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Employee Productivity Improvement

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Productivity Improvement

This guide discusses employee productivity improvement. It is conceivable for you to have more employees than the competition yet your company produces less and for you to have disgruntled, low-output employees even though you pay your employees more than the competition pays theirs. Productivity surveys and case studies indicate that increased worker motivation and satisfaction can increase worker output. Progressive, innovative managers now achieve productivity gains with human resource management techniques that go beyond pay incentives.

This Guide discusses how to increase worker output by motivating with quality of work life concepts and by tailoring benefits to meet the needs of employees. Cost: enlightened human resource management probably costs no more than employee turnover (hiring and training new employees), unwarranted pay increases, and low productivity. Benefit: better productivity; loyal, efficient workers; higher quality work, and increased likelihood of staying in business.

The essence of employee motivation and effectiveness is the manner in which they are managed. A direct relationship exists between effective management (i.e., providing a work environment that simultaneously achieves company goals and employees' goals) and modern human resource management.

Your management success is judged by your skill and knowledge in recognizing and assessing issues that concern employees and by your ability to resolve these concerns with employee help and satisfaction.

  • Do your employees know how you judge and measure their performance?
  • Do you provide and encourage individual development with training and educational programs?
  • Do you trust your employees and rely upon their knowledge?
  • Do you let employees make decisions?
  • Do you have timely, accurate, open two-way communication with your employees?

If you answer no to all of these questions, you probably are an unsatisfactory human resource manager and have (or will have) employee-productivity problems.

Quality of Work Life

Getting high quality job performance from your employees depends on giving employees opportunities for their personal growth, achievement, responsibility, recognition, and reward.

Pay - money - is the primary need and reward. Once the compensation (pay and benefits) is established properly, it is necessary to use other means to further motivate and improve your work force's output. The basis of all job enhancement efforts is your recognition of employees' desire to do good work, to assume responsibility, to achieve and to succeed.

Changes to consider in creating a new quality of work life atmosphere include:

From: detailed job descriptions with specific tasks and rigid instruction for how to do the work

To: Flexible, diverse work assignment allowing self-regulation, variety and challenge;

From: Structured chain of command, managers making decisions and supervisors bossing

To: Worker involvement in planning, decision making and operating procedure;

From: Hierarchical channels of communications;

To: Direct, fast two-way communication

From: Limited on-the-job instruction

To: Advanced training, educational and career development opportunities;

From: Job specialization in one task

To: Leeway allowed for every employee to complete many task by crossing lines of specialization;

From: Obscure, irregular job evaluations

To: Objective job performance standards with measures fairly administered;

From: Careless or neglected safety and health conditions;

To: Clean, safe and healthful working conditions.

The quality of work life technique is to involve your employees by sharing the management responsibility and authority with them - the workers who do the job.

Flexible Benefits

Compensation costs - salaries, wages, and benefits - are a large and increasing part of operating expenses; yet, productivity can decline among workers who get more pay and benefits. Workers are productive with fair pay tied to performance. Ironically, not all employee motivation and productivity problems are solved by pay raises and promotions. It isn't necessary to make pay adjustments beyond a fair industry-wide (market place) level.

The tailoring of benefits to satisfy specific needs is part of the quality of work life technique. It is a way to maximize the amount of labor costs going to the employee and to maximize your return on these costs without increasing across-the-board expenses. By making a special effort to satisfy individual employee needs, you reinforce the motivational value of the flexible benefit.

For example, you can reduce unwanted employee turnover and related recruiting, hiring, and training costs by shifting these costs from developing new employees to keeping experienced employees. You can motivate an employee to increase productivity by providing opportunities for career development (training or schooling).

At the same time you have improved the worker's skills and shown recognition of the worker's value and aspiration. A tailored benefit can be worth as much to an employee as a pay raise. Such a benefit is practical because (1) it probably costs no more than worker unrest and diminished productivity and (2) it is probably less costly than a comparable pay increase.

Age, education, job experience, job fulfillment, marital status, and family size are considerations that determine the utility and attractiveness of a benefit. Different benefits appeal to different people. Everyone's needs are different. A younger employee might be motivated by having use of a company car. An older person may want more status like a title or a professional association membership. The list of possible employees benefits and their applications is nearly unlimited. To get the maximum value, you've got to tailor the benefit to the job and your business requirements and financial capability.

Think how you could use:

  • pre-tax thrift-savings programs
  • recreational programs
  • discounts
  • scholarships
  • personal financial planning
  • loans
  • tuition refund
  • profit sharing
  • company car
  • personal expense account
  • parking privileges
  • legal assistance
  • extra vacation
  • child care
  • job titles
  • professional or trade association memberships
  • travel

A flexible benefit is two-fold. Not only does the benefit satisfy some employee's specific need but it also communicates your concern to meet these needs, creating the kind of work environment that contributes to increased employee productivity.

You must recognize the productivity problem and the needs of your employees so that you can tailor the benefit to meet the situation. Beyond pay and statutory benefits that provide the most value to your business.

Salary Compression

Ralph is an experienced employee. You think he is good but he is complaining that his salary is not enough. You're puzzled and angry because you gave him a raise and a cost of living increase a month ago and the salary is competitive. Ralph seems ungrateful and his output is down. After talking with Ralph, you learn that he feels he should be paid more than Ed, a new employee. You hired Ralph two years ago at $62,000, a year. He's now making $68,500. But Ed, was just hired at $56,000. Ralph thinks he should have more to show for his two years experience compared to Ed, who is younger with no experience.

You realize that starting salaries have gone up at a faster rate than regular pay increases. Attracting educated employees was competitive. Result: the difference in pay got smaller between experienced and less experienced employees. This is called salary compression.

Your experienced employees don't like it. They will react negatively, slowing down and looking for another job, another promotion, or another raise. In this situation you could recognize Ralph's experience, tenure and value with flexible benefits.

Using quality of work life techniques to motivate and to reward employees can result in productivity gains. The ultimate goal, of course, is to achieve the maximum result from the least effort, the greatest profit for the least cost, the largest output from the smallest input. To work toward this goal you've got to know how productive your company is. Thus, you must define and measure productivity for comparison from time to time.

Productivity Measurement

Definitions of and ways to measure productivity vary. A basic way to express productivity is productivity equals output divided by input i.e., productivity is the ratio of output to input, or simply output over input. The quantity of output is measured in units produced, dollars of sales, or any term that suits your need. The quality of output is measured by workmanship, adherence to standard, and absence of complaints. Input is measured by labor costs, hours worked, and number of employees. To be useful, measures must be as simple and as consistent as possible.

A simple and understandable method of productivity measurement is to divide total sales (output in dollars) by total compensation costs (input). Increases and prices are accounted for automatically; however, you must adjust for inflation. To compare productivity measures in different years, pick a base year and give it an index of 100. Then figure your ratio of compensation to sales and with that number calculate the index and compare the fluctuation of the indexes.

Suppose as follows:

Year / xxx1 / xxx2 / xxx3

Total Sales / $500,000 / $550,000 / $610,000

Compensation / $247,500 / $275,000 / $302,500

Ratio / 2.02 / 2 / 2.02

Index / 100 / 99 / 100

Compute the index by multiplying the output ratio for the given year by 100 and dividing that result by the output ratio for the base year.

xxx2 Index of Productivity =

100 x 2
__________=
2.02

200
________ = 99.00
2.02

The figures are hypothetical and are not adjusted for inflation, but they show that productivity declined in xxx2 compared to the base year xxx1 and that in xxx3 productivity returned (increased) to the level of xxx1.

But you had ten employees in xxx1 and xxx2 and eleven in xxx3. So you could also measure productivity output (sales) in terms of hours worked. Assume each employee worked a 40 hour week of 2,080 hours a year.

.......................xxx1 / xxx2 / xxx3

Total Sales / $500,000 / $550,000 / $610,000

Hours Worked / 20,800 / 20,800 / 22,880

Ratio / 24.04 / 26.44 / 26.66

Index / 100 / 109.9 / 110.9

This index shows more sales to hours worked in xxx2 over xxx1 and the same again in xxx3 over both xxx1 and xxx2. Productivity increased. How valuable was the new employee?

Using output over input, you can measure any activity and employee. A typist's productivity can be measured in terms of numbers of pages typed, a salesperson by number of customer calls or amount of sales. When deciding how and what to measure, consider what a person does, how well, how much, and how often.

The indexes measure the productivity increases and decreases that indicate changes in your company's performance. You need these measures so that you

1) can set goals and priorities,

2) know where you stand,

3) are motivated by objective reasons - by numbers, not subjective feelings, and

4) have a common basis of communication with employees, bankers and consultants.

Chancing the Change

For many, if not most, companies adoption of quality of work life and flexible benefits management techniques can dramatically change how things are done. It is difficult and risky to make these changes; however, such changes may be not only necessary but also the difference between companies that are competitive and companies that aren't. Experience shows that with proper consultation, planning, training, and implementation the innovative human resource management concept is becoming the standard for effective management.

Meir Liraz

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