Incentives and Incentive Programs
From the Director's Chair: Incentives and Incentive Programs
At the Board of Directors Meeting in August, the Board members in attendance expressed a lot of interest in Incentives and Incentive Programs. They believe that Incentives and Incentive Programs are a good way to engage the workforce to take an interest in the business to help solve problems and generate improving ideas.
This fits well with my preferred definition of Lean which is:
“The total engagement of the workforce to help solve problems and to generate improving ideas, for the benefit of the customer, the employees and the company”.
There is a company in Lawrence, Massachusetts, Gemline that engages the total workforce for the generation of improving ideas by making the entire process, “fun”. After eight years into this program, the company has implemented over 34,000 improving ideas that were generated by the workforce. At each major level of implemented improving ideas, the company holds a “fun” event, such as cupcake day, or ice cream day. The company did succulent plants at the 25,000 milestone and mini apple pies (also this was on National Pie Day in January) at 30,000 ideas.
There is no individual recognition or reward. There is only recognition for the twenty one teams. When the company wins, everyone wins. The company holds a Continuous Improvement Day in June, where each of the twenty one teams has a display which tells their story of success in the Continuous Improvement effort. Selected members of the public are invited to attend.
Another company, E. A. Dion, a family owned business, and a member of the New England Lean Consortium, has created a feeling of “family”. All employees, many of whom have twenty to thirty years of service, feel they are members of the Dion family, and freely help solve problems and contribute improving ideas, as they want to do what is best for the family.
A third company, THG, (The Hope Group), has a different approach. They solicit the generation of improving ideas, through the use of periodic reminders and by crediting the individual for the generation of those improving ideas on their annual performance appraisal. The company also gives gift cards for certain levels of improving ideas. In addition, people are recognized and rewarded at the annual, all employee dinner.
One of my member companies in the Jacksonville Consortium had a quarterly profit sharing program that was based on five Lean Metrics. All employees got the same amount of profit sharing. The employees received points for the percentage of each goal that was attained. This program made the employees aware of their direct impact on the profit sharing number based on their own performance.
And then there is my own experience at General Electric. At age 28, I became the Operations Manager for three relatively small plants of the Insulating Materials Department in Schenectady, NY. Jack Welch had just visited our department the day before for an Operational Review. The General Manager reported a good year as the department achieved a 50% net increase in Profit/Sales. However, Jack told the General Manager a year before, that in order to stay in the Chemical and Metallurgical Division, the General Manager had to achieve double digit Net to Sales. While the year’s performance was good, it was not the double digit figure that Jack was looking for. As a result, Jack fired the General Manager and most of the Senior Staff right then and there.
The morning after the mass firing, my boss came to me and told me, “Joe, we need you to be the Operations Manager for Riverview 14, Building 29 and the Mica Paper Operation in Coshocton, Ohio, as there is no one left.” These three facilities employed approximately three hundred employees. These three facilities were where the “solids” part of the business was manufactured. There was another Operations Manager for the “liquids” side of the business.
I had no idea of how to run a plant or deal with the workforce. Fortunately, I knew that I did not know what to do or how to it. However, I knew that the people “on the floor” knew. It was in my best interest to get close to the workforce and gain their trust and support.
I had an office in Building 29 and I had an office in RV 14. Part of the outcome of the mass firings was a dramatic reduction in paperwork and reports. There was no need to sit in an office as there was no paperwork to do and no computers to work with.
Therefore, I spent a lot of time on the factory floor, talking with people. I would go up to them, introduce myself, and ask them how they were doing. “What are the problems and what are the issues that you are dealing with?”
Quickly, I realized that if they gave me a problem to solve, I darn well better solve it for them.
Remember, this was a highly unionized shop. Several of the people that I went to talk with told me straight out that they did not have to talk with me if they did not want to. They were union members. I quickly countered their objections with, “I know that you don’t have to talk with me if you do not want to (but, really they did), but I am sincerely interested in what you are doing. So what problems are you dealing with and what issues are you dealing with?” More often than not, they would talk with me, and eventually they would throw out a problem that was bothering them. It would then be incumbent upon me to solve it for them. I did my walk about and talk about with each employee in the Building 29 facility and the RV 14 facility, almost every day. I got to know each employee, their wife’s names, their children’s names, their pet’s names, and even their illnesses and their parent’s illnesses. Their level of trust in me was beginning to build.
During, one of the conversations, Eddie P. told me about a problem that he was having. Out of the blue, I asked him if he had any suggestions about how to solve that problem. He did. He explained his suggestion to me and I thought it was a great suggestion. It was so great that I told him to write it up on a Suggestion Form and I would pay him for his suggestion. He did, and he received a small monetary award.
I looked into the Suggestion Program and found that there were only one or two suggestions submitted each month. I read the Suggestion Form in detail and included in the form was a paragraph that stated, the employee who submitted the suggestion was entitled to a monetary award, based on the formula on the form. I thought to myself that this was an unutilized resource for management. In order to encourage more suggestions, I made an announcement that I would pay $25 for each suggestion which was related to a cost saving, a quality improvement, or was an improving idea. A few employees started to submit suggestions and I paid them $25 for each suggestion submitted. As I walked around, people started to ask me if it was true that I would pay $25 for each suggestion submitted. I assured them that I would.
Although the recently submitted suggestions had a limited impact on the business, I was confident, that eventually, someone would submit a “home run” suggestion, which would have a big impact on the business.
I did not have to wait too long. One day, as I visited Hank and Rocky, the operators for the Kiss Coater, they grilled me on receiving a monetary award. They asked me what would happen if they submitted a suggestion that would result in a cost savings of $100,000. I told them that they would receive an award based on the formula on the form. After I left them to continue on my mission of talking with each operator, they quickly did the math and found out that they would receive an award of two or three thousand dollars. The next two days after that conversation, I was tied up in meetings all day, and did not make my usual tour. On the third day, I came up to Hank and Rocky, only to have them yell at me, “Where have you been? We have a great suggestion that we want to run by you.” They explained their idea to me, and it was a “home run” idea. I told them to write it up as a suggestion, and I would evaluate the savings. Evaluating the savings was the second step of the Suggestion Process. The third step was to submit it to Finance for review, approval, and payment.
The annual savings for their suggestion turned out to be approximately $500,000. In doing the math of the formula on the Suggestion Form, I calculated an award of $25,000 and submitted it to Finance for review and approval. Later that morning, I was visited by the Finance Manager. He told me straight out, “You can’t do this. We have never paid this much money in a suggestion award”. I told him to do the math himself. He went back to his office, and had his accountant review the math. After a few days, I had another visit from the Finance Manager. His people did the numbers and the award for Hank and Rocky’s suggestion was $20,000. This was great!
About two weeks later, we had a cake and soft drinks for everyone as part of a celebration and recognition for Hank and Rocky’s suggestion. I was pleased to hand the check for $20,000 to Hank and Rocky. Pictures were taken and the story was published in the IMD Newsletter and also the newsletter for the Schenectady Plant.
This award went a long way towards building trust with the workforce, and demonstrating to them that I was a man of my word. The suggestions started to flow in. People were using the Suggestion system to supplement their income, and I was getting the benefit of their good, improving ideas.
As many companies that exist, there is that number of varied and different Incentives and Incentive programs. Companies need to tailor their programs to the makeup of their workforce and the culture that exists or that they create.