TZA, a logistics consultant with over twenty years of experience in improving productivity in distribution environments, has long approached labor management from the perspective of “a fair day’s work for a fair day’s pay”. The company’s focus is to set a minimum expectancy of what an individual should accomplish in the course of a specific period of time. The base line is the level of performance attained by an average trained person with normal skills, performing the proper methods, working at a normal pace under normal working conditions.
So the core of any incentive or discipline program is to first establish where the base line lies. While many companies set the bar according to past performance, the question is actually not how high the bar is or was, but how high it should be. Engineered labor standards are the right tool to determine this measure. By applying engineered labor standards companies can establish accurate time frames for each of the tasks to be performed in a distribution center. These expected times take into consideration potential setbacks such as type of load, cube, weight, shelf height, distance to be covered, progressive fatigue, etc, so that the bar is set at a fair and attainable level for each order.
Unfortunately, the typical worker does not jump at the chance to improve his or her performance. In preparation for the performance improvement management should be trained in change management techniques, managing with standards, coaching and counseling skills, and positive reinforcement techniques to learn how to anchor positive behaviors of associates into the company culture and eliminate negative behaviors. Despite preparing the management team and leading the workforce to the positive behaviors many of the associates will still not improve their performance without a reason. It therefore becomes the company’s responsibility to establish progressive discipline for the workers who do not achieve the expected minimum performance. To bring all employees up to speed, it is essential to make observations as to why they are not achieving the standard rate.
Through observation, 80-90% of the workers will demonstrate that they have the mental and physical ability to achieve the rate, but when they are not being observed, they simply choose not to work – hence the need for engineered labor standards to establish the minimum performance expectancy, as well as labor management software, to track each employee’s performance and to document where they are falling short. For the 10-20% of the workers who can not make standard when observed, management needs to be able to recognize if pace, skill, or a particular process is causing a performance problem, so that they can coach the struggling worker to an improved rate. Through this process companies should expect to achieve a 10 to 30% increase in productivity.
Roughly about one-third of all TZA’s Engineered Labor Standards installations involve some form of incentives. We typically recommend that a company first implement a productivity improvement program based on engineered labor standards and labor management software. After all, why should you be paying for additional productivity if you are not yet obtaining the expected productivity you are paying for? Once the groundwork for the productivity improvement program has been laid and the management team has settled, you will still need to move through the first round of productivity improvements before implementing an incentive program.
The main reason is that, for a typical company, it takes a while for managers and employees to get adjusted to the new system and incorporate the new approach to performance as part of the corporate culture. Once the change management process is assimilated in the daily routine you will see improvements in the form of less overtime, a reduction in temporary help, voluntary time off, fewer “call-ins” required to cover for sick days and vacation, reduction in off-shift help, less hiring to cover for the peak season, and attrition. Companies should expect an additional 10 to 20% increase in performance through an incentive program, however, some of that gain will have to be shared with the associates.
So here are some guidelines for incentives:
- “You get what you pay for” with incentives
- Focus on quality before productivity
- A program is only as good as it is perceived to be by the workers
- An incentive program does not replace a discipline program, such as a company’s attendance policy
- Using an incentive makes management of the workforce more difficult
- It is very difficult and painful to remove an incentive program
- You can always increase the incentive
- When designing the incentive, build it to be flexible and focused on the long-term gains
- Always have a cap on the incentive (by dollar or by percent attained)
- When implementing, make sure the program is sold as a “trial period”. A formal buy-out policy should also be designed and posted prior to implementation.
- Post and communicate to employees that “Management has the right to cancel the program at any time, for any reason”
Here are TZA’s components of an Effective Incentive Program:
- Efficient Best Practices and Procedures
- Effective standards and expectations for both Quality and Productivity
- Consistent Two-Way Communication
- Strong and timely labor reporting
-
- Real time data capture
- Accounts for all associate hours (Time & Attendance tie-in)
- Accurate and discrete labor content calculations
- Thorough management training
- Consistent and fair HR Policies (coaching, counseling, and training)
- Both the workforce and the management team have faith that the measures are fair and accurate.
- Frontline management leverages the use of the tool
- Effective recognition programs that are based on what motivates the associates
- The program is easily understood by the workforce
- The program is highly structured and does not allow for manipulation by the frontline managers
- There is minimal amount of clerical time required to support the program
- The program is Fair Labor Standards Act (FLSA) complaint – (the incentive is added back into the hourly wage to calculate the OT (time and a half pay)
Charles Zosel is vice president at Long Grove, IL-based distribution, warehousing and transportation services provider Tom Zosel Associates www.tzaconsulting.com