Kuiseb Fish Processors: Paying for Quality
Kuiseb Fish Processors in Walvis Bay employs 140 workers who fillet and pack fish on a piece rate of N$0.85 per kilogram of packed fillets. Average output is 160 kg per worker per day. In the last six months 22% of output has been rejected by quality control, compared with 6% a year ago, and 38 workers have left. Recruiting and training each replacement costs about N$4,500. Supervisors report that new workers are put on the line without induction and that experienced workers hide techniques from newcomers so that their own relative earnings are not threatened. Each rejected kilogram wastes about N$3.50 in fish, labour and packaging.
Management is considering two alternatives. Option A is an hourly wage of N$135 a day. Option B is a base wage of N$100 a day plus N$0.35 per kilogram, with a monthly team bonus if the rejection rate stays below 8%. The factory operates 22 days a month. The production manager argues that paying for output is the only way to keep productivity high.
1. Calculate current average pay and compare it with Option B at the same output. Then compare the cost per accepted kilogram.
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Current pay: 160 x N$0.85 = N$136 a day, or N$2,992 a month over 22 days.
Option A: N$135 a day, N$2,970 a month, slightly less than now but with no incentive.
Option B at 160 kg: N$100 + (160 x N$0.35) = N$100 + N$56 = N$156 a day, or N$3,432 a month. That is N$20 a day, N$440 a month, more per worker, about N$61,600 a month across 140 workers if all produce 160 kg.
Cost per accepted kilogram is the fairer comparison, because rejected output still costs wages:
- Current: 160 kg less 22% rejection = 124.8 kg accepted; 136 / 124.8 = N$1.09 per accepted kg
- Option B, assuming rejection falls to 8%: 160 kg less 8% = 147.2 kg; 156 / 147.2 = N$1.06 per accepted kg
So Option B is slightly cheaper per good kilogram even though the daily wage is higher, provided rejection actually falls towards 8%. If rejection stays at 22%, Option B gives 124.8 kg accepted for N$156, or N$1.25 per kg, which is worse. The case therefore turns on whether the quality problem can be fixed, not on the wage rate alone.
2. Discuss why the piece rate may be causing the quality and turnover problems.
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A piece rate pays for weight, so it rewards the behaviour it measures and ignores the behaviour it does not measure. Workers maximise kilograms because that is what appears in their pay packet; trimming quickly, packing wet or badly cut fillets and skipping checks all raise weight and lower quality. The 22% rejection rate is the predictable result.
It also explains why experienced workers hide techniques. Under individual piece rates, helping a newcomer raises that newcomer's relative output and threatens the experienced worker's standing and earnings. There is no reward for teaching, so knowledge stays private and average skill falls as new staff arrive.
Induction is skipped because the trainer bears the cost and gains nothing. New workers are placed on the line before they are competent, earn little at first, become discouraged and leave. With 38 leavers in six months, replacement costs are 38 x N$4,500 = N$171,000, far more than the extra wage bill under Option B. A vicious cycle follows: high turnover lowers experience, which lowers quality, which increases rework and pressure, which drives more people out.
Finally, piece rates transfer the risk of power cuts, boat delays and fish shortages to workers, who then receive very low pay through no fault of their own. That is felt as unfair and encourages workers to leave for any steady wage.
3. Recommend which payment system Kuiseb should adopt, with conditions, and justify your choice.
Read the worked answer
Adopt Option B, but only as a package with quality controls, not as a simple rate change.
Reasons: Option B keeps an output incentive, which answers the production manager's concern, but the base of N$100 protects workers during stoppages and reduces the incentive to rush. The team bonus rewards cooperation, which directly attacks the hiding of techniques. At 160 kg and an 8% rejection rate it costs N$1.06 per accepted kilogram against N$1.09 now.
Conditions:
- No piece payment on rejected output, and rejection judged against published standards.
- A five-day induction with a nominated buddy, and a small skill premium for workers who train others.
- Team bonus paid on the line's rejection rate, not the individual's, so experienced staff gain from helping newcomers.
- Weekly feedback showing each line its rejection rate and earnings, so the link between quality and pay is visible.
- A three-month trial, reviewed against rejection, turnover and cost per accepted kilogram.
Risks to watch: workers may push weight up to 200 kg and earn N$170 a day, raising the wage bill; the team bonus may be too small to change behaviour; and if the fish supply is erratic the base wage becomes a heavy fixed cost. Set the bonus at a level that is worth roughly one day's pay a month, and review output per hour so that speed does not replace quality as the only target.