PAYING FOR PERFORMANCE
One of the largest appliance manufacturers in the world has been a Kenco customer since 1979. Today, Kenco manages 5 regional distribution centers (RDCs) totaling 4.5 million square feet for this manufacturer. In 2016, the Midwest RDC was experiencing higher-than-expected turnover, exacerbated by a highly competitive labor market.
The workforce at the site had become increasingly unpredictable, due in part to market pressures. The Chicago-land labor market became increasingly competitive due to many DCs opening in the area. It was difficult to effectively manage and forecast labor from week to week, as productive output was unpredictable and resources were routinely diverted to recruit and onboard new employees. Turnover was pronounced among temporary associates; on which the site was heavily relying at the time.
In August 2016, Kenco developed a comprehensive talent retention plan to address the ongoing churn. First, a market wage survey and comparative analysis were performed to determine what adjustments were needed to ensure all associates had a market-competitive, “living” wage – with additional consideration for tenure and performance. Hourly pay for all non-exempt employees was increased as well as the shift differential was increased.
To be a true employer of choice, Kenco knew increasing wages was only part of the equation. The site took a more holistic approach to address turnover. This involved several operational and cultural changes:
- Corporate resources were leveraged to support and strengthen the site’s leadership team
- Open, transparent communication between management and hourly associates became a priority. Meetings were held more frequently and more channels (communication boards, etc.) were opened up. Supervisors and managers also spent more time on the floor interacting with associates.
- The operating schedule shifted to two, 10-hour shifts with rotating days off. This better aligned with weekly volume fluctuations; it also made schedules more flexible and attractive to associates. Weekend shifts were also removed, allowing associates to achieve a better work-life balance.
- Employees were given an attendance bonus. Each week, any hourly employee who had perfect attendance with no safety incidents received an additional $50 in the following week’s paycheck.
To improve the quality of candidates going forward, Kenco ended its previous temp-to-perm staffing approach and implemented a direct-hire approach. This meant all current temporary associates could apply for a full-time position with immediate consideration. All open positions needed to be filled quickly, so Kenco conducted a two-day special hiring event and encouraged employees to post recruiting flyers on social media or hand them out to family members, friends, and local businesses. Every time an employee successfully referred a candidate, his or her name was entered in a raffle for two tickets to an upcoming Chicago Bears game, with paid time off to attend the game.
The first and most important change was a sharp reduction in turnover. Between August 2016 and June 2017, employee turnover dropped 74%. This positively impacted the work culture in several ways. It boosted employee morale, made employees more satisfied with their job and thus more engaged. As a result, the OSHA incidence rate falling to a historic low of 1.8, with 0 lost-time incidents.
The operation itself become more efficient, as well. Fewer temporary associates were needed, and total overtime hours decreased for both temps and full-time employees:
Many of the site’s key performance metrics improved, as shown below. Notably, the site has achieved perfect on-time receiving since the changes were implemented.
This initiative demonstrated that by paying wages above the 50th percentile, combined with positive changes to the operating culture, Kenco can deliver real value to both our employees and our customers.