You get what you pay for
Scott Davis, director of operations for Autodesk Inc., a Sausalito, Calif., software maker, was buying time -- not productivity -- by paying his production workers hourly wages. "People were working overtime who didn't need to, and the error rate was very high," he recalls. So he put his employees on salary and offered them a monthly productivity bonus -- eliminating the incentive to work overtime. Six months out, errors had all but disappeared.
Five years ago, when Davis started the bonus system, he was managing 14 employees and the company had sales of $29 million. By 1990 sales had grown to $200 million, but his staff had grown only to 27. Today 90% of the production workers take home the bonus, which makes their pay 10% to 15% more than it would be if they still worked for an hourly wage.