By Shelley DuBois, writer-reporterFORTUNE -- The genius of Ford's first Model-T was that it optimize...

1. Why automakers are adopting pay for performance
By Shelley DuBois, writer-reporter
FORTUNE -- The genius of Ford's first Model-T was that it optimized a highly complex process:
workers could make each of the parts in isolation. Then, a specific group of workers would put those
parts together to make a car.
Over a century later, that assembly-line mentality is moot. Car making, like other modern
manufacturing processes, has become an integrated process where many different departments
work together, much earlier than the final phase, to form a product. Car companies that want to
provide an incentive for employees to produce more high-quality cars faster need to frame the work
as a collective effort. One way to do this is to adopt a pay-for-performance model.
Last week, General Motors

2. GM
announced that it would start to share its profits with its hourly workers as part of a larger
agreement the company signed with the United Auto Workers (UAW) union.
This week, the UAW is wrapping up talks with Chrysler. Ford
f
, which signed a tentative agreement with the UAW on Tuesday, already shared profits with its
hourly workers when it gave them $5,000 after announcing its 2010 net income in January. Chrysler
initiated a profit-sharing plan back in 1985, but stopped making payments in 2006. The company is
currently negotiating with the UAW, and it should reach a payment plan agreement in the next
couple of weeks.
The UAW and the Big Three are trying to create auto manufacturing jobs in America that still allow
carmakers to profit, despite the lower cost of manufacturing in many other countries. So far, both
Ford and GM have tried to walk that line by creating more entry-level American jobs for workers
with lower starting salaries. Both companies have indicated that they will include signing bonuses
and profit sharing plans for these workers.
Many different types of companies use a pay-for-performance model -- think of a sales executive who
works on commission -- but the benefits of profit-sharing at car companies represents a profound
shift in manufacturing. Modern manufacturing is team-oriented, says Jim Kochanski, a senior vice
president at consulting firm Sibson. "One person working faster on the line doesn't speed up the line
anymore," he says, and successful financial incentives must reflect that.
Manufacturers in general are primed for this compensation system because they can use very
specific performance metrics: producing more units in less time for less money spells positive
business results.
The lack of these kinds of metrics can make the model controversial. For example, many states are
considering introducing performance-based pay for teachers. Those proposals have gotten mixed-
feedback, since better student performance can be difficult to quantify.
But governments and companies alike are looking to pay-for-performance models because they are
so cash-strapped. Especially in challenging economic times, companies need to make sure they
reward top-performing employees and otherwise spur their workforce to produce profits.
"People are watching pay in a way that they haven't before," says Myrna Hellerman, also a senior
vice president at Sibson."I think that management has to be more engaged in the pay process than it
was before the downturn."
Companies also need to communicate these new goals clearly to their employees. That's something
that has actually improved, in general, since the recession, Hellerman says.
The need for a clear compensation process drove GM's recent shift. "One of GM's goals was to

3. develop a profit-sharing formula that was simple and transparent and would help employees
understand how they could contribute to the success of the business every day," says Kim Carpenter,
GM's manager of manufacturing and labor communications.
The company is tying payouts to hourly employees to the
whole company's earnings before income and tax, a publicly
available figure. In other words, the world can watch GM's
earnings and resulting payouts. This way, under ideal
circumstances, car workers can share a common goal of
earning and, on a larger scale, helping their employer stay
in business.
http://management.fortune.cnn.com/2011/10/07/why-automa
kers-are-adopting-pay-for-performance/