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HUMAN RESOURCES

Answering The Bonus Question

A musical instrument manufacturer gives its employees bonuses for coming up with cost-cutting ideas.
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APRIL 1989

A big problem with most employee-suggestion systems is that the financial rewards, if they exist at all, are unrelated to the value of the suggestions. Without much incentive to find better ways to do things, many employees lose interest in trying. Not so at Peavey Electronics Corp. The Meridian, Miss., company pays hourly workers 8% of the estimated first-year labor and materials savings that result from their ideas.

Peavey, which makes amplifiers and guitars, used to have a more conventional system, rewarding suggestions with $25 to $100 bonuses, vice-president Melia Peavey explains. Paying for savings instead, she says, generates more excitement.

For each suggestion, the company projects the savings in a cost study. Then it pays the employee his or her percentage up front -- a minimum of $15, with no maximum. "We give them the benefit of the doubt," Peavey says.

Salaried workers aren't included in the program. "Saving money is part of their jobs," she says, "and we don't want supervisors competing with employees."

In 1988 hourly workers earned a combined total of $43,857 for their ideas. The biggest check -- $1,331 -- went to a machinist who figured out how to reduce the amount of maple scrapped by the neck-carving machine.

Last updated: Apr 1, 1989




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