Which is pretty much what has happened to Japan. While the fact that wage costs fall in hard economic times (when you don’t have to pay bonuses) helps to slow the fall, it also makes it hard to turn things around.

I was gobsmacked to read Gerard Henderson’s interview with Arvo Parbi in “Australian Answers” (many other great interviews as well) and learn that the miners have always worked on piece-rates, paid according to productivity. Hence you can have a militant and radical union that remains productive because the incentives were right, contra the wharfies.

Interesting passage in Alan Silletoe’s novel “Saturday Night and Sunday Morning” – the protagonist, hard drinking brawler, employed in a bicycle factory, wants to buy mother a nice present so he works a bit harder for a few days to make the extra money that he needs on top of his regular beer and ciggies money.

The corresponding strategy to make extra money for Christmas and birthdays for technicians in the old PMG (pre Telstra) of unhappy memory was to work slower during the week and pick up the extra funds with overtime on the weekend.

I remember talking about bonuses with the staff of the various mimisters at the time and whilst they agreed in theoretical terms they thought the practicalities were too hard.

So much for their compassion for the unemployed

The story of modern management is that incentives may matter, but they’re far from everything, and sometimes things which emerge from the ‘its all in the incentives school’ bugger things up for decades. Compare the Japanese and American car industries – with the Yanks still declining.

(Reminds me of a story of the declining UK industry. In the 1970s a new Japanese factory was doing well in England whilst all about them were continuing to decline. On close investigation it was found that the Japanese factory had one dining area in which management and workers ate, while the British ones had management and workers’ dining rooms. Executive bonuses in the US industry are a little reminiscent, though of course many things are different.)

Please tell me what the practical difficulties were. I expect people did say this, but didn’t quite have sufficient energy to come back with that response and then see what could be done about the problems.

But even then we needed to be careful. For a start, you still need to have a substantial base salary component. If the majority of a practitioner’s income is at risk, he/she may tend to focus on billing to the exclusion of ethics, excellence, professionalism and quality of service. And the bonus target needs to be reasonably but not too easily achievable, and not easily capable of being “rorted” (e.g. bunching all the practitioner’s billings into one bonus period to achieve a huge bonus, then decamping to work elsewhere).

You can certainly design systems that take these (and other relevant factors) into account, but it isn’t as straightforward as it might seem at first blush. Moreover, there would be quite a few industries where performance on factors that are actually the most important is less easily measured in a reliable way. One of the more telling criticisms of new managerialism is that public sector managers typically attempt either to measure the unmeasurable or at least measure things that are dubiously relevant to their organisation’s main functions. This phenomenon is acutely prevalent at Australian universities. See this article (http://evatt.labor.net.au/news/95.html) by David Boyle on Evatt Foundation website:

“We have been here before – especially in periods of great social hope such as the 1830s, when the followers of Jeremy Bentham rushed across the country in stagecoaches, armed with great bundles of tabular data and measuring everything they thought important: the number of cesspits (which they saw as an indicator of ill health), or pubs (an indicator of immorality), or the number of hymns that children could recite from memory.

Then as now, the problem is that what really needs measuring is not countable. “So-called efficiency,” says Richard Scase, professor of organisational behaviour at the University of Kent at Canterbury, “takes the place of effectiveness, quantity of quality. The means become an end in themselves.” As anyone in local government will tell you, these numerical indicators are about management at a distance, and they will always miss the point: school league tables make teachers concentrate on borderline pupils at the expense of their weaker classmates; waiting-list targets persuade NHS managers to treat those with the quick, simple problems at the expense of everyone else.”

Few people thought aussies would like a large part of their renumeration as a bonus and a smaller part as wage/salary.

Remember this is 80′s time not the longest recovery since WW2.
The major thought was people would be wary of the bonus dropping when the economy went pearshaped.
These ‘difficulties’ amy be easier to overcome.

Also these advisors had experience like me in the late 70s when ‘compassionate’ workers voted for outlandish wage rises knowing full well a lot of people would be retrenched but not them.

Again the last in first out policy has gone and this could be overcome.

surely the preesnt government would favour this and I’m sorry for calling you surely

If the work is a team effort you reward the whole team and get the players involved in the division of the benefits.

I don’t see how piecerates undermine the incentive for management to invest to increase productivity, I would have thought increasing productivity with the right incentives in place is a win win situation.

Assume that you pay people $12 per hour and you need to invest a fair bit of money to double their productivity. They end up getting $24 per hour and and all they’ve done is learn to work the new machines. It is OK (though not particularly fair to lots of people outside the factory who still slave away at $12 per hour) for the workers in the factory if there is still surplus enough for the investment to go ahead. But often there isn’t These problems of incentive compatibility are far from trivial and dog lots of problems of remuneration even before various psychological considerations are taken into account.

And yes, it is certainly possible to invent incentives that are even worse.

One can confidently predict a similar phenomenon with at least some employers who convince workers to enter similar deals. If I was advising an employee presented with such a deal, I would counsel extreme caution. Far better an arrangement where the bonus benchmarks are clearly defined and incapable of manipulation by either employer or employee. That isn’t necessarily easy to achieve in some industries, but should usually be possible.

The other thing is the cultural context – and so rather different incentives may be needed in Japan vs the US for example