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Communicating Group Incentives

Cathy Ivancic

November 1996

"I don't do my job to get the bonus. I'm from the old school where you are expected to do a good job. The bonus just helps me know how well we are doing," says Brian Cash, a maintenance leader at Bimba Manufacturing, an employee ownership company in Monee, Illinois, that uses a bonus plan. Similarly, his co-worker Joyce Greep explains that she will gladly accept higher performance goals "because I'm proud of my company and want to serve customers." For Greep and Cash, the incentive is an indicator of how their company is doing rather than an exercise in satisfying company leaders. This buy-in by employees--achieved more by implementation than by design--is an essential ingredient in the success of a group incentive.

The Bimba Incentive Plan

The objectives of the Bimba incentive plan are to broaden the understanding of customer requirements, share rewards, and build a sense of purpose. "We have a written vision statement, but the incentives reinforce our purpose and keep the focus," notes Dennis Damrow, vice president of operations at the employee-owned manufacturer of pneumatic actuators.

Group incentives for the 450 employee owners at Bimba Manufacturing come in several forms. The company calculates a quarterly bonus based on exceeding performance targets. When targets are exceeded, everyone in the company can earn up to 10% of compensation in a bonus. Sixty percent of that amount is contingent on company-wide profitability targets. The other 40% is contingent on reaching specific workgroup targets. The workgroup targets focus on the specific function of a department. For example, a department may have local targets related to customer service, work order completion, and safety. In order for someone in that department to get their full bonus, the company-wide target and the local targets must be met.

Bonus payments have been generated often, but they are not guaranteed. For example, two years ago the program paid in only two of the four quarters. Last year there were payments every quarter.

In addition to the bonus described above, Bimba has a separate customer service bonus that can be paid quarterly. This bonus-a flat $250 per person-is contingent on meeting targets on product request dates and promise dates. The company recently initiated a new way of tracking this bonus. Rather than paying $250 when the summarized quarterly targets are met, the targets are tracked weekly. When each weekly target is met, $20 is added to that quarter's customer service bonus.

The Performance Payoff

Company leaders and employees agree that the incentives have contributed to improved performance. Bimba has significantly outpaced the industry in volume growth. In addition, the company received Class A MRP-II certification in January of this year. The bonus program's most significant effect has been to focus a greater number of people on customer requirements. Customer service targets have been increased in each of the last four years, with current targets at 97% of promise dates and 90% of request dates.

Common and Uncommon Aspects of the Plan

Incentives are communicated in a variety of ways at Bimba Manufacturing. The company makes use of conventional communication methods, including annual meetings, newsletters, and posting of results. Departments select their own methods to share results, including postings, meetings, and one-on-one conversations.

Bimba also makes use of some uncommon approaches. The incentives are included in the company's week-long orientation for new employees. It is one of the 16 different sessions provided. New employees also learn about benefits, the company's markets, diversity, problem-solving, and the company's ESOP. The message for new employees is clear: these incentives are part of this company's overall business strategy, and it is very important that everyone in the company understand that strategy.

The ongoing tracking and communication of the customer service measure takes place weekly. Each Monday a cross-functional group of managers and schedulers meets to review the week's performance. The meeting, run by the sales and marketing department, provides current information to the rest of the company about performance on customer service targets. The information in the Monday meeting is brought back to each workgroup. Weekly tracking reveals the effect that events and different departments have on the numbers. The way local targets are set is also part of the communication process.

Setting local targets is an exercise in helping people connect their department to the company's objectives. Leaders in each department are asked to identify the things they do in their area that help reach the company-wide goals. They make a proposal, and the departmental activities are turned into targets that quantify their connection, with guidance from top-level leaders. The process of talking about and setting targets is an education for everyone involved on how all the pieces fit together to meet company goals. "That (the communication about goals) is the real benefit," according to Damrow.

An Evolving Process

On the surface, the Bimba Manufacturing incentives seem complex and difficult to understand. However, in the context of how the incentive evolved, it becomes clear that current incentives are the result of a multi-year educational process. Today's bonuses came about as company leaders changed the incentive each year to fit with current objectives and the growing sophistication of employee owners.

Each modification helped people to learn about new elements of their business. When the company first established the ESOP, discretionary bonuses were paid. Looking for a better link to performance, the quarterly incentive was established in 1989. The first incentive bonus was simple; it was paid if the company as a whole exceeded profitability targets. A few years later, the customer service measures were included as part of the company-wide goals. In the following year, the customer service incentive was broken out as a separate bonus paid equally to each person, and the other bonus remained a percentage of pay. In recent years, the local incentives were added as part of the criteria for the bonus based on compensation.

In this evolutionary context, Bimba's local incentives are reflections of the overall company goals rather than distinct departmental rewards. The two-way conversation about how each work area contributes to the company's goals connects local incentives to the common goals. "It works like a relay team," says Greep, "If we find that they [workers in another department] aren't making their bonus, we'll figure out how we can pass the baton better to help them get it."

The range of incentives and the changing targets at Bimba Manufacturing help people learn more about their company and what helps improve its performance. The two-way communication about targets and the frequency of that communication have created incentives that are tools for continuous improvement rather than carrots for behavior.

Cathy Ivancic is a consultant and co-owner at Workplace Development Inc. Since 1985, she has helped more than 100 ESOP companies enhance ESOP communications and develop an ownership culture. She is active in national organizations that promote shared ownership and has served on the NCEO's board of directors and as an officer of the Ohio chapter of the ESOP Association.She can be reached at civancic@workplacedevelopment.com.

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