Many companies implement pay-for-performance systems with the best intentions and put a great deal of time and effort into making these systems a success. There are several common mistakes that are made though, they limit the system's success and may even doom it to failure.
(1) Not Being Specific on How to Drive the Gains
Without focus, without specific action plans, your improvement efforts will fizzle and die.
Managers might try to motivate people by saying something like "If we have a five percent productivity improvement this month, then we will have a shot a bonus. We have the work, the materials, the people, so let's go make it happen!"
But exactly how are we going to drive the gains? We can't improve in general. We can only improve by making specific changes.
We've got to be specific in terms of the problems, and who is going to do what, by when to fix them.
For example, a manager might show the efficiencies in an area and discuss how we need to improve them. They ask, "What should we do to improve these numbers?" But they don't breakdown the gap between where they are and where they need to be.
Let's say, (for example) that we have 65% efficiency, which means we have 16 hours of lost time. Three hours might come from set-ups taking longer than planned. So what specifically are we going to do to reduce set-up time? Who is going to do what, by when? How will we check to see that the fix(s) worked?
Wimpy analysis & plan gives wimpy results And where does the other time go? What should we do to find out where the time is going? How do we divide up the time once we get data to answer this question and put action plans in place to address these issues? How are we going to follow up and see if the fixes worked?
We have to define what "good" looks like. Then aggressively go after achieving it. If we're not specific about where we want to be, we can't aggressively attack the gap between here and there.
"If you don't know where you're going, you'll end up somewhere else." ~ Yogi Berra
(2) Bonuses Don't Track with Profits
THE MOST IMPORTANT ISSUE in designing a Gainsharing Formula is that profits track with bonuses. The Gainsharing results should mirror and predict financial performance.
That is, if we are not "in the hunt" for a bonus, based on the Gainsharing information, we probably will not have the financial results we want either.
It's essential for Gainsharing to be self-funding, but also for the Gainsharing information to have the appropriate urgency. If we're not on track to get a bonus, it's not an issue of "well, we'll see how things turn out in the next Gainsharing period."
Gainsharing results are like the information from the instruments in an airplane. If you are losing altitude, that has it's own urgency!
Similarly, the Gainsharing results tell us how we are doing operationally and financially. They track with results that are imperative beyond Gainsharing.
(3) Time Frame is Too Long
Psychology has proven that the closer the link between an action and a reward, the greater the influence on future behavior. This is a consistent, predictable "law" of nature, like the "law" of gravity. If a reward is delayed, the impact is diminished or lost.
More than 90% of Gainsharing Systems are set up on monthly periods.
Quarterly Gainsharing periods stretch the link between performance and rewards, and make it much more difficult to maintain positive momentum.
It's not that quarterly periods can't work. They just make things more difficult, reduce motivation, and the likelihood of success.
Usually, the desire to have a longer Gainsharing period comes from the fear that the Gainsharing performance (or bonuses) don't track with profits. So if that part of the formula design is handled correctly, the need for longer Gainsharing periods goes away.
Author Resource:-
Charles DeBettignies, Ph.D. is President of Gainsharing Inc. 317-877-0375. To learn more about Gainsharing, see our free videos at http://www.fixit.gainsharing.com
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