Beginning in January 1989, DuPont’s fiber division began an experiment in incentive
pay of unprecedented scope for a company of its size. TheWall Street Journalcharac-
terized the plan as the “most extensive and innovative ever tried at a major U.S. cor-
poration.” Under the plan, managers and employees of every rank would forgo raises
in exchange for a piece of the action.^1 Employees would receive bonuses based on the
division’s overall performance relative to an annual profit goal.
To see how the plan would work, consider two workers, a fiber division worker
and a DuPont worker in another division, each currently earning $50,000 per year.
The other worker might expect an average wage increase of 4 percent per year for the
next three years, raising this worker’s salary to about $56,200. If the fiber division
attained 100 percent of its annual profit goal in the three years, the fiber-division
worker would receive a comparable increase. However, if the fiber division achieved
only 80 percent of its profit goal, the fiber-division worker would fall 3 percent behind
his or her counterpart, receiving only about $54,500 in third-year salary. If the divi-
sion came in below 80 percent, the penalty would increase to 6 percent, putting the
third-year salary at only $52,900. In turn, the fiber-division worker could earn up to581
CHAPTER 14
Asymmetric
Information and
Organizational Design
I was to learn later in life that we tend to meet any new situation by
reorganizing, and what a wonderful method it can be for creating the illusion
of progress while producing confusion, inefficiency, and demoralization.
PETRONIUSARBITER, 210 B.C.(^1) L. Hayes, “All Eyes on Du Pont’s Incentive-Pay Plan,” The Wall Street Journal,December 5, 1988, p. A1.
Incentive Pay at
DuPont’s Fiber Division
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