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Incentive Compensation for Your Warehouse Team By Jason Bader, Pr in cipal Th e Distr ibution Team Jason @ Distr ibution team .com n a previous article, I discussed a disconnect between company profitability and company bonus programs. In the example, I talked about a company that had put together a great profit-sharing program with their employees.The reward came out monthly and was based on the net profitability of the branch location. The disconnect occurred when employees felt like they had no influence over the size of the bonus, or what they could do to improve the payout. Reducing mistakes, paying attention to damage and general efficiency will eventually drive improved net profit,but it is difficult for someone to take such broad practices and create a correlation between performance and improvements in a monthly bonus. In order to make such bonus programs effective, companies need to break down the expectations into very simple and measurable criteria. Several readers sent me emails appreciating the anecdotal story, but requested more specific details on how they could create programs for their warehouse team. The programs themselves aren���t very difficult to set up. I find that the greatest barrier to creating a variable compensation program for the warehouse comes from the executive level. I hear this all the time,���Why should I give them more money to do their job?��� Or,���Their incentive is to keep their job.��� These folks are clearly still deciding what to do with their eight-track tape collection. The times have changed. Naysayers must adapt to the present workforce and leave the ���lucky-to-have���a-job��� mentality behind. First,we need to start with a reasonable budget.What would motivate your team to become more diligent? Would an additional $200 per month be meaningful to one of your team members? I may be shooting a bit low here. Remember, fuel is over $3.00 per gallon in most places.The company I grew up in created pools of incentive dollars for each functional team based on the monthly net profit. The warehouse, including drivers, shared one pool. During times of affluence, typically the second and third quarters of the year, the individual payout was substantial. During the more meager times of the year, I 1 8 FEDA New s & View s the payout diminished. Since it was based on net profitability, the expenses were kept in check. The pool was distributed based on seniority and position in the team. The manager took the largest percentage and from there the distribution amounts were not very consistent. As you can see, there were a few flaws in the plan. This is the blessing of hindsight and contact with a few hundred distributors over the last 10 years.The plan was well intentioned, but it lacked a connection between effort and reward. In order to set this up properly,I suggest that monthly distributions should be an equal slice of the pie. By creating a team incentive, we can simplify our criteria for performance. I generally like to see companies use no more than five criteria to measure the team. A smaller set of criteria will allow the team to really focus their effort and it is easier to measure.When we add too many performance measures, the likelihood that they will fail on one or more of the criteria increases. In addition, if we add too many points of measure, the likelihood of management to grow weary of the program increases exponentially. The criteria can change over time to meet the challenges of the organization. Essentially, each criterion has a pass/fail grading approach. If any one of the criteria is not met, the incentive is reduced. For example, if they achieve four of the five goals, the pool is reduced to 80 percent of the payout. I have seen more ambitious managers try to weigh different criteria based on importance to the company, but frankly I see this as a waste of energy. Simplicity leads to consistency. Consistency leads to longevity. I want the program to become part of the company culture. Another key to obtaining this is to make sure the criteria are attainable. Going from an inventory accuracy of 65 percent to an accuracy rate of 93 percent in 30 days is not reasonable. Going from 65 percent to 75 percent is attainable. You want these folks to reach the goal.You want them to get the full payout. When the participants win, the company is winning big time. Let me ask you this, how many Benjamin Franklins get burned up in your warehouse due to sloppy procedures and general negligence? I think you can afford to do this. continued on page 20