|
|
 |
| |
| Successful process improvement activities depend upon the active involvement of the workforce. Group incentive systems are a method of engaging the workforce by providing financial rewards for performance, and help reinforce a winning spirit. Group incentive plans also give credibility to management efforts to improve processes by sharing some of the benefits in return for workforce contributions.
|
 |
Profit Sharingis a very broad-based approach based on total operating unit (or total company) performance. This system has been used by the U.S. auto-makers for several years. Typically, payments are made based on a pre-determined profitability target/formula, with individual amounts determined as a function of base compensation. Chrysler, in particular, has made substantial annual payments in the mid and late 1990's.
Drawbacks: As a broad-based measure, strong efforts and performance by one group may be offset by poor performance of another. There may be no clear relationship between individual or local performance and the pay-out. |
|
Stock Options are another broad-based performance incentive. They are popular because they are funded by shareholder dilution rather than cash. Once reserved for senior management, stock options are now more broadly distributed at many companies.
Drawbacks: Stock options have drawbacks similar to profit-sharing, but also are subject to stock market volatility from factors outside the company's control (interest rates). As many technology firms have discovered recently, stock options that are underwater can have a very de-motivating effect.
|
|
Group Piece Rate is a narrow incentive system that rewards groups for the total production of the group. There is generally a quality qualifier (and trouble if there isn't). Pay-outs are based on a formula that is compared to the target, or "standard" production.
Drawbacks: Piece rate systems encourage overproduction - a form of waste - and ignore other important areas of performance such as safety, flexibility, schedule adherance, and quality.
|
|
Goalsharing plans are group incentive plans that provide financial pay-outs based on improved performance in specific areas, as defined by performance metrics. The Editors of MoreSteam.com have experience with several successful plant and company-wide goalsharing plans. In each case, the plan had 4-6 performance metrics, with a payout schedule for exceeding the target of each metric. Metrics are selected to coincide with the business objectives. The pay-out target for each metric is established after analyzing the baseline performance over the preceding 3-6 months, then raising the bar by a reasonable margin. Here is a simple example based on three metrics: |
 |
| |
General Goalsharing Guidelines: |
|
 |
Pay-outs must be closely linked in time to performance, but not so frequent that the pay-out amount is too small to get attention (suggest monthly, or quarterly). |
|
Performance metrics must be easy to understand, as well as the pay-out calculation. |
|
Data used to calculate performance metrics must be accurate and tamper-proof. |
|
Targets must be viewed as achievable, but they should raise the level of performance. |
|
Individuals must understand what they do, specifically, on their job to impact the performance metrics, and hence the goalsharing pay-out. |
|
Progress toward a pay-out must be clearly communicated. |
|
The goalsharing plan should be developed through a cross-functional team with shop-floor input. |
|
Separate checks for goalsharing are more popular than including the goalsharing amount in a regular check.
|
|
| |
Drawbacks: Goalsharing plans must be carefully constructed to support the business objectives - if a productivity metric is included, but not a quality metric, then you may pay out goalsharing money for productivity but suffer quality problems. The metrics that you decide to include communicate company values to the workforce. If quality is the number one priority, then quality should be represented in the plan. Furthermore, if your metric data is inaccurate, goalsharing payments could be made without seeing a benefit on the bottom line. |
|
Team recognition events are a great way to establish a performance culture. Recognizing the extra efforts of teams that achieve high goals is personally rewarding, and can be accomplished without spending a lot of money. Everybody likes positive recognition.
Drawbacks: None
|
|
| MoreSteam Note: Individual incentive systems are not covered by this resource center because they do not support the development of teamwork, and often backfire. For a good example of how individual and small group incentive plans can backfire, see the Fortune article "Incentive Pay Can Be Crippling". Incentive plans should never be designed to allow total organization performance to suffer because subsets of the organization pursue goals at cross-purposes to each other. The were clearly not considered when the initial investment decision was made. |
|
| For additional references, see the Other Resources section of the MoreSteam.com Toolbox , or consult the Article Archive.
|
Copyright © 2000 - 2005 by MoreSteam.com LLC
|
|
