Performance Based Incentive Program

Overview

The economic recession has caused lower than typical wage increases while health costs have escalated.  Thus, it has become more difficult to provide true bottom line compensation increases to hourly associates.  Therefore, it is important to be innovative and form a customer partnership to find different ways to reward associates financially while at the same time improving customer service to KPIs.

Challenge

The challenge was to develop a performance-based incentive program that served our customer’s needs for performance to KPIs and financial management, while at the same time reward our associates financially.  Gaining customer support for this program required providing a forum to receive the “voice of the customer” on key KPIs.  In addition, it was important to provide a solid document outlining the scope of the program including metrics, calculations, monthly review/approval, and ROI.  The customer’s main focal points were that the program would be self-funded, drive the right behaviors, and be simple to administer as well as review and approve each month.

Solution

Kenco implemented a Pay-For-Performance program that focused on a key metric of Cost Per Unit (CPU) and had “deduction criteria” for performance in the areas of Safety, On-time Loading, Quality (customer returns and inventory control), and Housekeeping due to food grade warehouse requirements.

Kenco defined the CPU as follows:

Kenco selected these items because they can be controlled through a solid execution of the operating model and a focused effort towards continuous improvement initiatives.

Kenco defined the following as deduction criteria:

Main Payout Criteria - Both criteria below must be met in order for payout to occur

Performance deductions - All KPIs must be attained or reductions will occur.

Results

After several discussions with the customer working through the scope file and discussing examples of how this program would work financially, our customer approved the program and Kenco initiated it at two facilities.  From the program, we have seen a reduction in CPU vs. Budget and positive trends in performance to KPIs.  Further, if an employee does not earn the full payout amount due to low performance, the employee is able to grasp the true essence of the program – Kenco is trying to drive the right operational behaviors through a performance-based compensation program.

Learn more about Kenco’s third-party logistic services can improve your efficiency and personnel management systems.

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