Reduce the Rate of Cost for the Input Used to Product the Output

Use the same type of input and the same activities, but pay less for the unit of input employed in producing the output. A reduction in rate is equivalent to a reduction in the number of inputs for the same ICD. For example, if a person who makes $10 per hour could produce the same amount of output as a person making $20 an hour, the substitution of the $10 person for the $20 person in the process would be equivalent to cutting the number of people required to do the work by 50%.

C. Change the components of the rate of costs to reach a lower total rate:

Sometimes it is possible to break the price of a purchase into its component parts. Then the company may seek to substitute a less expensive component for a more expensive component to reduce the effective rate the company pays on its purchases.

Optional components of the rate paid: Penalty/bonus, including equity and profit sharing:
Share profits or revenues

No.	Industry SIC	Year	Notes
1	0	1988	Bureau of Labor stats estimate that 40% of all major union contracts include some form of incentive compensation. Nearly 75% of all plant "gain-sharing" plans have been installed in the last 5 years. 70% of all plans that substitute one-time-only bonuses for salary increases have been installed in the last 5 years.
2	2834	2005	Avon has recently tried advertising through affiliated web sites. Avon pays these affiliates each time a consumer passes from their site and makes a purchase on Avon's site.
3	3316	2008	John McConnell managed Worthington Industries to become a conglomerate with nearly $2 billion in sales and an unbroken annual record of profits for almost 50 years. Since Worthington processed steel rather than making it, it was less affected by the fall in steel prices that hit the industry in the 1990s. Although the steel and automotive industries are supported by some of strongest unions in the country, Worthington's employees are nonunionized. Rather, McConnell preferred to rely on profit-sharing to motivate workers. The company set aside 17% of profits each year for employees and boasted low absentee rates. High salaries and bonuses came with perfect attendance, earning some employees $10,000-12,000 more than unionized workers.
4	3366	1989	Magna Copper reached a variable wage-rate agreement with 10 unions, including the United Steelworkers, that pegs future wage increases to price of copper. Labor costs meant to be kept down when sales decline.
5	3500	2006	Germany sees job gains due to the increased flexibility by Europe's labor. HAWE Hydraulics of Germany has decided to build a new factory in Germany, a rarity in the country. To avoid losing more jobs, HAWE's workers hammered out new labor agreements with management that includes Saturday shifts, flexible work hours, and profit-sharing in place of fixed bonuses.
6	3571	1986	The Japanese pay nearly half of salaries in bonuses that disappeared in a recession when profits shrank.
7	3600	1994	Lincoln usually pays line workers for what they produce, with no base wage. But, a high proportion of the profits go into the bonus pool. The bonuses sometimes lift the income of the most successful production workers to more than $100,000. Average 1993 compensation was about $51K.
8	3728	1986	Woodward workers' wages are at 85% of the industry average. But, for the last 2 years, workers have received a profit-sharing bonus equal to about 50% of base pay, putting their gross pay 20% above the local averages.
9	3728	1986	All workers, from the chairman to groundskeepers, get the same percentage of their base salaries as bonus. The bonus is in addition to company-paid haircuts, physicals, dentist and doctor visits, legal, tax, financial and spiritual counseling, all on premises.
10	4512	2005	Gol Intelligent Airlines, from its launch in 2001, has become Brazil's third-largest airline and the most profitable in the world. Gol pays its pilots $30,000-$35,000 a year regardless of seniority, $10,000-$15,000 lower than what its competitors pay and a sixth of what pilots make at Southwest. Instead, Gol's employees get a rich profit-sharing bonus, which last year was 33% of pay. At Gol, 8% of revenue goes to labor, compared with 41% at Southwest. To fight rising fuel costs, Gol passes along higher fuel costs in its fares.
11	6211	2005	Over the last nine months, Schwab has reduced costs by $600 million, so its return on capital is climbing again, as are its profit margins. The company also put in place for every division, profit and loss measurements, so that the managers of the divisions are compensated based on contribution to the company.
12	6300	2004	For compensation, Progressive uses a base salary plus a gain sharing program. The gain sharing program is a profit sharing approach tied to growth and profitability numbers. Every employee in the company, including the CEO and the most recently hired receptionist, participates. The target pay-out is a function of both premium growth and combined ratio, but the company insists on profitable underwriting.
13	7372	1997	IdeaMarket is wooing publishers and individual authors with royalties of 25% to 50% each time access to a piece is sold, rather than paying them.
14	7841	2001	Blockbuster, the 7,781-store video rental chain, is threatening to end some of its rental-revenue sharing programs with Hollywood studios. Since the deals were negotiated in 1997, sales have jumped 14% annually for the company. Studios have raked in 40% of each video rental. The older system allowed for the rental stores to buy tapes for $65 each and get an exclusive rental window; this caused stores to under-order which hurt business.

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