What are your thoughts on an employee incentive program? Love them, hate them? If you ask us, we love manufacturing incentive programs because they can improve the efficiency of the company. But, if those programs aren’t done correctly, well, it can have the exact opposite effect and create chaos in the company.
There’s a quote from Edward Deming that we love and kind of sums up the incentive program difficulties in one sentence.
“If you give a manager a numerical targe, he’ll make it even if he has to destroy the company in the process.” – W. Edwards Deming
How to incentivize employees is a hot topic. You’ll find endless articles, books, and even videos telling you how to do it correctly. But, how do you know what will work and what won’t when establishing an employee incentive program?
Everybody on LinkedIn is talking about the fact that you have to be very careful about the metrics you measure, and a lot of people want to do manufacturing incentive programs based on data collected which is good, but there are pitfalls. These pitfalls have to be considered before implementing an incentive program. So, where do you start? How do you even begin to implement an incentive program?
Creating Manufacturing Incentive Programs
Essentially, all of the potential pitfalls associated with an incentive program are a variation of that quote above. And, they’re not limited to just the manufacturing industry.
If you give someone a target that leads to a bonus, they’re going to make sure they hit that target, potentially gaming the system if they need to. This is true in sales, in marketing, in manufacturing, no industry is immune to those pitfalls.
So, what can you do to combat that? Are there other things you can measure, if done right, that won’t wreck the company?
We’re no experts on the matter, we just provide the data to use within your incentive program. So, we sat down with Nick Hinman, VP of Corporate Strategy, at Tacony to learn how they implemented a successful incentive program, that has proved to not only provide a financial benefit for a job well done but encouraged hard work.
What we learned is part of a conversation recorded for the Zen and the Art of Manufacturing podcast, titled “The Foundations of Lean w/ Nick Hinman.” You can listen to the full episode here or wherever you listen to podcasts.
The program follows a tiered, 3 pillar structure with focuses on production efficiency, quality, and 5s, the first 2 comprising 25% each and the latter, 5s, carrying the bulk of the weight at 50%.
Before you open-mouth, jaw drop exclaim that 5s can’t possibly be that effective to carry that much weight, give us a chance to recap Nick’s explanation.
In terms of production efficiency, Tacony doesn’t go off the standard. Instead, they evaluate based on reality because they don’t want to create more inventory than needed. It provides the ability to maintain the lean, flexible mentality. So, 25% of the incentive program is focused on what got done from what could be controlled. How many parts were produced based on the controllable factors?
Then, the other 25% is based on quality. What’s the quality of the product coming off of the line? The reason for tracking quality is 1, Tacony wants to ensure bad parts don’t make it to the customer, but 2, quality metrics provide the right information for the continuous improvement process.
The third and most important component of the Tacony incentive program is 5s. You may be wondering, “Why would you base an incentive program on an organizational method?”. There’s 1 reason for this that Nick Hinman feels very, very strongly about – 5s is a critical component of a successful lean plant. If there is clutter in the plant, this causes confusion, and confusion causes inefficiency.
So, if you have an organized plant based on the theory of 5s, the company and the employees are holding themselves accountable. It’s not only easy to understand what is happening and what needs to happen on the floor to meet goals, but it’s easy to onboard people, move people around where needed, create a standard of work, and add visual components to the floor, such as scoreboards.
If 5s is implemented and used correctly, employees should meet their productivity goals, produce good, quality products, and be aware of the company’s overall progress. That’s a successful manufacturing incentive program.
According to Nick, “The discipline of being organized and running the system is essentially the solid foundation of a “house”. You need a solid foundation before moving forward, otherwise, everything built on top of that house will crumble.”
Beyond the specific goals of the incentive program, it’s based on a weekly measurement system, not daily, to provide everyone the opportunity to hit their goals. With this structure, it doesn’t penalize an employee if they go on vacation or have a doctor’s appointment.
“And we focus weekly on the incentive programs. So it allows people to recover and still get some piece of the incentive. What we found is remarkable. Our efficiency’s gone up, our backorders have gone down, our inventory levels have dropped, and our efficiency rate is better than it’s ever been.”
If you have all of these standard processes, everything is in its place, it’s all designated, it’s visual, you know where things are. All of this makes it easier to do a few more things that we briefly mentioned above.
Let’s expand on that thought. 1, it’s easier to onboard people. 2, the standard processes help others know what they should be doing which reduces the likelihood of quality problems or mistakes. 3, if someone is out for whatever reason and a position needs to be filled, anyone can step in to make sure production keeps running. 4, it helps with efficiency because you’re not having to look for things or figure out anything new every time. You can actually focus on building the product, and not wonder where the screwdriver is.
Tacony figured out this one thing (5s) was the key to driving quality improvements and throughput, and in the end, encourage employees to do well at their jobs.
The key thing to remember is that the bonus goals Tacony has implemented are not a stretch goal. This basically means the program is specifically designed for employees to be able to hit their goals if they’re doing the job they were hired for. The goal wasn’t to make the bonus unattainable because then, you’re only discouraging employees from even trying and creating low morale.
Choosing an Employee Incentive Program That Will Work For You
After talking and learning with Nick about the manufacturing incentive programs at Tacony, we realized that while Tacony is an example of a successful incentive program, it’s not one size fits all. The things that they measure and what matters to the company is likely going to be different than what you measure at your company.
And, that’s ok.
There may be some overlap, but you have to figure out what’s important to you and what’s going to drive the goals that you’re trying to achieve within your organization. Then, build an incentive program around those goals.
That’s not to say that you can’t take guidance or examples from Nick’s incentive program but take it and apply it to your company. What is going to work to help you achieve the goals you’ve set?
Think about this as you build out your own incentive program.