All Stick – No Carrot

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Each time I read a “hit piece” in a newspaper describing the working conditions at an Amazon Distribution Center I am reminded of the importance of workplace culture. We are lucky to have so many customers that value their employees and understand that they are a key component in the success of their businesses and not just an unlimited commodity.

While most distribution operations are under intense pressure to drive down their labor costs while accommodating increased customer requirements, I disagree with Amazon’s approach. Their approach focuses on maintaining a minimum required level of productivity. It is obviously important to have minimum standards, but when set too high without associated rewards it can lead to burnout and high workforce churn. Not only does this create a negative culture, but it also fails to maximize the potential increases in productivity and labor savings.

Easy Metrics was initially developed as an internal tool for IMS, an outsourcing company that managed the workforces within distribution centers. All of the IMS managed operations utilized individual or small-team Pay-for-Performance, and we were able to double productivity for one of the national retailers using this approach. Even with generous employee performance bonuses, we were able to reduce our customer’s costs by 35%. We would not have been able to achieve those savings if we had ignored the “carrot” and just focused on the “stick”.

Conceptually, the “stick” focuses on the left end of the bell curve. It makes sure that all employees are meeting minimum requirements, but it doesn’t do anything to expand the right side of the bell curve. We have repeatedly heard our customers comment on how surprised they were at how much more productive their top employees became once the Pay for Performance system was rolled out. These employees were already well above the required standard, but they took their performance to the next level when they were able to share in the savings they created.

Amazon may be able to churn through large numbers of employees, but that isn’t an option for most of our customers. Achieving high productivity while improving employee morale and retention requires both minimum acceptable standards and a fair Pay-for-Performance system that shares part of the savings with employees when they achieve their stretch goals.

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