This case study is based off applied research conducted by Jeanne M. Lamere and colleagues, published in 1996 in the Journal Behavior Modification
In the late 1980’s a waste disposal company with about 150 employees decided to make the move to an organizational pay for performance system. Management made this decision, to help foster higher performance in their employees, but also because they wanted their employees to share in the growth and development of the organization. The owner of the company encountered a team of researchers from a local university who specialized in performance pay, and decided to work with them to create this system.
Before starting the project, senior leadership spent extensive time prepping employees for the program to foster buy-in. This included communicating key aspects of the performance pay system. This communication included 3 key points:
Once the intention of the program had been communicated, it was time to get to work. The first task of the project team was to decide how they would measure the performance of the truck drivers. There were several complicated aspects of the job, and the owner wanted to capture all aspects of work, to ensure an equitable system that drove high performance. The research team met extensively with both employees and managers within the company, and ultimately arrived at 9 different job tasks.
The nine tasks served as the basis for the scorecards, but the team wasn’t done there. They also incorporated an overall safety contingency (any accidents and the driver lost the weeks’ incentive pay), and devised a weighting system to balance out the difficulty of each job, as well as the miles driven to complete the job. The result was a point system that captured all aspects of the drivers’ jobs in an equitable and safe way.
Once the scorecard was designed, the drivers then tested the scorecards for 20 weeks to establish a baseline, and to pilot and modify the measurement system, as well as give the drivers practice with the system. These baseline data were also used to determine payout amounts, which ensured drivers would earn fair amounts under the new system. Ultimately, it was decided drivers would be able to earn up to 3% of their base pay as a performance incentive (although this amount was raised to 10% by the end of the study). Then the pay system was put in place with one group of drivers.
For 14 weeks these 10 drivers calculated their daily incentive pay, based on the jobs they worked, and miles they drove. Supervisors totaled the points earned for each driver, then gave it to payroll, who fed the information back to drivers, along with their weekly incentive earnings, and feedback on how their performance compared to their peers.
Then 14 weeks after the pilot group began the incentive system, the remainder of the drivers were placed on the incentive pay program. For the next 161 weeks, these drivers worked under the new pay for performance system.
During the first 15 months of the program, the organization saved more than $75,000 in labor costs (about $140,000 in today’s dollars), with an ROI of about 3:1, plus a productivity increase of more than 7% in addition to labor cost savings. And safety? The drivers experienced a net decrease in the number of accidents on the job. Overall, the system was a resounding success, and was well received by the employees.
The organization described chose not to transition fully to an entrepreneurial workforce, but based on the work of Dr. Bill Abernathy (2011, 2014) we could imagine what that transformation would look like.
Some employees who were not willing to partake in this system would leave during this time, but before replacing any outgoing personnel, management would check to see if employees wanted to earn more money by assuming those job tasks, thus eliminating the need for additional labor. Those who were interested in additional earning opportunities would be cross trained on new job roles, which would also mean the company would have a more skilled workforce who could shift duties with the ebb and flow of work.
Senior leaders would monitor the incentive pay amounts, and would carefully modify measures and weights as the strategic priorities of the company change. They would also spend less time fighting fires, and more time devising and communicating strategy, and gathering input from front line staff who have the best sense of where process and efficiency improvement opportunities lay. In this organization employees collaborate for the success of the organization, not because they have to, or because it’s their job, but instead because it is in their own best personal and professional interest.
Credits:
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