Main NI Index | Main Newspaper Index

Encyclopedia of Trotskyism | Marxists’ Internet Archive

The New International, June 1943

Walter Wiess

What Is Incentive Pay?

An Examination of a New Profit Plan


From The New International, Vol. IX No. 6, June 1943, pp. 168–171.
Transcribed & marked up by Einde O’Callaghan for ETOL.


On April 19, Newsweek magazine confided to its readers: “Wage incentive plans are due for a big play. When the rank and file discovers that only through such plans can they take home fatter weekly pay envelopes, it can be expected that labor leaders will change their chilly attitude toward incentive systems.”

It is true that incentive plans are getting a big play-in the journals of big business: Newsweek of March 15 and April 19, Time of March 8, Business Week of April 3 and May 15, Modern Industry of February 15, United States News of April 16. Doubtless there are many other endorsements in similar sources.

This flood of publicity is not accidental. Business Week informs us that the campaign originated in the War Production Board, that is, among the brothers and the other selves of the publishing enterprises above named. Newsweek further reveals that as far back as last fall C.E. Wilson, president of General Motors, wrote to the War Labor Board that incentive plans would produce more war materials, bring prices down by renegotiation of contracts, result in bigger profits for management as a reward for introducing more efficient methods, and permit the workers to take home more money.

Mr. Wilson was finding the United Automobile Workers Union unreceptive to his plans. They turned down his proposals last year (Time, March 8, 1943). They are still turning them down (PM, April 22, and New York Times, May 1). The Times report, an account of a conference of representatives of all General Motors locals of the UAW, states:

“Finally, acting on the incentive pay question, the conference adopted a resolution expressing opposition to “piece work under any name” and called upon the international board to take a “firm and decisive position against any and all form of so-called incentive pay.”

The resolution was construed as a criticism of the executive board’s recent action in Cleveland. The board went on record against incentive pay in principle, but authorized Richard T. Frankensteen, a vice-president, to sit on a War Production Board committee studying incentive pay plans.

So Mr. Wilson went to the government for aid, to his cronies on the WPB and to the WLB. The WLB, in General Order 5 of October 1942, obliged by exempting from the Little Steel formula “any wage adjustments that might be made for increased productivity under piecework or incentive plans.” An employer could institute such plans without WLB approval. More recently the President in his “hold the line” order allowed incentive bonuses when they do not increase production costs appreciably, or provide a basis for increasing prices or resisting price reductions.

Business Week of May 15 gives the “inside dope” on the President’s action and a subsequent development in the WLB. We are informed that incentive pay has been under “quiet” discussion in Washington for several weeks and that Wilson of the WPB (Nelson’s second in command, not the General Motors’ Wilson, just a brother-under-the-skin from General Electric) “sold” the White House on the idea. Hence the “little noticed” clause exempting incentive plans in the hold the line order. Subsequently the WLB, at the request of the WPB, approved a new incentive plan for Alcoa at Lafayette, Ind., despite the fact that a twenty per cent rise in wages is anticipated as a result. The WLB stipulated, of course, that unit labor costs must not be increased.

The WLB and the President have provided the legal basis. The WPB, with the assistance of some labor “leaders,” such as Green, Murray and Frankensteen, have assumed the pleasant task of informing the business world, and also the more difficult one of persuading the workers, of the merits of this, to use the frank language of Business Week, “quietly worked-up plan.” United States News tells us that a dozen or so incentive plans have been installed in plants with the aid of WPB’s labor division. These experiments are parts of the “study” being made by the WPB. Probably the “quietly worked-up plan” had to come into the open a little prematurely because of labor pressure for wage increases (ferment in the ranks of the UAW and almost every other union – and, above all, because of the demands of Lewis and his miners).

What Is the Plan?

The business magazines named above assure us with one voice that the experiments have been successful and that they are winning the favor of labor. How is this new-born love of the workers for incentive plans to be explained? To begin with, our business magazines, with a great show of frankness, admit that piecework and other incentive schemes once “added much more to corporation profits than to the workers’ pay check (thus the president of the Bedaux Co.).” But now all of that is changed, of course.

In the old days, as everybody knows, piecework induced the workers to hustle until they were in danger of amassing a fortune that would enable them to retire and live on their incomes. Then the employer, to prevent this degeneration into unproductive idleness, would cut the piecework rates, and the process would start all over again. Piecework was, and is, an incentive system. However, when the term “incentive” was used, other and more subtle forms of wage-cutting were usually meant. Under them the worker was forced to cut his own wage rates, and the boss was spared the dirty and sometimes quarrelsome task. Professor Schlicter in his Modern Economic Society (page 697, 1936 edition) gives a good explanation of the general procedure. He begins by stating that many employers have found it unnecessary to pay such large rewards as piecework gives in order to induce a man to do his best. Instead a standard time is set for a certain job. If a worker does it in less time, the time saved is divided between him and the company, usually on a 50–50 basis. Suppose that the standard for a certain job is two pieces for a ten-hour day and that the pay for this is $5.00. At piecework, if the man did four pieces, he would receive $10.00. Under an incentive plan he would divide the extra $5.00 with the company and receive $7.50. Doing the standard two piece, he would receive $2.50 per piece. Doing four pieces he would receive only $1.88 per piece. To make $10.00 he would have to do six pieces, and this would reduce his rate per piece to $1.67. Of course, his hourly pay would increase, but not in proportion to his increased productivity.

The present proposals for the incentive system don’t attempt anything quite so raw as this. Newsweek furnishes us with an example of what is intended and the other business magazines also take the same line. If, says Newsweek, eighty pieces are standard in eight hours and a hundred pieces are produced, the increase in output is twenty-five per cent, and the bonus should also be twenty-five per cent. In other words, the piecework principle is proposed, decorated with the verbiage about “standards” taken from the incentive plans, and also the relatively unfamiliar word “incentive.” Further, the industrial engineers and the business magazines advise that this is not the time to try rate-cutting, at least of obvious kinds, every few months.

However, the WPB plan is not for piecework pure and simple, but for group piecework. It provides (Business Week, April 3) that “whenever a plant’s output per man rises by a given per cent, the pay, but not the wage rate, of everyone in the plant, from sweeper to president, will be increased by the same per cent.” Group piecework is considered more efficient by some industrial engineers, because the workers themselves, to get the group bonus, push the slow fellows who are holding down the amount of the bonus payment. This is explained more fully by David Coolidge in an article in the April 12 issue of Labor Action. The plan has the further attraction of giving management some share after all, even as did the old incentive schemes. The president and all the rest of the staff of management are to get a bonus of the same per cent as the workers – as a reward for the extra effort made by the WORKERS. Even if this pleasant detail were eliminated, even if the individual piecework principle were adopted, the workers would still be subjected, as Coolidge states, to time and motion studies and the other scientific paraphernalia of the Bedaux or other industrial engineers, in preparation for the setting up of the “standards.” Labor has always found it hard to secure rates that are proportionate to the speed-up involved from such studies.

Business Week of May 15 says that the WPB still has many problems to solve before launching a full-scale campaign. How about plants where production has been poor? If percentage rises are allowed for increases over past production, the base rates will be unsound, since the workers may really get busy, work hard, get rich, and reap an undeserved reward for being lazy in the past. Horrible thought! Should the government merely spread propaganda in favor of incentive plans, or should the WPB come out more openly and offer a more or less standard plan? While the WPB favors a plant-wide basis for bonuses, on the ground that maintenance men as well as production workers should be considered, many employers feel that individual incentives are better. On the other side, the unions are suspicious. At the Gary, Ind., foundry of Carnegie-Illinois there were recently a score or more “quickie” strikes in a period of four weeks “incident to the installation of an incentive plan.” The General Motors department of the United Auto Workers is dead set against all such plans. Earl Browder has to a certain extent gummed up the works, since his endorsement, while it has won over some unions, has alienated others and beclouded the “merits” of the plan by dragging in “politics.” Most serious of all, according to Business Week, is a union demand to link up incentive pay with a guaranteed work week in order to guard workers against loss of employment which might result from a speed-up.

What Does Labor Say?

Doubtless the WPB can solve all its other “problems,” once the fundamental one of labor opposition is overcome. They would probably be willing to compromise with management on the disagreement over plant-wide or individual bonuses. In fact, the Alcoa plan, mentioned above, is apparently an individual bonus plan. Business Week itself cites the case of the Murray Corporation to show how plant-wide application may be modified to take care of non-production workers.

But what does labor say? While labor is supposed to be undergoing a real conversion, Newsweek admits that labor’s attitude is favorable “with reservations.” Modern Industry state: “Most surprising is the number of cases where unions have been the prime movers.” But it lets the cat out of the bag with the following additional information: “This acceptance is most marked among the top-rank officialdom of unions – particularly in the all-out left wing (in other words, Stalinist – W.W.) unions – and diminishes at the plant level.”

Earl Browder’s notorious two cents’ worth, Wage Policy in War Production, is the most enthusiastic “labor” endorsement of incentive plans. It is described as an abridgement of an address made to a meeting of production workers and trade union officials in New York on February 23, 1943. Browder pretends that big business leaders are an unpatriotic and ignorant crew who don’t want to see the value of incentive pay. In six months or a year, he says, production could be doubled. (In other words, the workers are really stalling on the job in a big way.) This would double wages and more than double profits, since overhead costs per unit would fall. The only thing lacking is a willingness on the part of the employers to cooperate in this beneficent project. So the task of the workers is to talk tough and “to force better profits on unwilling employers” (page 8).

A sharp contrast to this comic treachery is to be found in the pages of the United Auto Worker. Here the direct voice of the rank and file is seldom heard. Yet in the May 1 issue two locals condemn incentive pay strongly: the Budd Local in Detroit, which after a bitter fight had rid itself of it, and the Detroit Steel Products Local, which still is working under such a system. In the same issue the Republic Aircraft Local of the same area reports its difficult fight to prevent the management from cutting the base rates under an incentive plan.

Indirectly, pressure “at the plant level” is more fully revealed. Secretary-Treasurer Addes, a proponent of incentive pay, early this year persuaded the CIO Executive Board to drop an endorsement from its program, on the ground that incentive plans might spread unemployment. The UAW Executive Board, formerly on record with a vague proposition in favor of increased production to further the war effort provided wages were proportionately increased – a veiled endorsement of incentives – has recently denied repeatedly, even in telegrams to all locals, any dissension in the Executive Board on this issue and has insisted, not with the utmost candor, to be sure, that the whole Executive Board opposes incentive pay in principle. Locals are allowed to adopt incentive plans only if they comply with a list of seven safeguards.

That the locals distrust the National Executive Board is shown by the recent GM national conference, referred to near the beginning of this article. The conference even rejected safeguards and treated Frankensteen, Addes and a handful of Stalinists with scant respect, booing them enthusiastically. Various regional conferences – Regions 9 and 9A in the East and the conferences of the key Michigan region – have since taken similar stands, the latter even demanding that union officials (meaning Frankensteen) should resign from government committees studying incentive plans and that locals shoud be assisted in efforts to get rid of these plans. Secretary-Treasurer Addes reported some 200,000 union members still working under bonus schemes. Before 1934, in the open-shop period, these schemes were universal in the industry; now they are the exception. Many auto workers evidently remember the abuses of the past and do not intend to revive them with union sanction, despite the efforts of Frankensteen, Addes, et al.

In short, Newsweek misrepresents the facts when it says that the rank and file will force labor leaders to change their “chilly attitude.” When labor leaders assume a chilly attitude, it is from having a more than lukewarm interest on their part exposed to the frigid dislike of the rank and file. This is not to say that inexperienced workers may not be taken in by the glowing promises of the WPB, Mr. Raymond (president of the Bedaux Co.), Messrs. Frankensteen and Addes, and “Comrade” Browder. These workers will do well to learn, before it is too late, from the experienced automobile workers and from recent difficulties that workers have had with presently-functioning incentive systems: the “quickie” strikes at Carnegie-Illinois (Business Week, May 15), the troubles at Republic Aircraft (United Automobile Worker, May 1), the recent strike at Wright in Paterson over a cut in incentive bonus pay (The Militant, May 15), the crisis at Curtiss-Wright in Buffalo over retiming of jobs and a consequent sharp cut in bonuses (Labor Action, May 3).

Seldom are any two incentive systems exactly alike, and they are invariably very complicated. How difficult it would be for an ordinary worker to check on the mass of statistical data involved is well illustrated by an account given in Business Week of August 29, 1942, of the system at the Murray Corporation, where the UAW local is said to collaborate successfully with management in administering the plan. The management hired industrial engineers to install the system. The rank and file elected five time stewards, who were given a training course of six months by these engineers and who are paid by the management. Because of the expense of training, these stewards are elected for terms of four years, although their terms of office do not all begin and end at the same time. Their job is to represent the union in time-study disputes, to investigate time-study formulae, and “to act when necessary as interpreters of the subject to their fellow workers.” It should at once be apparent how open to company domination such a set-up is. There are also endless opportunities for practicing favoritism and stirring up quarrels among the union members. These, briefly, are the reasons why experienced workers do not go for such plans.

It is interesting to note that the Murray Corporation is a favorite example of union-management collaboration in the field of incentive pay. Modern Industry (February 15) carries a photograph of a steward’s meeting, discussing time-study plans. The stewards look very happy. Business Week of May 15 reports that the incentive system at Murray has raised output fifteen per cent and that the workers are satisfied with the standards. Back in August 1942 the same magazine reported that there had been no stoppages at Murray for several years and that the president of Local 2, Lloyd T. Jones, credited this largely to the time-study provisions in the contract of February 1941. All that needs to be added to complete this happy story is the following: On March 24 of this year Lloyd T. Jones, president of Murray Local 2, sent telegrams to leaders of the UAW and to high government officials, demanding restoration of premium pay for Saturdays and Sundays and a $2.00-a-day increase in wages. The local also sent a telegram to John L. Lewis, supporting the miners’ demand for a $2.00 increase (Labor Action, April 5). Business Week does not report these latter-day activities of Brother Jones and his local, and we can only hope that the magazine’s enthusiasm for Local 2 will not be diminished by the news.

What Does Business Want?

We have so far seen that the incentive pay campaign originated (quietly) with big business, has been backed by the Stalinists (vociferously) and by top union leaders (somewhat cautiously) but has been rejected (with emphasis) by the experienced rank and file of the union, where it has so far become a big issue. We can get further light on the workers’ interests in this situation by examining the reasons why big business has launched the campaign. Just what are the aims of the campaign? Mr. (General Motors’) Wilson stated them in their noblest form in his letter to the WLB, mentioned above. The business magazines give us also some franker information. Here is some of it:

  1. All the magazines set forth the obvious proposition that, if more work is produced in regular instead of overtime hours, overhead costs of running the plants are cut. Result: greater profits. To be sure, lower prices to the government and hence to taxpayers are sometimes held forth as a bait. It should be said that savings on overhead can add very considerably to profits.
  2. Newsweek reveals (and the New York Times has for months been conducting a full-dress crusade on this issue in its editorial columns) that the bosses dislike paying time and a half for overtime. They consider it almost criminal to give 1½ pay for just a standard output, when they could get 1¼ (or more) output for 1¼ pay on an incentive basis. Or even 1.1 output for 1.1 pay. The Times and some others claim, in justification, that increasing output to the same extent that pay is increased prevents inflation. Time and some others hold that incentive pay is merely less inflationary: since the workers’ total pay would increase while available supplies of consumer goods are decreasing, there would be some inflation anyway. United States News agrees with Time, but adds the reassuring thought that “the government could take much of the workers’ excess earnings through taxes.” What is perfectly clear in all this is that the bosses’ profits would be higher, subject only to the uncertain control of renegotiation of contracts.
  3. Business Week, looking to the future, states that permanent changes, in the wage structure (that is, a generally higher level of basic wages in the future) would not be risked. Time and a half for overtime, to be sure, is bad; but recently worse things have been developing as a result of the coal miners’ demands and the response they have awakened in the ranks of labor generally. Workers want higher hourly or daily rates besides time and a half for overtime. If their demands for more pay could be satisfied by speed-up bonuses, this would be good not only for the present but also for the future. In fact, many business men, three out of five, are even saying that the repeal of the overtime provision of the Wages and Hours Law is at present impractical. (New York Times, May 2) They would be content for the time being to keep hourly rates down. Later, when unemployment comes, the workweek can be reduced to forty hours or less, thus doing away with overtime pay; but the task of lowering base rates, once raised, would be more difficult.
  4. Apart from considerations of profit in the domestic market after the war, there is the tougher competition with other countries in the world market to think of. The United States, says Newsweek, has always been an efficient producer. The incentive system would make her still more efficient. She would be in a “fine position to serve the great new markets for manufactured goods that are waiting in the post-war world.”

It is hardly necessary to take up the above aims of management one by one from the labor viewpoint. The losses to labor from these schemes, both now and even more in the post-war period, are obvious. If management wishes now to hold down wage rates and after the war to lower them as far as possible, if management wishes now to alleviate a short supply of labor and after the war to create a greater excess supply, the interests of labor are clearly not the same. Other considerations, of little interest to management but important to the workers, such as the effect of a speed-up on health, are sufficiently obvious to workers not to need mention.


Not many months ago, labor leaders, having given up the right to strike and even their contractual rights to time and a half pay for Saturdays and double pay for Sundays, were forced to face the employers’ demands for a further retreat. There arose a so-called “grass roots” campaign to abolish overtime pay altogether and to lengthen the work-week to forty-eight hours, to fifty-six hours, indefinitely. Time magazine during April of 1942 informed its readers that Roosevelt resisted this campaign because he saw that the cost of living was rising and that labor would not accept this further blow quietly. However, in January of this year the American Federationist was still arguing against this ultra-reactionary proposal.

Still resolved to do away with overtime pay, big business generously decided to offer labor something in return for surrendering overtime rates – the chance to make more money by incentives. Under this arrangement, hours could be extended without interfering with profits. If the workers couldn’t keep up the pace at the end of a hard day, it would be the workers’ loss. Of course, labor had a long-standing hatred for speed-ups, so the campaign had to be quietly and carefully planned. But before this proposal could make any headway, the Administration, to the dismay of some employers and their periodicals, was trying to stem labor pressure against the Little Steel formula by decreeing a forty-eight-hour week in many areas. This was a concession more apparent than real, since most war-production workers were already on a forty-eight-hour or longer week. At the same time large groups of workers were denied increases in wage rates by the WLB (The New International, February 1943), and the miners’ strike was already threatening. It is true that the steel industry is even now not working a forty-eight-hour week and has recently been order by Manpower Commissioner McNutt to get in line, despite management’s complaints of higher costs (a prelude to a demand for higher prices). Here again is to be seen an attempt by increasing pay envelopes to woo other workers from support of the miners and to head off demands for wage increases.

Finally, as the miners’ strike came closer, incentive pay started to come into the open in a new rôle. March and April, as has been pointed out above, were months of a big push for it in the business press. While its superiority to premium rates for overtime has constantly been emphasized during this campaign, it has been offered mainly as a “concession” in addition to overtime rates in order to stem the tide from labor’s ranks for higher hourly rates, which by the way would make the overtime premiums higher yet. Seen against the above background, incentive pay is clearly another maneuver of big business and its government agents to sidetrack the unswerving movement of labor’s rank and file for higher rates. Labor freezing, long discussed but again and again postponed by Roosevelt, has now been invoked to make incentive pay seem the only possible way to fatter pay envelopes – a view zealously propagated in labors own ranks by Frankensteen. The miners may yet give a serious setback to this new conspiracy against labor’s interests. Yet even a success for the miners on the basis of portal-to-portal pay or some other evasion of a direct $2.00-per-day raise will probably unleash a still stronger campaign for incentive pay as a similar “indirect” method for other workers to get more money. The WPB would like to begin with the aircraft and shipbuilding industries and later to extend their plan to all the war industries. Forewarned is forearmed. Higher hourly wages alone will serve labor’s true interests.

Top of page

Main NI Index | Main Newspaper Index

Encyclopedia of Trotskyism | Marxists’ Internet Archive

Last updated on 26 May 2015