Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 4

ANALYZING MANAGERIAL DECISIONS: Teams at Nucor versus Levi Strauss
Nucor, the largest global steel joist and deck manufacturer and the biggest steel producer in the United States, had sales in 2013 of $19 billion. Under team-based production, each employee is assigned to a team, and each employee is evaluated and compensated based on the productivity of their team.
Nucor uses production teams of 12-20 people, and ties pay directly to the amount of quality steel produced each day. Its bonus system compensates teammates for improving the process including safely delivering quality product and operating more efficiently. Teammates receive an hourly rate or base salary for hours worked plus bonus and profit sharing. Bonuses are paid weekly based on each team's production. At the end of each year, employees receive profit sharing of 10 percent of company earnings. A typical Nucor steelworker can earn upwards of $90,000 per year. Nucor boasts of low employee turnover of 7 percent per year.
Levi Strauss adopted team-based production processes at its existing plants. Employees who had been previously paid on a piece-rate basis were put on a team-based process.
In general, what are the advantages and disadvantages of team-based processes
Source: M. Bolch (2007), "Rewarding the Team," HR Magazine (Febraury 2); and www.nucor.com