How to calculate an operator's bonus

In the previous post we worked out the efficiency at which a line starts to earn money: the break-even point and the bonus limit above it. This post picks up from there. Once an operator passes the limit, how much bonus do they earn, how is it calculated, and how do quality and the difficulty of the operation enter the sum?

The method and the worked example come from the 2022 paper by Assoc. Prof. Aydın Koçak and Hulisi Ayluçtarhan, “Konfeksiyon İşletmelerinde Verimlilik ve Kalite Temelli Bilgisayar Destekli Bir Prim Sistem Modeli” (in our translation, “A Computer-Aided Bonus System Model Based on Productivity and Quality for Garment Businesses”), published in the Üçüncü Sektör Sosyal Ekonomi Dergisi. The paper is in Turkish; the title and all quotations are our translation. Its lira figures are from 2022; the ratios and the steps are the same today. Examples and readings that are not in the paper are marked “our example” or “in our view”.

What is the bonus a share of?

The paper's model combines three pay systems: time, piece rate and profit sharing. It defines what is shared like this:

The basic aim is to share with the worker part of the profit that rises as workers' productivity and quality improve. A target profit is set above the business's break-even point. The profit above that target is shared with the worker.

So the bonus is a share of what is left after the business has taken its target profit. That definition also answers the question employers ask first: does a bonus system strain the business? The paper's conclusion:

Since the amount shared in the proposed system is only the part above the target profit, the employer is not strained. Workers, in turn, earn a bonus in proportion to how much they raise productivity and quality.

The calculation in four steps

1. Cost per minute. What one minute of one operator costs the business. Monthly expenses (energy, wages, meals, social security, building and machine maintenance) are divided by the number of direct workers, the working days in the month and the minutes per day:

2. Bonus limit. The break-even efficiency plus the target profit rate on top of it. The paper's formula:

Break-even is the cost per minute divided by the revenue per minute; the previous post shows how to find it. The bonus limit comes out as a percentage, and multiplied by the shift minutes it becomes the “limit minutes”: the standard minutes an operator has to produce before earning any bonus.

3. Daily bonus minutes. The difference between the standard minutes the operator produced that day (the efficiency minutes) and the limit minutes. On a day below the limit the bonus minutes are zero.

4. The operator's bonus. The bonus minutes are multiplied by the minute rate, the quality coefficient and the operation coefficient. The paper's formula:

The paper's worked example

The paper runs the four steps on one line:

Numerical example: for a line with 50,000 TL of monthly expenses, 20 days a month, 540 minutes a day and 10 workers, the cost per minute is

$$\dfrac{50000}{10 \times 20 \times 540} = 0.47 \text{ TL}$$

If the target profit is 20%, the bonus limit is set at 55.2%; that is, the operator starts earning a bonus once they pass 55.2% of the daily working time (540 × 0.552 = 298 min). For 90% efficiency, 90% quality (quality coefficient 0.5) and an operation coefficient of 1.2:

$$\text{Efficiency minutes} = 540 \times 0.90 = 486$$$$\text{Daily bonus minutes} = 486 - 298 = 188$$$$\text{Daily bonus} = 188 \times 0.47 \times 0.5 \times 1.2 \approx 53 \text{ TL}$$

Reading it: in a 540-minute shift the operator produced 486 standard minutes. The first 298 cover the business's cost and target profit; the remaining 188 are bonus minutes. In the example they are priced at the cost per minute (0.47 TL), halved for quality and raised by 20% for the difficulty of the operation: about 53 TL a day. The summary of the paper does not give the revenue per minute for this example; we report the 55.2% limit as the paper states it.

Quality and operation coefficients

Quality is kept out of efficiency; it is a multiplier on the bonus amount. In the paper the quality rate is calculated from good pieces and rejects (about 84% for 1300 good and 250 rejects), and then this rule applies:

Upper and lower limits are set according to the company's quality policy and a quality coefficient is assigned.

The example's “coefficient 0.5 for 90% quality” comes from the paper's own banding; the coefficient table is each company's decision. In our view two things matter: the coefficient is announced in advance, and the operator can see which quality rate drops them to which coefficient.

The operation coefficient brings the difficulty of the job into the bonus:

By keeping the coefficient of more skilled operations (such as collar closing) higher (such as 1.2), the operators doing those jobs are rewarded extra.

Without this coefficient the system steers everyone towards the easiest operation; if the hard operation pays the same bonus, nobody wants it.

A month's report card

The bonus is calculated daily and summed monthly. The paper's second table tracks one operator over 21 days: low output on days 5 and 6, a high defect count on days 9 and 15, and a drop in both efficiency and quality on day 21 show up directly in the bonus amount. The monthly total comes to 250.90 TL.

In our view the real value of that table is that it is daily. A bonus calculated from one monthly percentage hides a bad week behind a good one; a daily calculation makes the operator and the manager ask “why did yesterday drop?” the same day. The paper describes this as the system's gain on the management side:

When a worker earns no bonus because they worked inefficiently, they give feedback to their manager, which creates the opportunity to identify and resolve bottlenecks in the process quickly.

Individual bonus or line bonus?

The paper's model allows both: individual performance and team (line) performance can be evaluated separately or together. Our fair pay and bonus system page draws the same distinction: individual and team-based evaluation, with balanced pay models that encourage teamwork.

At line scale the threshold follows the same logic. In the 55-person line scenario we reported in the previous post, workers earned no bonus below 74% efficiency and the line started losing money below 50%. In our view an individual bonus rewards the operator's own pace and quality, while a line bonus rewards balancing and helping out; a business that uses both stops the fast operator from ignoring the bottleneck next to them.

Where the classic bonus systems differ

The paper summarises the bonus systems in the literature as follows:

• Halsey: a worker who finishes before the standard time receives a fixed percentage of the time saved as a bonus.
• Rowan: a bonus in proportion to the ratio of the time saved to the standard time.
• Bedeaux: about 75% of the saving goes to the worker and 25% to the other workers who helped achieve it.
• Emerson: a bonus once the efficiency ratio (standard time ÷ actual time) rises above 66%.
• Taylor: effectiveness comes first; the worker earns a bonus per piece produced.

What these systems share is a threshold fixed in time or pieces. In the paper's model the threshold is derived from the business's real cost and target profit; when the cost changes, the threshold changes with it. In our view that is the difference: the bonus limit is a calculation that comes out of that month's expenses and revenue.

Do your own calculation

Our worksheet continues from the previous post's F, G, D and H: monthly cost per operator (F), working days in the month (G), shift minutes (D) and revenue per minute (H).

1. Target profit rate, for example 0.15 or 0.20 (I)
2. The operator's efficiency that day, for example 0.90 (J)
3. Quality coefficient, from the company's table (K)
4. Operation coefficient, 1.0 or above (L)

The paper's example sets the minute rate equal to the cost per minute; a business can set a different minute rate. On a day when the bonus minutes come out negative the bonus is zero; the monthly bonus is the sum of the days.

Who does the calculation?

This calculation runs per operator, per day and per operation; on a 30-person line that is at least 600 rows a month. Done by hand it arrives at month end, disputed and late. In the system described on our fair pay page the bonus is calculated automatically from target overachievement, quality performance and cooperation criteria; workers see their own performance and the detail of the bonus calculation on a transparent reporting panel; absences come from the attendance system and the result is passed to payroll. Standard times are part of the same system: the time set by MTM, REFA or stopwatch study is the denominator of both efficiency and bonus.

If you would like to work out the break-even, the bonus limit and a sample bonus for your own line with us, the factory analysis starts with these numbers.

Sources

• Koçak, A. & Ayluçtarhan, H. (2022). Konfeksiyon İşletmelerinde Verimlilik ve Kalite Temelli Bilgisayar Destekli Bir Prim Sistem Modeli [A Computer-Aided Bonus System Model Based on Productivity and Quality for Garment Businesses]. Üçüncü Sektör Sosyal Ekonomi Dergisi, 57(3), 1805–1823. Full text (Turkish); a summary is on our academy articles page.
• argemas: Fair pay and bonus system and How to calculate sewing line efficiency.