August 29, 2006
Volume 2 Issue 76

Creating An Incentive Plan For Your Employees

In a recent Gallup Poll of US employees, it was found that 73% of the people surveyed felt that they had not been motivated enough to do extra work that would benefit the company.  The poll suggested that lack of motivation is a result of the supervisors and/or upper management not understanding the importance of labor management and in industries that are heavily depended of labor such as distribution the inefficiencies are a major problem in becoming more profitable. Supervisors need to realize that by tracking the performance of an individual or team you can not only weed out inefficient employees but also find out where you can improve your operations. For example, if you have a pick team that is underperforming, before you throw a pick slip at them ask your self is it the employees that are lazy or are they just unmotivated.  You will be surprised how many times you have great workers that just need to be motivated a little. Incentive plans are a great way to motivate workers, here are a -few steps in creating a personalized incentive plan that will help get employees to do more for your company:

Step 1 – Pick an area or a department to start tracking

   Before you can create an incentive plan you need to find out how efficient your employees are currently working. Without these productivity statistics you will not know how high to set the bar. You may end up setting the bar too low and end up paying incentives to everyone, which defeats the purpose of creating the incentives in the first place. You should try to track an area for at least 90-180 days.

Step 2 – List all the jobs and functions in the chosen area                            or department.

   Let’s say for example you choose picking as the area you want to focus on. You will need to find out every function that goes into the responsibilities of the picker. This lets you look at exactly what goes into picking a product. With this information not only can you find functions that can be used to track productivity but also reevaluate the picking process in general to see if it can become more efficient. 

Step 3 – Determine the standard for each job or function.

   This is a very important step in the process and if calculated wrong could end up cost you $$$ because you will be paying more for still inefficient workers. With the data that you found out in step one about the specific area you find an average number, add 20% to that, and make that your beginning standard. Let’s keep the picking area for our example:

Let’s say an average picker picks 1000 orders a month and lets say that on average that only 800 of those orders are correct. That gives the average worker an 80% pick accuracy.

800 accurate orders a month=    80% pick accuracy      1000 total orders a month

Picking accuracy increases turns through efficient movement of stock in warehouse

                        So now that we know that an average picker picks 800 accurate orders a week we can now add 20% to that number to reach the Incentive Plan Number:

                        800 accurate orders x 20% = 160

                        800 + 160 = 960 accurate orders

                          960 accurate orders    = 96% pick accuracy                                1000 total orders

   As you can see from out little example for an employee to reach their bonus for the month they would have to have to accurately pick 960 out of 1000 or have a 96% pick accuracy. You can see that 80% to 96% is a huge jump in accuracy and the extra money that you are fronting to pay the incentive will be easily recovered because you will be selling more products and customer satisfaction will be up.

Step 4 –Test your numbers on the floor.

                  Track workers performance for the next 4-8 weeks without telling them about the incentive plan. See if your numbers will work in your work environment. The reason you do this is that your bonus numbers have to be reachable. To keep with our picking example, if a 96% pick accuracy would never happen in your company than that is a bad number to choose. You need to choose numbers that obtainable but also need extra effort to accomplish. After 4-8 weeks if your numbers look good then you can go on to the next step but if not go back, change your numbers, and test for another 4-8 weeks.

Step 5 – Announce the incentive plan to ONLY the people in the area you are focusing on. 

                  Make sure the people that you tested and will be getting the incentive plan are the first to know about your results. You should hold a group meeting with all of the workers in that area and explain to them the details.

Step 6 –Announce the incentive plan to rest of employees

      Hold a company meeting and explain to everyone the process that you will be going though to create incentive plans for everyone. This is basically to start to stir up excitement about working for the company. Workers that know that management cares about them will usually work harder because they know they will get rewarded for doing something good.

Step 7 – Implement the plan and commit to run for at least 4             weeks

                  After you tell your employees that you are going to do, keep your word and do it.  Keep your original plan for at least 4 weeks after that time adjust accordingly. If too many people reach the bonus raise the bonus but beware if you raise the bonus you will more than likely have to raise the reward.

Step 8 – Monitor results and frequently post results.

                  Frequently post results in a place were everyone can see them is very important to the success of the program. Everybody will not succeed but the people who do should be celebrated and acknowledged. The other reason posting results is a good idea is that it will give a sense of competition to the workers and competition will drive workers to do better.

Step 9 – Review the plan after 8 weeks

                  Make sure none of the conditions have changed since the original tests that you conducted.  If they have changed over time adjust the plan accordingly.

Step 10 – Expand the plan to other areas    

                  Target the next area you want to track and repeat the steps above. Think about developing and announcing a implementation schedule to all areas, that way no one feels left out.

   Incentive plans take time and energy to put together and maintain correctly but if done right you will end up with employees that are excited and ready to come to work everyday. Equally as important by focusing on inventory turns you will reduce carrying costs and increase adjusted gross margins which will more than pay for the incentives.

   These employees are where the real profitability lies in your company. In next week issue we will talk about a specific type of incentive plan called Gainsharing, which has had accounts of improving turnover rates by 87%!!!   

Incentive Plans Motivate Workers To Save You Money

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