What is in this article?:
- Do Monetary Rewards Reinforce Lean Systems?
- Best Options have an American Flavor
The role of monetary rewards in lean systems is controversial. Some lean advocates oppose using monetary incentives, arguing that they are ineffective and counterproductive. Others see compensation programs as critical organization tools for reinforcing the knowledge, skills and behaviors needed in lean systems. Who is correct?
After their rapid expansion in the past two decades, lean initiatives are now ubiquitous. Today it is difficult to find a U.S. manufacturer that is not at least in the early stages of a lean strategy.
A successful lean effort requires fundamental changes in the knowledge, skills and behaviors of employees and managers. The lean toolkit is very deep, requiring both white- and blue-collar employees to learn many new principles and tools for eliminating waste, improving work processes, serving customers more effectively and optimizing production. Little wonder that obtaining employee and management buy-in for lean can be a daunting challenge.
The human resource function offers many methods for building knowledge, skills and abilities. Training, recruitment and selection, job design, performance feedback, career paths, and management style all play important roles in motivating employees to change, and all are advocated in lean writings. What about pay?
The lean literature is mostly silent or negative on the topic of pay. The 18 books on lean in my collection devote less than 18 pages to compensation. Some authorities, most notably W. Edwards Deming, James Womack, and Daniel Jones are negative about incentives. For example, Deming counted merit pay and management by objectives among "seven deadly diseases" on the grounds that they encouraged short-term thinking and unhelpful competition, but he had little to say about other pay practices.
The problem: Pay systems exert very powerful effects that either reinforce or undermine lean practices. Employees certainly take pay seriously -- and they notice whether management "puts its money where its mouth is." The question is not whether pay should be used to support lean, but how to design pay practices to reinforce lean principles.