Firing Up the Team
Incentives didn't work until we tied them to what employees control. Then the results were spectacular
Three years ago, I decided to fire up our employees by creating a big new incentive: profit sharing. Like many employers, I assumed that dangling a few bucks in front of employees would lead them to work harder and smarter. Using charts and graphs, I showed them how they could boost their bonuses by slashing waste, absenteeism, and downtime. Then I sat back and waited for the results.
Guess what? They didn't come. Waste and downtime didn't budge. And absenteeism actually got worse. Naturally, I found the outcome baffling, and for a while I soured on incentive plans altogether. But recently our company introduced some incentives that have proved successful. The difference, it seems, is that we have linked the incentives to outcomes employees control directly. We have also helped employees along by providing training that shows them how to hit the program's targets.
Looking back now, I can clearly see why our profit-sharing plan was doomed. The program created a bonus pool based on annual operating profit. For instance, if the company's operating profit was $500,000, 6% was set aside for employees. The pool was then divided among staffers based on seniority. But hitching the bonus to operating profit made it too remote. After all, operating profit is affected by many factors over which employees have no control, such as sales, depreciation, and office expenses. And paying it out annually, as opposed to quarterly, made it remoter still.
So in the end, no one really paid attention. Worse yet, since the program essentially promised employees a share of our operating income, people ended up getting money whether or not they had done anything to deserve it. We have applied the lessons learned from this mess in our more recent incentive efforts. Take our safety program. During 1999, we're trying to cut the yearly number of minor injuries in our factory in half, to 12, and prevent lost-time accidents completely, by offering a safety incentive. If we have only three minor injuries a quarter, and no lost-time accidents, we raffle $1,000, provide employees with company shirts and jackets, and buy lunch for everyone. If we make it through the year with no lost-time accidents and only 12 injuries, we finish by raffling a total of $10,000 to three winners, and throwing a party.
So far, the results are breathtaking. During the first five months, we have had only one minor injury. Why the success? I believe it's because safety is something employees can control. Suddenly, people are being careful how they lift boxes, and they aren't operating machines without safety guards. Peer pressure helps -- no one wants to be the person who derails the raffle. The company has also pitched in by providing biweekly safety classes to teach people how to avoid injuries.
Our year-old monthly quality award has also proved a success. Each month, managers pick the best print job (we print plastic bags) from samples submitted by our printing-press employees. The criteria for the award are clearly defined, and the payout -- $100 for the operator and $50 for his helper -- is enough to get their attention. We have used the program to teach operators what good quality looks like. They have clearly responded: Customer returns because of poor print quality are down 75% this year over last.
Unfortunately, though, if you create an ineffective incentive, it's hard to retract without raising employee ire. So for now we're stuck with a profit-sharing plan that doesn't achieve much beyond putting more money in employees' pockets. Obviously, that makes it very popular. And it makes for a good cautionary tale every time I think about creating a new incentive.
This article was originally published in the May. 24, 1999 print edition of Business Week's Frontier. To subscribe, please see our subscription policy.
Kevin Kelly, a Business Week journalist from 1987 to 1996, left the magazine to work at Emerald Packaging, Inc., a manufacturing company his father had founded over three decades ago. At Emerald Packaging, his focus has been human resources and operations. He has shared his experiences in Business Week frontier since September 1996.