Motivate with Money

May 15, 2005 9:30 PM  By

Operational Area Paid to Employees Hours Saved Dollars Saved
REPLENISHMENT $760.00 174 $2,976.40
SHIPPING $1,400.00 316 $5,403.60
RECEIVING $1,300.00 274 $4,685.40
NIGHT SHIFT $2,200.00 406 $6,942.60
ORDER FILLING $2,300.00 536 $9,165.60
OFFICE $800.00 200 $2,798.00
RETURNS $50.00 12 $206.20
TOTALS $8,810.00 1,918 $32,177.80

It may sound crass, but increasing wages is one of the best ways to “train” people to perform better. Don’t worry — you won’t need to bankrupt your operation to pay your employees extra. Try gainsharing, an incentive plan that pays workers based on improvements in the company’s productivity. Perhaps the best recent work on this subject is Warehouse Productivity: Improving Workforce Performance with Simplified Gainsharing by Pat Kelley and Ron Hounsell (Alexander Communications Group, 2005). The authors describe a sample gainshare split, in which you pay the employee up to one-third of the “extra” value he provides you.

Say an employee who makes $10 an hour performs 10% above standard; he’s actually worth $11 an hour to you. Assuming that you provide benefits worth roughly 30% of labor costs, and that employee is actually worth $11.30 to you. Of the $1.30 “extra” value the employee is giving you, if you pay the employee $0.25 an hour, you’re giving him 19.2% of the gain. The company’s share is $1.05, or 80.8%.

In the table above, Kelley and Hounsell show how simplified gainsharing would work for a month in a typical distribution center. The company nets $23,367.80. The $8,810 paid to the employees is 27.4% of the dollars saved, well within the one-third/two-thirds parameter.