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North Central Business Journal News

(October 2001 issue)

by Sandra Kay Neal, Ph.D.

     A reader contacted me with a problem often experienced by manufacturing companies during an economic crunch time.  Due to reduced orders, this company had to lay off a number of employees.  The problem this reader was facing was that those employees who were left seemed to be producing at a lower rate, which was preventing the company from being able to effectively compete for new orders.  If this slow production continued, the company would be unable to stay in business. 

     This common problem stems for the mindset of employees that the way to make more money is to work longer.  To address this problem, the company needs for the production employees to change their mindset.  They need to think of making the company profit as the way for them to make money for themselves.

     Business owners, of course, know that the only way to make money is to make a profit.  But ordinary employees donít think that way.  They assume there is an unlimited supply of money which they can only tap if they work longer.

     To get employees to think in terms of profit, companies need to connect efficient production with employee paychecks.  Employees need to be financially rewarded for working faster while at the same time keeping quality high.

    This particular readerís company is a job shop.  That is the easiest organization type to have if one wants to get employees to connect their efficient work with profit.  With modern computer software, companies are able to track each aspect of a job.  They can produce a chart which indicates the expected cost of each job, the actual cost of producing each job, and the selling price of each job. 

     All of the production employees need to receive a bonus when jobs are actually produced at a significantly lower cost than that which was expected (assuming that the expected cost was accurate).  It is important that all production employees receive the bonus so that they will exert peer pressure on their co-workers to work at an efficient level.  This bonus should also be affected when jobs are produced in excess of expected cost, thus costing the company money instead of making it. 

     The way companies can use this tactic is to produce a monthly summary of jobs indicating which ones were done exceptionally well and which were done exceptionally poorly.  Employees would then receive a percentage of the profit as a bonus.  The bonus checks would come a month or so after the fact.  This would help employees think long-term rather than short-term.  The immediate feedback would come from a simple chart.  It would take about three months for this tactic to translate into improved efficiency, but once employees begin to think of their work in terms of company profit, they will develop more efficient techniques to do their job.

     The readerís initial reaction to this suggestion was ďI already pay my employees to do quality work.  Iím going to lose profit if I pay them a bonus.Ē  This is an understandable reaction, but it is short-sighted.  The company is already losing profit because the employees are working inefficiently in order to ensure they get their full paycheck.  The bonus system provides that the company pays a bonus only when it is making a profit.  The percentage of profit spent on the bonus system will be more than offset by the increased overall profit.

     To get employees to work efficiently (producing quality at a fast pace), employees need to change their mindset.  They need to connect their efficient performance with company profit.  They also need to connect their paychecks with the quality work of all their co-workers, and put peer pressure to a positive result. 

Sandra Kay Neal holds a Ph.D. in Industrial/Organizational Psychology and has 19 years experience helping organizations solve human resource issues.  Her company, Synergistic Organizational Solutions, specializes in aiding small businesses.  Dr. Neal can be reached at sos_hr@localaccess.com.

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