Without an incentive that clearly linked blue-collared employees' productivity to incentive payouts, EPCOS set out to develop a new productivity incentive scheme. Here's the story of how that led to an average monthly output per worker of 7.52%.Based in an electronic manufacturing context, the majority of the workforce at EPCOS, a TDK Group company, consists of blue-collared employees engaged in production work.
Concurrently, productivity is a rudimentary goal; particularly the productivity of our blue-collar employees contributes to our bottom line significantly. These employees largely work in teams and hence team synergy and dynamism are crucial factors contributing to the productivity goal.
Without an incentive that clearly catered to these characteristics, it was difficult to link the employees’ productivity to incentive payouts; hence there was a need for an incentive that clearly rewarded employees’ productivity.
At the same time the direction from the government to share productivity gains in a sustainable manner and uplift the wages of the rank and file workforce paralleled with the need for an effective reward system. These fueled the development of the productivity incentive (PI) scheme.
How did the PI scheme work?This incentive was designed to reward employees who are able to meet or raise the overall production output of the factory. Employees are compensated on a regular basis, as regular assessments and rewards will encourage employees to make quick improvements or adjustments.
The payout is computed quarterly; to determine quantum of payout, a weight of 30% is placed on “individual contribution” and the remaining 70% on “team performance”. Employees who fulfill a targeted team output level and have a good individual conduct were entitled to the full payout.
Execution of the PI schemeLike all new HR policies, this new system had to be planned well, experimented with, evaluated and implemented; importantly it had to be communicated well too.
It was necessary for HR to consult related employees to ensure that the scheme is fair and transparent. The findings were submitted to the management who then went through discussions on the weightage and conditions to assess “individual contribution” and “team performance”. As a result, a structured and simple system with the decided weightage and conditions was construed.
Next, production supervisors and managers were briefed and a mass communication session was conducted to ensure proper communication to the affected employees. In addition, HR consultation hours were extended to allow employees to address their concerns.
HR then worked with the finance and operation departments to ensure incentive payouts were given out according to the conditions set out.
A major challenge with the incentive system was the free rider issue. There were instances of employees who were able to benefit from the “team performance” component, despite having poor individual conduct. To address this, superiors called down this particular group of employees to understand their situations and, if appropriate, counsel them.
Results observedThe increased frequency of payouts was well received by our blue collar employees; also there was now a clear link between employees’ individual contribution and team performance to the incentive. While slight adjustments have been made to the weightages and conditions; the structure of this new incentive scheme has been maintained.
The two-pronged emphasis placed on individual and team effort has been supported by the union as well. In recognition of the company’s efforts in sharing the productivity gains with employees and raising their wages, EPCOS was recognised with the May Day Award in 2016.
Quantitative results were also comforting; comparing the quarter-on-quarter figures of 2015 and 2016, average monthly output per worker and total output per quarter showed an increase of 7.52% and 8.36% respectively (see chart below).
EPCOS aims to consistently improve the PI scheme; there are plans to incorporate a “quality” component into the current structure. This followed from existing concerns of an overemphasis on output, at the expense of quality; employees might be tempted to compromise on product quality in order to meet current output targets.
We recognise that for the incorporation to be effective, the conditions that assess the quality of products have to be well defined; they have to be a true reflection of what constitutes as quality of EPCOS products. HR will also work closely with the departments and employees to ensure that the PI scheme continues to stay relevant and effective.