Reference no: EM131911925

Lakeside Utility Company provides electrical power to a county with 50,000 households. Pamela Johnson is the manager in charge of all repair and installation crews. Each crew consists of approximately seven employees who work closely together to respond to calls concerning power outages, fires caused by electrical malfunctions, and installation of new equipment or electric lines. 

Fourteen months ago Johnson decided to implement a team-based incentive system that will award an annual bonus to each crew that meets certain performance criteria. Performance measures include indicators such as average length of time needed to restore power, results of a customer satisfaction survey, and number of hours required to complete routine installation assignments successfully. At the end of the year, five crews received an average cash bonus of $12,000 each, with the amount divided equally among all crew members. 

Soon after Johnson announced the recipients of the cash bonus, she began to receive a large number of complaints. Some teams not chosen for the award voiced their unhappiness through their crew leader. The two most common complaints were that the teams working on the most difficult assignments were penalized (because it was harder to score higher on the evaluation) and that crews unwilling to help out other crews were being rewarded. 

Ironically, members of the crews that received the awards also expressed dissatisfaction. A surprisingly large number of confidential employee letters from the winning teams reported that the system was unfair because the bonus money was split evenly among all crew members. Several letters named loafers who received "more than their share" because they were frequently late for work, took long lunches and frequent smoking breaks, and lacked initiative. Johnson is at a loss about what to do next. 

Third, answer the questions:

1. What major issues and problems concerning the design and implementation of pay-for-performance systems does this case illustrate?

2. Are team-based incentives appropriate for the type of work done by Johnson's crews?

3. Might it be desirable to use a combination of team-based and individual incentives at Lakeside Utility Company? How much might such a plan be structured? 

4. What else would you suggest?