Factory Benefits to Paying Workers More: The Critical Role of Compensation Systems in Apparel Manufacturing
Key Insights for Managers
Global supply chain factory workers are frequently paid low wages, often attributed to factories earning low margins. This article reveals, through a series of experiments conducted in an apparel factory in Thailand, that re-designing compensation schemes can improve factory profitability and worker productivity, satisfaction, and motivation. Authors Niklas Lollo and Dara O’Rourke found these win-win results occurred when the factory introduced a payment structure that increased the amount the factory paid for each completed item (piece-rate) as the worker’s team surpassed various productivity targets. This also decreased tardiness, reduced worker turnover, and improved quality. This study’s insights are based on a set of field experiments that examined various changes made to a factory’s compensation system on eight production lines over the course of two years.