• Roy Strauss

Supply Chain Profitability – Incentive Systems – Can Make or Break Your Company

A properly designed and implemented employee incentive system is an excellent tool for optimizing employee productivity, improving facility throughput, and reducing staffing costs, but if done improperly can disrupt one’s business in a major way and have a negative impact on the business for a very long time.


The incentive system is an effective tool to measure, control, and monitor employee productivity. Keys to success include proper communication, planning and bench marking; fairness; anticipating and being ready with answers to objections; flexibility; and being able to resolve any disputes that occur. It is essential that anticipated results are attainable, especially in a union environment. To properly design and implement an incentive program, one must:


1. Determine the optimal methodology for each job (order picking, restocking, etc.) and create work procedures for each based on “best practice.”


2. Train the whole staff to perform each job using the new work procedures and follow up continuously to make sure they are being practiced, retrain when necessary.


3. Time study each worker and the whole staff performing each job and establish fair benchmarks.


4. Determine performance percentages higher than each benchmark and establish a range of incentives and proper rewards for over achievement, building in penalties for errors and other unacceptable results.


5. Determine and publish the parameters, e.g., if the benchmark is picking 100 order lines per hour, provide bonuses for picking several different levels of higher performance.


6. What has just happened is that the workers are working up to their true capabilities and are happy taking home the bonus money while you are getting the production you deserve with minimal additional payroll costs.

7. You may prefer to use non-monetary rewards if other incentives are available such as time off from work (but only at times that work best for the company).


8. It is important to have a dedicated person to supervise the system, so it is managed as planned and work is distributed equally among the workers and results are tabulated fairly, some issues include:


a. Order size

b. Pick zone size

c. Travel distance

d. Equal batches per worker

e. A system to tabulate results and report them

f. Certain jobs might best work with incentives for the whole group

g. You may want to add bonuses for the whole job team if all members of the team achieve a bonus

h. A fair system to penalize for errors is required, usually reducing lines as a penalty for each error.


9. If you are using bar code, RFID, etc. the system can be used to tabulate productivity results automatically and one only has to create the reporting system.


10. Be ready to listen to complaints and adjust as required to ensure success.


11. Union environments require special care. I have observed numerous instances in which the union’s goal is to have all workers produce at the lowest worker’s level, the opposite of what an incentive system is trying to achieve. The incentive plan must therefore be perfectly clear with no ambiguities and should have a clearly stated escape clause from the incentive system for management to prevent union interference from resulting in unwanted results. It must be stated that it is starting on a trial basis and the plan will be aborted if there is any effort by the staff to lower productivity and still get their bonuses.


A properly designed and executed incentive system will create an excellent win - win situation for all. If one does not have experience with incentive planning, hiring a professional company may help ensure success, the long-term profits will justify the cost.