Factory benefits to paying workers more: The critical role of compensation systems in apparel manufacturing

Abstract

While many stakeholders believe worker wages in global supply chains are too low, there is disagreement about what, if anything, can be done to raise wages. Through a two-year quasi-experiment in an operating apparel factory, we assess the effects on productivity and profits of raising worker wages with a re-designed compensation system. We show that, even within current factory margins and constraints, important wage gains (4.2-9.7%) are possible and profitable. Productivity increased 8-10%-points while turnover decreased markedly. Workers were motivated by the potential for increased wages from an accelerating group rate as well as increased engagement and sense of fair compensation. Workers focused their increased effort on reducing quality defects and tardiness, two behaviors which individual workers largely control. Additional productivity-increasing behaviors were constrained by skill, position, and conflicts arising from free riders. Advanced apparel manufacturing demands a more engaged workforce; this research provides early evidence that compensation systems can be a critical tool to meet multiple needs.