One of the common concerns we here when discussing pay for performance is that quality and safety can suffer. From our experience, this has not been the case even if quality and safety are not measured. However we do encourage companies to include quality, safety and other non productive criteria if they can.
When you implement pay for performance in your work environment, as long at it meets the basic criteria we have discussed elsewhere in this blog, it can change the culture of your workforce and improve employee engagement. We have seen repeatedly that this increased engagement, not just going through the motions of work, actually improves work quality and safety even if they are not being actively measured and reported on to the employees. Both the company and the employees still win.
We still are strong proponents of incorporating other criteria into your pay for performance to make sure the employee incentive pay is fully aligned with the goals of the company. Both quality and safety are critical for success for any company. Injuries can be very expensive and severely impact workman’s compensation insurance rates. Quality failures adversely impact customer satisfaction and create additional costs.
When we design pay for performance programs, we recommend bonusing the employees as a portion of the value they are able to create through increased productivity. Since Easy Metrics measures the cost to serve for every process in the facility by unit of measurement, we are able to measure objectively the economic value the employee creates through increased productivity. If a $20 an hour employee (loaded cost) increased their productivity by 20% they have created $4 per hour in additional value for the company from purely a productivity perspective. If we assume the employee worked 40 direct labor hours that week, then they created a total of $160 of additional value for the company. If the PFP gain share percentage was set to $1.50 per hour for that performance level, the employee would earn $60 in additional performance pay.
But what if the employee miss picked some items or had a safety failure? How should that be handled? It is important to align goals between the employee and the company. In modern production environments, employee injuries can destroy your bottomline and create and outsized impact on cost due to workers compensation insurance rates. If safety is a big concern for your company, then I would have as part of the program that a safety violation erases a portion of or all of any employee bonus for that pay period. You could have different thresholds of violations if so desired.
Same with quality. Most companies can measure pick accuracy. If an employee rushing to get a high productivity level takes shortcuts and miss picks products, then you can incorporate pick accuracy into their bonus calculation. One of our customers does this both upward and downward. Employees are expected to maintain a 99.6% accuracy rate. If they fall below 99.6% they lose 50% of their bonus, if they fall below 99.4% they lose all of their bonus. Likewise, if they score above 99.8% they get an additional 20% bump on their bonus and if at 100% they earn a 40% bump.
Within Easy Metrics pay for performance system, we allow for a lot of flexibility in designing your pay for performance program. For over 20 years we have designed and managed pay for performance programs and can work with your team to design a program that aligns well with your goals.