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SUCCESS WITH EMPLOYEE INCENTIVE PROGRAMS

By JOHN C. PHILLIPS, City Manager, and BOB HAWES, Public Works Director, City of Rock Island

One of the primary goals of the City of Rock Island is to provide high quality municipal services cost-effectively. Since municipal services are typically labor intensive, a productive workforce is key to success. In the Public Works Department, the City has implemented several direct incentive programs that are producing increased worker productivity.

For many years, the City has had a system of annual performance review for all employees. A merit-based pay system is also available to provide the opportunity to reward high performing workers with pay increases. While both are important, they also have certain weaknesses.

Employee evaluations typically require performance to a minimum standard. Only repeated failure to perform will result in disciplinary action. In addition, in work operations that involve several employees working together, it is very difficult to identify the employee who may be the cause of poor performance by the group.

On the positive side, merit increases provide a monetary reward for outstanding performance. However, once a merit increase has been awarded, it remains on the base wage no matter what the level of performance might be in the future. Consequently, managers are reluctant to grant merit raises to anyone except employees who have demonstrated long-term, outstanding performance.

The desire to avoid discipline and the prospect of receiving a pay increase provide enough motivation for most workers to meet the minimum productivity standards. However, the city concluded that it was offering little incentive to workers to continually go beyond minimum performance. The City management staff believed that there was significant opportunity for additional productivity improvements in several Public Works operations. This conclusion led to the introduction of several incentive programs.

Two of the programs allow refuse collectors and water meter readers to earn additional paid leave. Auto mechanics and street maintenance workers in certain street maintenance operations can earn cash bonuses. These operations now all exceed minimum productivity standards.

A successful incentive program must be designed to meet two important criteria:

1. The productivity standards and bonus amounts must be fair.

The taxpayers expect a "fair days work" from the workers supported by their tax dollars. The incentive program should only pay bonuses for productivity beyond the minimum threshold. In some cases, such as automotive repair, industry standards can be used. In other cases, in-house costs can be compared to the costs of contracted services. A third approach is to create the standards based on past in-house performance. This method is more easily challenged since it is difficult to know whether past performance really represented a "fair days work."

The standards and bonus system needs to be perceived as fair to the employees as well. Unrealistically high standards that offer little hope for bonuses will undermine the system. Good communication of the system with employees will also make sure they understand how they can benefit from it.

2. Quality control must be maintained.

It is important that the emphasis on increased quantity does not lead to work of poor quality. This can be handled by setting minimum quality standards and including the cost of repairing defective work in the overall program costs. Workers soon realize that it is more cost effective to plan their work carefully and complete it correctly the first time.

To illustrate an example of how this has been implemented, the cash incentive program for the annual slurry sealing program will be used as an example. Slurry sealing is a maintenance procedure for asphalt streets which involves the application of a thin layer of a mixture of emulsufied asphalt, fine aggregate, and cement. The procedure is designed to rejuvenate the old asphalt surface.

July 1994 / Illinois Municipal Review / Page 21


The operation involves a crew of four to five employees using specialized tools and equipment.

The annual slurry sealing program (150,000 square yards) is too large to be accomplished exclusively with City forces. A private contractor completes 60,000 square yards. The private contract is awarded on a competitive basis and the contract price becomes the basis for the incentive program. If the total in-house cost per square yard of slurry sealing is less than the total contract cost per square yard, the in-house crew is awarded a cash bonus equal to one-half of the unit savings times the number of square yards they completed. The bonus is prorated among the crew members according to the number of hours they worked on the operation. The total bonus is limited to one dollar ($1.00) per hour worked. The following information summarizes the 1993 calculations:

A. In-house costs including labor, direct and indirect overhead, equipment, and materials
$0.779 per square yard

B. Contract costs including contractor payments, contract administration, and construction inspection

$0.841 per square yard

C. Net unit savings generated by in-house crew (B-A)

$0.062 per square yard

D. Quantity completed by in-house crew

93,113 square yards

E. Net savings generated by in-house crew (CxD)

$5,773.01

F. Potential employee bonus (50%xD)

$2,886.50

G. Man-hours devoted to program

768.7

H. Potential bonus per man-hour (F/G)

$3.76

Workers were actually paid bonuses of $1.00 per man-hour because of the incentive cap. The largest individual bonus was about $160.00. The bonus cap will be evaluated before the start of the 1994 operations to determine if it should be modified.

Prior to 1993, the slurry seal crew struggled to match the costs of the private contractor. The incentive program provided a valuable method to motivate workers. Fundamental changes in attitudes were observed. For example, during the 1993 construction season, the leader of the slurry sealing crew asked his supervisor to replace a socially popular member of the crew because his work rate was too low. In contrast to the past, the City crew encouraged the use of seasonal workers for unskilled tasks to control costs.

The City of Rock Island has enjoyed benefits of such incentive programs in concrete patching as well. As performance standards are carefully established, the City has plans to extend such programs to other Public Works operations as well.

Page 22 / Illinois Municipal Review / July 1994


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