I ran across a Fast Company article from 2000 that profiled the exciting work a former colleague of mine has been doing and wanted to share it here.
The article, Bonuses Aren't Just For The Bosses, profiles Brad Hill's (he of Tandehill Human Capital) work teaching rank and file hourly workers how to devise their own incentive plans, using a gainsharing approach. At the article's heart is an important lesson about the power of incentive plans to do good, for both workers and the companies that employ them.
In a pork-processing plan in Milan, Missouri, amid the hog carcasses and pig fat, workers who operate fast-moving disassembly lines are assembling a new approach to compensation and motivation. The 900 people who work at Premium Standard Farms, many of whom are paid $10 an hour to perform some pretty old-fashioned jobs - slaughtering, slicing, and cleaning - are working in some pretty new ways. They have instituted changes that are saving their company tens of thousands of dollars a month. They have improved employee retention rates by more than half (in an industry where 200% annual turnover is common). And they are being rewarded for their efforts through an incentive program that is yielding substantial payouts.
Brad does his work by forming a design team of workers representing each department included, gives them a crash course in the theory and practice of gainsharing, and then guides them through the tough work of figuring out how best to measure and reward their own performance via a self-funded (meaning that any and all awards are paid for by improvements in performance) incentive plan.
It's not always easy to convince workers to get started. Many of the 300 unionized employees at Kurdziel Iron of Rothbury, a castings plant in Rothbury, Michigan, were suspicious of any program that seemed to come from management, which brought in Hill in 1998. "Our problem was convincing employees that this was for real, that management wasn't going to take all the savings," says foundry worker and design-team member Terry Coleman. But once employees bought into the plan, absenteeism dropped dramatically, as did the number of production errors and overtime hours. Meanwhile, the number of union grievances declined by 90% over six months. As a result of all of those improvements, the first payment came at the end of the second quarter of the program, with the foundry sharing half of its gains with the ironworkers.
Some of these groups have even taken the additional step of sharing some of their gains with others by giving a portion of their payouts to local charities.
My own work with design teams has taught me the incredible power of what Brad is doing - not only in developing win-win reward programs, but in giving workers in all kinds of jobs a greater sense of control, ownership and purpose in their work.
That is the real power of incentives.
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This is a great example of how to leverage the power of the people closest to the problem. Not only does this type of process provide recognition of their importance in solving the program (motivation in its own right) but also makes them owners of the results. Very powerful way to enlist change in an organization.
One thing I'd caution on is the use of cash as the reward mechanism. Your post doesn't explicitly mention the payout as income, I'm assuming it was. It may/could backfire.
I posted here...
http://incentive-intelligence.typepad.com/incentive_intelligence/2007/07/unintended-cons.html
...on the problem with using cash rewards in a program that has goals that over time, will become more difficult to attain - or - by virtue of the program - impossible.
Using non-cash awards (or at least reducing the amount of cash in favor of non-cash) lessens the impact on the employees income as their award values fall due to having to hit increasingly more difficult goals.
As with any program that is structured to "reduce" something (versus increase something) there is a lower limit to the reduction after which there is no reward. Using cash rewards in these instances can cause people to game the system to guarantee an increased income stream.
Posted by: Paul Hebert | August 17, 2007 at 06:12 AM
Paul:
I also assume that the programs described were cash-based. You raise some thought-provoking points about the use of cash versus non-cash rewards. As someone who works primarily with cash-based rewards, I am probably not as well schooled in the other type as you are. There is no denying, however, (as you point out) that managing the delicate balance between goal (how tough) and award (how much) levels always poses a challenge as we work to maintain plans that continue to positively impact both motivation AND ROI over time.
Thanks - as always - for the thoughtful comments.
Posted by: Ann Bares | August 17, 2007 at 04:20 PM