave system Few took tins step For those that d~d, change was slow and very uneven

The Changing Face of Manufacturing In the American firms studied, pay systems were one of two lands piece-rate systems, typically lndwldually based, which pay according to the number of parts produced, and day rates where a worker is paid an hourly rate, but is often held accountable for the number of parts he or she produces Failure to reach that level often results m dlsclphne Of eleven American firms studted, four had lncentave systems, five had hourly systems, and the rest a nuxture of both The latter ts the result of firms setting new cell jobs at a day rate winle keeping the old jobs under the p~ece rate system It ~s a reflection, also, of hnuted umon power, winch ~s able to hnut reform to exastmg jobs, but not to new jobs All of the German firms stuched, despite havang produclaon islands, paid as per p~ece rates To put ~t another way, none of the German firms made any attempt to change the compensation system, for reasons that will be explained later Pay is a central factor m change both in the abdlty to smooth the transmon towards flus new manufactunng environment, or, conversely, retard as movement Workers attach great ~mportance to pay, the method as milch as the amount Umons, moreover, are more hkely to uphold the status quo than to accept change Of three Amencan firms that were successful m changing the compensation system, one was non-umon, another has a weak umon that offered httle resistance to change, and the last firm shifted to a new plant with all mconung staff on an hourly basis No firm, m the U S or Germany, made any attempt to ~mplement salaried rates

8 H O W PAY S Y S T E M S A F F E C T C H A N G E It is commonly pointed out that mdw~dual incentive systems are mappropnate for the new manufactunng envaronment (Schonberger, 1986), and indeed to cells (Huber and Hyer, 1985) Three reasons can be gwen piece-rates promote worker compeuuon, not co-operation, they fall to take into account the thvers~ty of slalls necessary to operate drlferent machinery, finally, p~ece-rates create the potential for uneven work schedules The rule of a 'Just-m-T~me' system, for example, ~s to produce only as needed, but workers, long accustomed to producing as many parts as possible, wtll continue to do so They have an mcentwe extra pay Parts not needed then have to be stored, thus increasing the expense, as well the possibility of parts being lost or stolen To be more effectwe, firms try to get nd of excess in much the same way as an overweight person may lose weight in order to be healtiner The fact of the matter is firms don't lose that extra baggage, and the reform necessary to compete internationally is not enttrely undertaken Not only are compensation systems not changed, but the posslbdlty exasts that falinre to change the

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compensation package negates other aspects of reform, paracularly group work Aside from concerns about quality, pay hnuts job rotation and nulltates against effecUve group work Movement in and out of cells and Islands, for example, ts deternuned m part by pay Tins ~s a common occurrence m all firms, both German and Amencan In most of the American firms stu&ed, workers post from one cell to another ff the pay tmproves, putUng increased pressure on the firm to ensure that all workers are trained In other cases ~11, pay may hnut movement around the shopfloor A worker roll see httle reason to move from one cell to another, unless ~t means increased pay More problematic ~s the way pay hrmts reform Asked whether there was resistance to cells, a manager at one of the American firms rephed 'Yes, there was some resistance Tins ts an mcenUve shop so you are dabbhng ruth their checks" Th e Gerlnan case IS no dtfferent A m a n a g e r in

one of the German firms stuched commented that 'We have very expensive maclunery wluch ~s not being used m a way that we would w~sh' By flus he meant the need to have workers eaher rotate or perform more on mchv~dual maclunes The latter could mean having the same worker do both set-up and operaUon on the same maclune In pracUce, workers tend to remain at one job m order to maxdimse earmngs Cell operators m the U S are often reqmred to train other cell operators for flus they are typically paid their average Some workers wtll refuse to train feanng a loss of pay Aware that ~t is dtfficult to force people to do the tralmng, one firm's solutton ~s to use volunteer trainers only Still, trmmng m flus firm, as well as most other Amencan firms, was hnuted Wtule very often the culpnt here ts a firm's unwillingness to provide the means and the money for tralmng, also at fault are workers who see httle need for more tralmng Instead, they learn only as much as they have to, because for years flus Is the way the system operated, a practice reinforced by the pay system German firms, though more advanced m the provision of on- and off-site trmnmg facfllUes, had a dtfferent twtst to flus story Both management and the unions were m agreement that the mcentwe system hmated the ablhty of firms to make better use of the slalls and knowledge that workers learned as apprentaces Workers opted to stay on one macinne, performing, as reqmred, the same task repeUUvely because ~t meant more pay Yet, a theme echoed by both managers and umons representataves, as well as researchers, was that as competition becomes increasingly more global, the future of the German export-onented metal

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working sector depends more than ever on skilled labour The vocataonal system IS adequate What is lacking rather ~s the motavataon to make better use of skills A compensataon system that rewards skill, comnutment and involvement, rather than hard work, could do much to allevmte flus problem The reality is, despite much talk about going from a work-related 0ob-based) to a workerrelated (skill-based) compeusataon practice (Streeck, 1981), the compeusataon system m the German metal working industry ms not being changed in a way that would encourage the future development of a tughly skilled, rotatmg workforce The pay system may well hnut tecltmcal opttons One American firm has all single-operator cells, while some others have a predominance of singleoperator cells over mullaple-operator cells 3 Multtple-operator cells allow for a certam amount of numencal f l e x a b l l l t y by altenng the number of workers over tame In lnterwews with managers m Amencan plants, many lard the blame for singleoperator cells on the lnchwdual incentive system One Amencan finn shifted a mullaple operator cell to a non-umon plant because of its mab~ty to reach agreement w~th the umon on a rate for the cell Still another firm, m a smular prexhcament, forced a umon to accept its first cell, set at a day rate below the plant average The plant is all mcenlave Management's acUon, and the umon's acceptance of R, served only to antagomse workers Such aclaon is not atypical of mdustnal relataons m the U S When asked what workers got most out of cells, most umon presidents lntervaewed rephed 'more pay' Yet, faced voth increasing compeutaon, many of the firms studied were shtthng certain operattons, among them the low skilled assembly work, to non-umon facthtaes m the Southern states, or, alternatavely, to Mexaco It was, m one sense, a vaclous cycle As new technology was introduced, unions saw an opportunity for increased wages, and finns, an opportumty to shift operaUons or to reduce staff German umous, wlule not turmng a blind eye to an opportumty to increase wages, were more concerned with using new technology to increase workers' skills QuahtaUve demands, such as the shorter working week, have become increasingly important m recent years for German umons and are attributed as part of the reason why German umons have survaved intact the world-rode decline m trade union deusxty (Streeck, 1991)

3Smgle operator ceils have one worker per slur Muluple operator cells have more than one worker per shift, and the number may vary from shift to shift

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INABILITY TO REFORM THE CASE OF THE U S DespRe the acknowledgement, from the umon and management alLke, that the pay system needs change, most of the piece-rate systems seem to enjoy a life expectancy beyond their usefulness Part of the reason hes wath the reluctance of workers to accept change, a point well made by Mencle wRh regard to American workers (1992)

"Compensation practices present a partwularly challengmg ddemma on the one hand the existing compensation system frequently generates behavmurs that are mconszstent wtth or even counter producttve to the goals o f the new productlon system, on the other hand, the centrahty o f compensatton m the concerns of most workers, modern theories of management not ~thstandmg, and the vested interests, both mdzwdual and collective, m the status quo. mean that compensatton systems are very difficult to change and new systems very dzfficult to zmplement successfully "

Frustrated m their effort to change the compensalaon system, firms develop alternatave soluUous Ttus was certmnly the case for Amencan firms who experimented much vath new forms of compensalaon systems Typical of one such response were group mcenUve rates In a multapleoperator cell, for example, the rate would be set for all workers at the cell level This, however, runs into problems about the shanng of work a productaon worker may well resent having to work with a slower colleague who keeps the rate down In cases hke tins, other cell operators will see to it that the slow worker is convemently shLfted elsewhere According to a manager at one of the American firms '~uperwsors will pull lum out Because it is a group mcenUve, guys m the cell will hterally pull him out If he is pulled out of the cell we have to find work for l~m" A similar sttuataon occurs in a YIT enwronment In some Amencan plants, for example, it ~s not uncommon to find cells configured m a flow-hke capacity, ruth one cell feeding another and so on m a ~T system As earnings are dependent on the flow of parts, flus puts increased pressure on workers to have parts dehvered on Ume Despite the tendency for one worker to go agam~ another, umons turned a blind eye and accepted the practace as a social problem, more than a umon problem Management eq~mAly accepted such a view, and &d their best to work around the problem rather than solve R In tins way, the Taylonst system, premtsed on m&wduahsm, cames over to cause problems in the new manufacturing envtronment To put flus another way, reform, though necessary, msrarely complete,

The Changmg Face of Manufacturing

and the aspect least hkely to change, yet g~vmg the most problems, was compensation Another response in Amenca, as pointed out earher, Involves nuxmg incentive with hourly rates with, typically, all new cell jobs being hourly The problem ruth tins was that it creates meqmUes in a system already noted for havmg meqmUes In one American firm, the wage chspanty between production workers can be as ingh as $10 per hour A new job could come into the plant and be placed m a cell, for winch the rate could be set at, say, $10 an hour A semor worker, on the other hand, operatmg, say, a grmchng macinne could easily be making $20 an hour under the incentive system, maybe even working in a cell alougslde a $10 per hour worker operating a saw Often, the result of tins meqmty is increased tension on the shopfloor The compensaUon system, notmg the importance of group interaction, should be based on eqmty In&vldual piece-rate systems are not conducive to tins goal While the responses of most American firms stuched represent what could be described colloqmally as "oand aid" approaches, that is, temporary measures, some chd make slgmficant change Most typical of these was the implementation of new profit-sharing systems, commonly referred to as Productivity Gamsharmg or Improshare, winch ts a form of Gamsharmg4 Similar to profit-sharing schemes, these pay bonuses for increases m productlvlty rather than profit Workers, who often see the latter as a &stant concept, can more easily identify ruth the need to improve prodnctwlty Four of the Amcnean firms researched had Gamsharmg progranunes, wlth another two, at the Ume of conducting tins research, negotiating such schemes ruth the umou The four firms winch have Gamshanng all have hourly systems, and each expressed sattsfa~on ruth these, although m 4 Impmshare Is a Producuwty Oam~hanng plan In principle, both the union and the company agree on a way to measure producuwty, and on a date w~th wluch to begm to measure producuvlty Though tt can vary much m pracuce, normally producuvlty is expressed as a measure of what goes into producuon and what comes out That ts, the rauo of repots to outputs, or I/O where I equals inputs, and O equals output Crams can accrue and be dlstnbuted, typically on 50/50 basts, to workers and to the firm It ts here that Gam~harm8 plans have most to offer A well-thought-out plan, with the full support of workers, may accrue benefits to all paraes, and bnn8 m&wdual behawor more m lme with a~epted group norms In principle, Gamsharmg focuses attenUon away from mdlvflual worker concerns towards the performance of the orgamsauon as a whole They provide a financml mcenuve for workers to pamclpate m and mternahze group norms Quahty Is an tmportsnt focus Typically a Gal~harmg plan pays only for the number of quahty parts or products wInch are shipped and accepted by the customer Any sort of scrap or wastage, or goods undehvered or returned are not factored m For further mformauon on Improshare see (Fern, 1981)

703

two of the firms the umons claimed they needed updating The tendency was for firms winch had hourly wage systems to move further along the path of reform, tmplemenlmg C.~mshanng and reducing, slowly but surely, the number of job classtfieattons Fn'ms winch had mcentlve systems on the other hand tend to regress further wlth reform The latter firms were often noted for hawng bad mdnstnal relatmns

10 REFORM IN GERMANY In Germany, there was far less expenmentatmn ruth new forms of compensaUon systems, though these firms expenen¢~l the same problems A manager at one firm made the following comment 'We would hke to change the pay system It is a problem It ts very compheated It ts not only the umon (winch ~s a problem), but also to make a system winch ~s not less efficient than the old system' Umons are strong m Gennmly, and stronger still m the metal working mdnstry, winch ts represented by one umon, IG Metall. It uses the pay system as a means to control the stress of the job That is, unhke m America, IG Metall puts a hmlt on earmngs so as to ensure workers are not overburdened When productmn increases, new workers, especially temporary guest workers, are hned rather than increasing overtnne The American firms studied, though far less hmlted by umon structure m the ability to hue and fire workers, took the latter route, that Is increasing ovemme, often putting tremendous pressure on workers Not surpnsmgly, when workers m Amenea c o m p l a i n e d about cells, most often tt had to do ruth increased work Amenean umons, conscmns of the problem, could do httle to intervene as workers, long since used to layoffs and slack periods, saw overtime as a means to make more money Whereas new technology was seen as a way of increasing earmngs by American umons, German umons saw an opportumty of ~mprovmg the lot of the worker, rather than necessarily Ins earnings The piece-rate system, however, militated much agamq tins There is, however, some acUvRy on the part of IG Metall to change the compensatmn system Researchers at the InstRute of Work and Technology m Gelsenlorchen noted that there were some agreements reached between the IG Metall and employers, the latter also powerfully orgamsed along mdustnal hnes Such innovations have taken the form of a pay-for-knowledge system winch paid for extra tasks, not just those learned, as is typical with Amencan firms, but those that are earned out by workers m, say, a productmn island or on a p a r t l ~ d a r machine None of the German firms stu&ed had pay for knowledge, and Gam~harlng was almost unheard of m Germany

In further interviews vdth a researcher at the IAT

704

N Harvey

(InsUtute of Work and Technology), he pointed out that the compensation issue would become an increasingly important issue for German firms in light of re-unificaUon Firms In the former East Germany pay considerably less, and there is some behef that eqnahsatmn of wage rates will occur in the next decade or two Finally, German firms, moUvated by umons there, are looking increasingly towards remowng the dtfferenUal between wlute- and blue-collar workers in order to attract better canchdates for apprentmes As It ~s, the movement towards greater use of computensed technology at the workplace ~s increasing the need for skall, not just of a tecluucal land, but also SOClal Yet, the better-educated teenagers are looking mcreasmgly to a umvemty rather than techmcal educaUon A smnlar sltuaUon prevmls m the U S Premons research conducted m the small engines sector m Wisconsin would indicate that finding skilled maclumsts in the future will become increasingly difficult (Harvey, forthcoming) In mtervaews with maclumsts and producUon workers In Wmconsm plants, many pointed out that their cluldren were attending umversltles, despite the fact that skilled inaclumsts are much m demand and are presently earmng tugh wages Factory work, here and in Germany, has lost its appeal German socmty, as a whole, is more conscmus of tins problem Agmn, the polUt, a new componsaUon system, preferably salaried rates, would do much to offset the decline m the status of factory work and encourage more talented people Into manufactunng Some argue, see for example (Zubeff, 1990 or Mencle, 1992) that workers in the future will be system momtors and the hke and that the &v~smn between staff and line will become redundant, the further nucroelectromcs technology ~s dtffused on the shopfloor My own research, as well as that of others m the area of cell manufacturing, ln&cates that a low-tech response prenused on reducing costs and increasing produ~vlty is the more-hkely response of American finns for the near future at least (Knanss and Matuszak, 1989, Harvey, 1993) Sirmlarly, German firms were experimenting much w~th work orgamsaUon rather than technology, and saw lugh-tech soluuons, such as flemble manufactunng systems, as too expensive and lntlextble This is why producUon islands are favoured, being prenused on makang better use of skalled workers in order to exploa the lmuts of emstmg technology In that way, tlus ¢hstzucUon between white and blue work, and with it, the consequences for wages and the status of factory work, will contmue, m both Amenca and Germany

11 UNDERSTANDING THE SLOW PACE OF REFORM THE GERMAN/AMERICAN COMPARISON The quesUon as to reform compensaUon systems are not changed and why umons blocked reform in flus area is not so easily answered In the case of Germany, it can be said, [or at least I have satd elsewhere (Harvey and Behr, forthconung)], German firms move in a style that is decidedly slow but effectwe The umon structure was a hmltaUon in one sense But German management were clear on one point there is, at yet, no better system Rather than rushing into a new form, as many of the Amencan firms researched quite clearly c h d , both management and umon representaUves in Germany have heavily debated what a new compensalaon package wall be Out of these chscussmns has come, among other tlungs, pay-for-knowledge These are expertmental, especmlly m term of the number of firms that have them, but the expectaUon 1S that, If successfully implemented in these few firms, they will become the norm for the metal-working Industry there However, as noted, concerns over re-unmcaUon, are taking much of the attenUon away from the debate over compensatmn and the need to remove the status and wage ~lfferenUals between wluteand blue- collar workers Tnal and error best describes the Amencan expenence, gwen the expenmentaUon ruth new forms of systems, such as group rates, Gamshanng and the hke SUU, some, hke G-amsharmg, proved to be reasonably effecUve Unttke amens In Germany, American umons were not wflhng to become Involved in these debates about future developments in compensaUon If anything, as noted, unions llnUted the posslblhty of complete reform, and more thsn often saw new technology as a way of getting more wages, espectally through the lncenUve system They resisted change in part because the union structure has become so entrenched in Taylonsm that any change was considered threatemng to its sunaval Workers saw the mmntenance of the compensaUon system not only as a protecuon of their income, but also of their status, since both have much to do with semonty The new manufactunng envtronment, in essence, is a meritocracy that rewards slalls and involvement rather than, necessanly, age And though m mtemews with umon presadents 111 Amencan plants, many satd that the most producUve workers were the most semor ones, there is httle doubt that cell selecUon methods based on semonty chscntmnate agmnst younger workers Some Amencan firms, wtth a tenacity unknown to German management, were able to rollover mcenUve rates into hourly rates These were either non-umon firms or, alternaUvely, had weak

The Changing Face of Manufacturing

umons That is, in both cases, where resistance to change 1S low On the other hand, some of the Amencan firms sohc]ted umon approval and change was, as a result, very effectwe This typically took the form of reducing the number of job classifications and broademng pay structures Only one Amencan firm stuched completely fitted flus descnptmn What was impressive here was the ablhty of both the umon and management to go beyond the hnuted VtSlOn of adversanallsm and take a long- term vmw The result was more reform and, in the process, more memberslup support for the umon Indusmal relattons, and the degree of trust between workers and management, is a significant influence on reform in manufactunng firms partacularly insofar as changing pay systems go Stud another way, ff compensaUon pracUces are going to change, then umons have to be involved m the d~scusslon from the begmmng However, flus necessitates not just enlightened and knowledgeable umon personnel, but also, in the case of America, a management structure that is more wilhng to revolve umons in flus chscusslon, and less willing to use reform as another way of breakang the umon

12 SUMMARY The term 'new manufacturing environment' IS more than rhetonc, all of the firms researched, in the U S as well as Germany, were making significant changes in the orgamsalaon of work, as well as technology Despite much change, compensaUon systems became more entrenched and produced behavmur that, in many ways, runs counter to the type of changes firms want to make Faced with increasing compeUtlon, the Amencan firms stuched focused largely on increasing productawty and reducing costs by nddmg themselves of much mchrect labour It is the lean and mean plulosophy Tlus brought these firms into confhct with the umons German firms, on the other hand, in the context of the long slmmenng debate about the factory of the future, focused a great deal on increasing flexabfllty with techmcal change German firms were both advantaged and disadvantaged by a trade umon structure that forced management to focus on long term strategms prenused on increasing the quality of work life Despite much resistance to changing the compcnsaUon system, both management and umon representatwes in Germany enwsmned, in the not too chstant future, a compensaUon system that would reinforce group goals and reward the use of skall As compeutton Increases, the argument made by Europeans has a certmn nng of truth to it Industnahsed countries, m order to mmntam a lugh-wage economy, need to use their expemse m design and manufacture CompensaUon practtces,

705

as a result, need to reflect flus Those that follow the Taylonst logm certmnly do not REFERENCES Black, J, (1983) Cellular Manufacturing Systems Reduce Set-up Trine, Make Small Lot Produetton Eeonormcal, Industrial Engmecnng, 15, November, 12-130 BNA, (1988), Changing Pay Praetmes New Developments m Employee Compensahon, Washington, D C Dertouzos, M L, R. K Lester, and R. M Solow, (1989) Made In Araenea Regaining the Produehve Edge, The MIT Press, Cambridge, Massaehusc~ Etthe, J, (1988) Takm~ Charge of Manufacturing How Compamcs Are Combtmng Technologmal and Organmataonal hmovattom to Compete Sue~ssfitl Jossey-Bass Pubhshnrs, San Francmeo Fern, M, (1981) Improsha~ An Altomatwe to Tradflaonal Managm& Instaute of Industrial Engmocrs, Athmta, Georgl& Fry, T D, M G Wdson and M Breen, (1987) A S u ~ l Implementatinn of Group Technology and Cell Manufacturing productton and Inventory Management, Volume 2 3, pp 4-1 l H~dd~_d, C, (1993), "Concurrent Engineertng m the Automotave Industry Prospects for Worker Education" In proceedings of the IFAC Syinlxmum on Automatton Based on Human Skill and Intelhgenee Machson, Wisconsin, Pergamon Press, London Harvey, N, (1993) "Automatton and Restruetormg How Induslnal Relattons Affects Change m the Wtseonsm Metal Working Industry" In Proceedings of the IFAC Symposmm on Automatton Based on Human Skill and Intclhgenee Machson, Wmeonsm, Pergammon Press, Londo~ Harvey, N, (forthcoming) Einermng Skill Needs In the Wlseomm Non-antomottve Engine Manufacturing Industry Courted on WlseomIn Strategy, Madason, Wtsconsm. Harvey, N, and v Behr, M, (forthcoming), "Group Work In the American and German Non-Antomottve Metal Manufaetunng Industry" Paper to be publk~hed m Internattonal Journal of Human Factors In Manufacturing, Huber, V L and N Hyer, (1985) The Human Factor In Cellular Manufaeturmf~ Journal of Operattons Management, Issue 5, pp 213-228 Hyer, N L, and U WenmaerlOv (1984) Group Technology and ProdueUvay Harvard Busme~ Revaew, July-August 140149 Knauss, IC, and M Ma~l~Ak. (1989) "The Imphcatinns of Cell Manufacturing for U S Factory Workers and Thetr Umom" Labor Studaes Journal, 14, Spring, 20-29 Kohler C and 1~ Schultz-Wtld, (1985) Introducing New Manufaetunng Technology Manpower Problems and Pohcles Human Systems M ~ m g e n ~ , 5, 231-243 McDuffie, J P, and T Koeham (1988) Human Resources, Technology, end Econorinc Performance Evidence from the Antomobde Indu~ay, Paper presented to the Inchnanal Relations Research A.~memttort, Alhed Social Sciences Meeting, New York Mencle, K., (1992) "Compensation Praettees In the New Manufa~-tunng Envn~unent", In Fret, Hugentobler, Schurman, Duell and Ahoth (eds) Work Demgn for Learning and Competanee Development, Quorum Book& New York. Schonberger, IL, (1986) World Clas~ Manufactunng The Lesson of Snnphcay Apphed, The Free Press, New York. Sorge, A. and W Struck., (1988) Industrial Relatinm and Techmcal Change The Case for an Extended Perspective Ill 1L Hyman and W Streeek (ed.) New Technology and Industrial Relations, Basil Blaekweli, Oxford, 19-47 Streeck, W, (1991) More Uneertamtaes German Umons Faemg 1992 Industrial Relattons, Volume 30, No 3, pp 317-349 Streeck W, (1981) Qualttattve Demands and the N e o - ~ Manageabllay of Industrial Relattons Bntmh Journal of Industrial Rdataons, 14, pp 149-169 WemmeflOv,U, end N L Hyer (1989) "Cellular Manufactunng In the U S Industry A Survey of Users" InternaUonal Journal of Produetton Research, Vol 27, No 9, 1511-1530 Zubot~ S, (1988) Inthe Age of the Smart Machine The Future of Work and Power, Basra Bool~, New York