For the past year, Alan Greenspan and his associates on the Federal Reserve Board have been threatening to raise interest rates in response to the booming labor market. Their dilemma seems clear: wages are escalating due to a tight labor market, and businesses may soon be forced to raise prices to remain profitable, thus fueling inflation. Intent on combating inflation, the Fed has already raised interest rates and appears poised to do so again. However, rising interest rates accompany predictions that the economy will slow, tightening the labor market even further. But is all this necessary?

Not according to Jim Warren, an Oregon businessman who believes the answer lies in increasing productivity, not interest rates.

"Everyone talks about interest rates, but what about focusing on productivity? Increasing worker productivity is a proven inflation-dampening measure, yet Greenspan and the Federal Reserve Board only seem to see one solution. Productivity can be improved if you take the right approach and, at the same time, can have a positive impact on businesses' bottom line," says Warren, who has owned and operated a small machine shop in Tualatin, Oregon for over 39 years.

According to Warren, American small business is under siege. Buffeted by intense economic pressure from global competition, inflation and rising interest rates, threatened by mega-corporations bent on steamrollering the competition, many small businesses must improve their efficiency or perish.

However, with wounds still fresh from the broken promise of downsizing and slash-and-burn cost cutting measures, small business owners are admittedly disillusioned with "efficiency enhancing" techniques that have been tried and failed to increase profits. Fortunately, a solution centered on improving worker productivity is garnering attention - a new concept in wages-for-performance that may hold the key to future profits and survival for small businesses.

"Small businesses will willingly pay - and workers willingly accept - wage increases that are attached to productivity gains," adds Warren. "Ironically, making the right investment in your blue-collar workforce can prove effective in improving efficiency while paying an amazing return on investment."

In that spirit, Warren has taken the revolutionary step of empowering his employees, making their participation an integral part of the entire company. The concept, which involves supplementing regular paychecks with a "wages-for-performance" style incentive program, allows employees to share in the company's growth and profits.

The program, called PIP Plus, is a comprehensive incentive/gainsharing software system that guides the small business owner through the design and implementation of a workable, customized incentive program. Today, Warren is marketing the software program under a new venture, ShopWerks Software, as a resource that any company or human resource department can use.

"Employees want to take responsibility for themselves. And if there's something out there that puts more money in their pocket for doing a better job, such as watching efficiencies and coming up with new ideas for increasing efficiencies, they'll do it without the owners shoving it down their throats," explains Warren. "However, you have to give them an incentive, otherwise they're just going to come in and do only what's expected of them."

The PIP Plus program provides such an incentive through an easy-to-figure system of individual and group-oriented bonuses (defined by the owner) for achieving key company goals and standards which positively affect the bottom line. By tracking and measuring company values specific to each business, the PIP Plus program motivates employees to achieve goals through financial sharing in the results.

"Owners need to understand that sharing cost savings with employees does not mean a lower profit margin," explains Warren. "Instead, they are sharing the increased profit gained through cost savings and improved employee productivity."

The concept behind PIP Plus is simple: by increasing productivity through a system of incentives, firms can meet rising demand with the same number of workers. Warren believes this type of incentive program provides a measured, low-risk method of rewarding positive behavior.

"The PIP Plus program is simply re-examining your business and improving on the fundamental goals and key values that have gotten you this far - and making those values known and understood by the employee so a controlled change can take effect," he explains.

PIP Plus is configured by entering the measurable goals (metrics), key values, employee names, group divisions and percentage of gross profit to share. Basic employee payroll and job performance data are input on a regular basis and PIP Plus does the rest. The program's parameters control the bonus calculation, chart employee and group performance comparisons, print employee status reports and deliver feedback to change employee work habits.

For all intents and purposes, the PIP Plus program allows the small business to operate like an investor-owned company, but without sacrificing stock. Instead, employees become valued investors in charge of their own destiny.

"Most companies have employees that are self-motivated and give 100% effort every day," explains Warren. "They are dedicated, punctual, and hardworking. They stay late to finish assignments and pitch in when necessary. These employees are the foundation on which the business exists."

"But imagine if all your employees were producing at this level," says Warren. "You could accomplish much more as a company with less employees. You'd be a lean, fast moving company without too many or too few employees. Workers and management could share in the profits since costs stay down," he added.

With the PIP+ program, owners have the ability to reimburse hard-working, productive employees for their devotion and trust in the company.

"In the past, workers were disillusioned with top management, and for good reason," says Warren. "In the 1990s the productivity rating actually increased by 8% overall, yet family incomes remained stagnant. Why? Because gains that should have been shared with workers instead flowed almost entirely to corporate profits and to an explosion in top executive pay. But with PIP Plus, everyone benefits from their contribution to the bottom line."

Warren offers the following postscript to Mr. Greenspan: "It's really that simple. Increased efficiency - not interest rates - will create a negative inflation index."

For more information about PIP Plus contact ShopWerks Software at PO Box 1102, Tualatin, OR 97062 or call (800) 619-2055 or fax (503) 692-4136. ShopWerks Software is online at www.shopwerkssoftware.com.