How to Boost Profits by Boosting Employee Productivity
By Woodruff Imberman, PhD
Imberman and DeForest, Inc.
Our latest survey of how 427 companies, including 21 precision machining job shops, are persuading workers to improve productivity in today's shaky economy not surprisingly finds growing numbers of employees are still primarily motivated by basics, such as job security and pay.
In 2004, before the Great Recession, we visited 427 companies nationwide, asking executives how they were trying to motivate employees, and which ways were most effective. We repeated the survey in 2008 during the Great Recession, and again in 2012, during its sullen recovery. Trends in company efforts to motivate employees to improve their performance and their effectiveness are shown in the accompanying charts.
The charts show five important facts:
- First, due to the Great Recession’s impact, workers now focus on the basics: job security and economic motivators—the size of their paychecks.
- Second, short-term economic motivators like gainsharing that match employees' short-term horizons had the greatest impact on productivity.
- Third, precision job shop employees expect to receive extra rewards for any extra efforts asked of them. Fulfilling these expectations is critical for the long-term success of any new initiative for boosting productivity and eliminating waste. If the “extra” is absent, employee cooperation is short-lived.
- Fourth, although many employers have double-downed on their efforts to influence employee behavior with “engagement” efforts, workers considered these to be only of secondary importance. Economics was their first priority.
- Fifth, jargon has gone steroid. Efforts to improve worker performance were called "motivators" in 2004, "involvement” in 2008, and, in early 2012, " engagement" A new buzz word, “engagement,” has morphed into the “science” of “engageonomics,” at least by those trying to sell their latest version of it.
What's Behind Employee Thinking?
Our surveys show the obvious: recent events have impacted workers’ attitudes severely and changed how to influence their behavior effectively. The Great American Recession of 2008-2009 devastated America’s pocketbooks. Memories of that still linger today. The current rise in US food and gas prices is hurting consumer spending. And let’s not forget that Europe’s Euro crisis and China’s slumping economy are both are harming US exporters—and the jobs they support.
We face a questionable future as Washington continues to dodge our country’s fiscal situation. Yesterday’s problems, today’s memories of them, and tomorrow’s uncertainties have badly shaken workers’ attitudes, consumer confidence, and domestic spending.
Suppliers of precision parts for the automotive and off-road construction equipment industries, for example, continue to battle OEM purchasing managers whose demands for price concessions require ever-increasing employee productivity and ever-decreasing per-unit costs. To meet these demands, suppliers have found that short-term, transparent economic motivators paired with supporting communications efforts are most effective in persuading employees to achieve these goals. These motivators improve worker performance, reduce employee insecurities, bolster future job security, and show workers they can control their own destinies—the smarter they work, the better their future will be.
Motivators: Which Ones Work…and Why?
Non-economic motivators have long been used to bolster workers’ pride. These include preferred parking places, service awards, special recognition for reaching certain milestones, and holiday parties. Although they offer little positive motivation, their absence is resented. Thisexplains why, as the charts show, precision machining companies continue these efforts;they sustain morale. However, they have little direct effect on workers' daily effort or on-the-job behavior.
Most job shop executives expect economic rewards for their own improved performance. Their “performance” might be improved company profitability, increased per-share earnings, or higher stock prices. Again, as the charts show, astute executives have learned what is good for the goose is good for the gander, and are extending similar incentive programs for all employees.
Profit sharing plans are widespread, as are merit raises and discretionary year-end bonuses. Unfortunately, many merit raise programs are disguised general increases (if everybody receives the same "merit raise," where’s the motivation to try harder?).
Many executives think the discretionary year-end bonus programs they developed are effective. Unfortunately, vague programs produce vague results, rather than specifically focusing employees on daily performance. If asked, “What specifically did you do to earn your year-end bonus, and why did you earn the amount you were given?”, few workers can answer.
Economic motivators that affect day-to-day behavior are effective if they are easy to understand and match the short-term goals of the workers whose efforts they are designed to influence. No matter how skilled they are, few blue-collar workers have a “line-of-sight” long enough to equate what they do today with an ill-defined year-end raise or bonus, to say nothing of a profit sharing plan paid out 20 years from now on retirement.
Precision machining executives reported pay-for-performance programs with frequent payouts coupled with vigorous supporting communications efforts are the most effective way to “engage” employees to focus on daily productivity requirements, and to reinforce their desire to cooperate with management in eliminating waste. The need for immediacy perhaps explains why companies see deferred reward programs becoming less effective.
Gainsharing Found to be One of the Effective Programs
The surveys found gainsharing was the most effective short-term motivator. Gainsharing is a group pay-for-performance program under which employee performance is quantified and given a dollar value. When it improves, the value of the improvement is split with the workers. So for every dollar paid out to workers in gainshare bonuses earned by specific measures of short-term performance, a company saves a like amount in higher productivity (less overtime), better quality (fewer internal defects, less customer returns), and improved safety (reduced workman’s comp costs). Since gainsharing plans provide pay-offs earned on a short-term basis (often monthly), employee notions that gainsharing is an entitlement are negated.
“Engagement”: The Forgotten Side of Gainsharing
Sadly, many precision machining executives think workers respond automatically to earn a gainshare bonus. This is erroneous; effective gainsharing plans require vigorous communications efforts to “engage” workers to cooperate in improving production efficiency and product quality.
Employees welcome opportunities to earn extra money, now more than ever. Although no company singled out communications as a motivational tool, it is at the root of employee satisfaction. With gainsharing, frequent communications regarding quality and productivity “engaged” employees to do their best in keeping their company competitive and their jobs secure. Workers respond to the opportunity to contribute. When they see management honestly soliciting ideas to work smarter by identifying and removing impediments to productivity and quality, and then responding, workers realize their efforts are important and valued. Call it motivation, involvement, or engagement, whatever! The process is effective.
Mark Lindemulder, President of Tibor Machine Products, Inc., an Illinois precision job shop, is one executive who has taken these lessons to heart.
“Over time, we tried many ways of rewarding employees when their performance improved,” he said. “They were not particularly effective in increasing individual worker productivity or reducing defect dollars, nor did they promote the teamwork we need to serve our major customers in the construction equipment and ag implement sectors of the economy.”
“I talked with a friend who machines turbine hubs and similar high precision components for the auto industry. He said his Gainsharing Plan has been highly effective for the last 15 years,” Lindemulder continued. “So we hired the same firm that designed his plan to engineer one for us.”
“Productivity has improved about 20% for us as a consequence of the plan. Two-plus years of positive results have made me a believer,” Lindemulder said. (see chart).
ADDING IT UP
The subtleties of persuading employees to make increased efforts are lost on many executives who focus on computer print-outs to check costs and production schedules and ignore the need to visit the shop and communicate with the workers on the Okumas, Mazaks, and CNC Marubenis.
Most executives have little time to debate what is more effective–economic or non-economic motivators. They need immediate, practical answers on how to influence worker behavior so their companies’ goals of high productivity and better bottom-line profits can be reached. The charts show most executives use both ways—first providing group economic rewards to workers working as a team to help achieve company productivity and profitability goals; and second, using effective “engagement efforts”—communications programs to reinforce the economic motivators and create a sense of unity.
Injured by the Great Recession of 2008-2009, scarred by the anemic recovery, and fearful of the future, today's employees are oblivious to buzz words but can be convinced to increase productivity when they find their rewards in their paychecks.
What are you doing to give them the rewards they value so highly?
Readers should contact the author, Dr. Woodruff Imberman, President, Imberman and DeForest, Inc. at info@IMBDEF.com or WWW.IMBDEF.com. For further information on creating a high-motivation workforce, or details about Gainsharing in precision machining.