by D. Kevin Berchelmann | Apr 20, 2009 | Brazen Leader, Human Resources, Kevin Berchelmann, Organizational Effectiveness
I’ve worked with many organizations, both as the in-house compensation expert as well as an outside consultant, and determining the economic return for incentive plans is clearly a significant effort – and there’s sometimes nothing simple about it.
Incentive plans do not work in a vacuum; even with potentially great compensation plans, outside forces can be such that the results are almost anecdotal. This doesn’t mean we shouldn’t make every effort to measure the results, but it does mean that any specific measurements will have “assumptions” built in to the equation.
Some client examples:
I implemented an extensive gainsharing plan for a $100M division of a $1B manufacturer/smelter of zinc ingot. In less than 18 months, we reduced the average production cost per pound by well over 35%, and split the dollar savings evenly with employees, some of them nearly doubling their typical hourly wage. Now, was it simply the incentive plan? Well, as part of that effort, we conducted extensive training, constant follow-up, intense metric evaluation and trending… in short, we implemented a process “around” that incentive effort.
So, did the gainsharing “cause” the improved performance?
It certainly played a significant part.
With a small, fast-growing bio-tech firm, we implemented significant incentives for management’s leadership in driving research & development and time-to-market. The incentives paid out fairly handsomely, and time-to-market for new products was reduced by almost 15% in less than 12 months.
Was that caused entirely by incentives?
Hard to say; time-to-market had become an incredible focus before implementing the incentives, and was reflected in many management efforts, hiring, etc. Clearly, the incentives played a part, but how much?
Finally, with a $120M industrial services firm, we implemented sales incentives that had the most generous “upside” in the industry. 12 months later, we realized an increase in revenue of almost 15%, with margins equal to or better than before. Yet the company still entered into Chapter 11 bankruptcy, and the strategic buyers immediately discontinued the plan, saying it was too “rich.”
Did it play a part in the company’s slide into Chapter 11, or did it stave off that bankruptcy for several more months? Again, it’s difficult to determine, given the pressures on the entire organization at the time to reduce costs, increase revenues, and bolster margins. It certainly made more in earnings than it cost in incentives, by a factor of almost 13x.
Again, these plans don’t work in a vacuum, and are usually part of an organization’s current strategic focus. As such, measuring ROI aimed squarely and solely at a particular incentive plan will always be difficult.
Can we measure the total impact of the effort, INCLUDING incentive plans? Of course, and that’s likely the most successful way to run a railroad anyway.
by Triangle Performance Staff | Apr 13, 2009 | Kevin Berchelmann, Organizational Effectiveness
Well, is it??
A company needs human resources (people, talent, etc.) to survive. It does not, necessarily, need Human Resources (the department). The challenge for HR, then, is to become the real expert and leader in those things positively impacting the organization’s human capital — creating value, improving productivity, increasing returns, etc.
If HR’s sole claim to fame is compliance, they’ll generally be seen as a barrier, and can be replaced by a $50 CD. Equally, if they simply act as a broker of others’ efforts (vendors, consultants, outsourcers, etc.), this adds minimal value.
(more…)
by Triangle Performance Staff | Dec 10, 2008 | Kevin Berchelmann, Organizational Effectiveness
I recently had a discussion with a client about “merit” pay increases. Never mind the current concerns over giving ANY pay increases; we were discussing how to divvy up the dollars. She asked me how, if we budget for across-the-board adjustments, do we also recognize performance…? (more…)
by Triangle Performance Staff | Sep 26, 2008 | Kevin Berchelmann, Organizational Effectiveness
Frequently, we wonder Why don’t these people get it? Can’t they understand that this change is good? That we all will be better for it??
Well, in a word, NO.
“They” don’t understand because we’ve done a lousy job explaining this change to them. And probably the three thousand changes that occurred just before this one. Yes, our folks did notice those myriad changes before.
Some of which were successful, many were not.
Remember, there’s only two people who really, truly, no-kidding,appreciate change at face value: The person controlling the change, and the person(s) personally benefiting from it.
Everyone else needs to be sold on the advantages, purpose, and reasons for the change(s). Note to Leader: That’s your job.
As usual, success in leadership distills down into the most basic form — communication.
Until later…
by D. Kevin Berchelmann | Jun 28, 2008 | Brazen Leader, Executive Improvement, Human Resources, Kevin Berchelmann, Organizational Effectiveness
Most managers hear “retention plan,” they immediately think “stay bonus.” And to be sure, those bonuses could very well be a real part of most retention plans.
A well-thought retention plan, however, is much more than simply “money.”
Retention plans can be necessary for critical continuity during turbulent, transitional, or heavy-change times. When necessary, and well-thought, retention plans create real, measurable value to an organization when it needs it most. The key, of course, is the “well-thought” part.
During the sorts of times mentioned above – the times that drive the thinking behind retention plans – it’s easy to look to those who have done so much up to now, and convince yourself that a reward is in order. Maybe it is, and maybe it isn’t, but a retention plan isn’t the way to go about it.
A retention plan should never be used to reward prior performance; its sole purpose should be to ensure retention of those employees critical for the future success of the organization, both during and after the retention period.
So, what exactly is a retention plan? Think 3 things:
1. Communications,
2. Employee Development, and
3. Bonus Compensation.
All three of these are necessary for effective retention, and for emerging mostly unscathed after an organization’s transition.
For Communications, think open, relevant, and frequent.
Employee Development is part of the future promise of “things to come,” that will provide future leverage.
Bonus Compensation is just that – a cash “carrot” paid out in such a manner as to be worthwhile to both the employee and the organization.
Retention plans can be critical for future success – but they aren’t simply a promise of payment to a large group of people. Think through carefully what you need, and implement a plan accordingly.
by D. Kevin Berchelmann | May 28, 2008 | Brazen Leader, Human Resources, Kevin Berchelmann, Organizational Effectiveness
For my money, a well-thought, well-implemented gainsharing effort is the holy grail of productivity and efficiency incentives: Paying for performance with money you never would have had anyway, without the improved performance. An incentive plan that funds itself.
For the unenlightened, “Gainsharing” is an incentive plan that, using etsablished, historical threshholds of performance, pays incentives for “gains” based on that thresshold. Usually defined in some fashio of a “split,” such as 50% for the company, 50% for employee incentives.
An example: Company has historically spent $2.00 for every widget it produces. Under a gainsharing plan (oversimplified here for clarity), if the employee effort resulted in making widgets at $1.50 per, then the $0.50 savings, or “Gains,” would be shared equally between the company and employees.
Their are keys to an effective Gainsharing effort:
1. Get it right. Determine the critical lever(s) involved that the gainsharing will apply. These are likely the final productivity measure, e.g., cost per lb., hours per process, waste, rework, etc. Do not use simple payroll dollars. And use a recent trend data point (1 yr, 3 yrs), not some arbitrary “goal.”
2. Keep it simple. If you can’t explain it to the lowest level impacted worker in less than 5 minutes — so they really understand — it’s too complicated.
3. Communicate. You cannot overcommunicate with a gainsharing effort. You must be open and free with sensitive financial data — if you feel you cannot, don’t use gainsharing.
4. Educate. Participants must be able to “connect the dots” between today and “better,” and they need new knowledge tools to do that. Financials, process, etc.
5. Reward. Timely payouts are a must. Monthly for typical blue-collar, perhaps quarterly for more sophisticated workers. You may have to prime the pump at first.
Gainsharing is not a “template” compensation scheme where you can take someone else’s and fill in the blanks. Things like holdback/reconcile, thresholds, buy-downs, etc. all need to be determined, to say nothing of the original pland design.
If done correctly, however, there is nothing better.
But that’s just me…
