Reference no: EM132696502

Question: Rewards Support Strategy at Toyota

At its Kentucky assembly plant, Toyota uses a carefully conceived reward system to support its managerial strategy, which focuses on three central concepts: employee loyalty and commitment to the firm, teamwork, and high performance. So how do you create the attitudes necessary to generate these behaviours?

The reward system includes all three compensation components: base pay, indirect pay, and performance pay. Base pay is reasonable, but not high for the industry. But to create the feeling of cohesion among production workers, all employees receive the same pay once they have completed 18 months of service. Although Toyota provides an extensive array of benefits to employees, including child care and onsite recreational facilities, they are not out of line for the auto industry, which is famous for the benefits its unions have won.

What is unusual is that benefits are structured identically for all employees, from assembly workers to the plant manager. There are no executive dining rooms, preferred parking, or private offices for executives. The company believes that egalitarianism is necessary to avoid the division between workers and managers that is so common in this highly unionized industry. (Toyota employees have never voted to unionize.)

When Toyota uses performance pay, it is not based on the individual. For example, annual bonuses, based on company performance, make up a big chunk of earnings for all employees. Special award money is distributed to groups or teams that have made suggestions that result in safety, cost, or quality improvements. This money is distributed equally among group members and usually consists of gift certificates that can be used at local retailers. The purpose of this program is threefold: to make sure that this money

simply doesn't get lost in the paycheque, to create family involvement, and to make the reward more tangible. For example, every time the employee looks at her new flat-screen TV, purchased with these certificates, she will be reminded why she received it. In addition, PT (personal touch) money is made available to team leaders to support team social activities, such as a summer picnic, monthly team lunches, or trips to ball games.

As a part of its reward strategy, the company offers numerous rewards beyond compensation, one being job security. According to Terry Besser in a Journal of Management Studies article, "Of all the rewards an organization can offer, the one which was seen as most important by nearly all my informants was the job security offered them by Toyota. Every American interviewee mentioned job security in one form or another as either the reason they took a job with Toyota and/or the reason they would remain, even if offered a better paying job."

Another key pillar of the reward system is training and promotion opportunities. The company has a promote-from-within policy and invests heavily in training for its employees. Toyota focuses on bringing in top calibre employees with the potential to grow and develop. However, to keep them interested in what is essentially routine and repetitive work is a challenge. Toyota deals with this challenge by providing job enrichment, team-based decision making, job rotation, and the possibility of advancement to other jobs.

Finally, there are a number of recognition rewards, such as plaques for a perfect safety record. These rewards are valued by employees for the symbolic meaning behind them rather than for any economic value. But they must be seen in the context of the total reward system. As one observer notes: "Certainly, these tokens alone would be insufficient, perhaps even insulting to employees. However, in conjunction with the other rewards already discussed, they encourage employees to believe that they will not be 'fools for busting their butts for the company.'"

The result of all this? A tightly knit, team-oriented workplace, with very low turnover, high productivity, and high quality. These characteristics have served Toyota well, helping the company to survive the financial meltdown of 2008-09 without needing to resort to the taxpayer-funded bailouts that other auto firms needed to survive the economic crisis. In fact, Toyota's U.S. plants have been so successful that by 2013 all of them-including the Kentucky plant-had been expanded. By 2015, the Kentucky plant began production of the first U.S.-assembled Lexus, adding 50,000 vehicles to its current annual capacity of 500,000. In total, approximately ten million vehicles have rolled off the Kentucky plant assembly line. The plant provided full-time employment to around 7,000 people and has 350 U.S. suppliers with over 100 located in Kentucky.

Adapted from Terry L. Besser, "Rewards Support Strategy at Toyota," Journal of Management Studies 34: 1, 1995, pp. 383-399. Copyright 1995 Blackwell Publishing Ltd.; The Official Website of Toyota Motor Manufacturing, Kentucky, Inc., accessed on July 20, 2016.

In this assignment evaluate the Rewards Support Strategy at Toyota and answer the following questions.

1. Identify and explain what components of the compensation system at Toyota was effective?

2. Identify the extrinsic and intrinsic rewards that were included in the Reward Support Strategy at Toyota?

3. Identify and explain in details which managerial strategy is best suited for Toyota.