Expecting reliability but rewarding failure

Drew Troyer, Noria Corporation
Tags: maintenance and reliability

Early in my career – as a young guy fresh out of graduate school – I was giving a seminar to plant mechanics on the virtues of proactive maintenance to extend machine life and reduce the rate of machine failure. Boy, was I getting a cold response. At a modest 150 pounds at the time, I thought I’d have to rely on my speed to get out of there alive. Fortunately, I made it out in one piece and learned a valuable lesson that day.

During a break, a compassionate master mechanic pulled me aside and set me straight. “Drew, there is nothing technically wrong with your message,” he said. “But you’re talking about taking away their hunting cabins, vacations and boats.” Naively, I replied, “I never said anything about boats or hunting. I was talking about saving the plant money with proactive maintenance.”

The master mechanic reminded me of something I already knew, but I hadn’t put two and two together. The mechanics derived around 30 percent of their income (the money used to pay for boats, cabins and vacations) from overtime. The best assurance of overtime is, you got it, our old friend machine failure – particularly that insidious form that comes without warning at midnight on the weekend (hello, double-time pay). As the plant’s revenue and profit go down due to failure, the mechanic’s income goes up.

Moreover, when something does fail, and the mechanic or electrician repairs it (on overtime pay) and gets the plant up and running, what happens when the plant manager and/or production manager run into the person or team that performed the emergency repairs? Normally, the crafts personnel get pats on the back and sincere thanks for getting the plant up and running. Seems logical, right? But we’ve just compounded the problem. We formally rewarded the employee(s) with overtime pay and stacked informal rewards on top of it.

The crafts folks are innocent in this deal. Managers can talk all day about the organization’s desire to be proactive, improve reliability, reduce costs, etc. But people don’t pay attention to what you say; they pay attention to what you do. If you talk “reliability” but pay and recognize for failure, guess what you’ll get? What gets rewarded gets done, period.

When I left the plant that day, I did plenty of thinking about reward structures and expectations. The ink was dry on my MBA, minted just a few years before I did the training program, but the concepts were still pretty fresh in my mind. I recalled studying rewards and motivational theory in a required organizational behavior class. I pulled out the old text and, sure enough, it confirmed my notion that you better align your reward system with your mission and goals or you’ll have trouble achieving them. I was interested enough to delve into the subject a bit further to gain an understanding about what motivates people. When I was in school, it was just theory. Now in the context of my job, the theories had a much deeper meaning.

Basics of Human Motivation
I can summarize the basis of motivation by explaining a few key concepts. Understanding this is important for you to formulate a rewards strategy that motivates your team toward a common reliability goal.

It turns out that the classical belief that a job either is satisfying or dissatisfying isn’t clear enough to truly describe human motivation. A researcher on motivation named Frederick Herzberg explains that people are affected by what he calls extrinsic rewards (money, benefits, etc.) and intrinsic rewards (recognition, sense of contribution, personal growth, etc.). These rewards are affected in different ways.

Herzberg calls the extrinsic reward dissatisfiers. He says the absence of sufficient money, benefits, etc., will surely cause dissatisfaction, but the extrinsic reward can’t, by itself, yield true satisfaction. He claims that the intrinsic rewards, which he calls satisfiers, are the ones that lead to true job satisfaction.

So, the bottom line is you’ve got to have the money in place, but recognition, sense of contributing to the organization or society, personal growth, etc., are the rewards that really make us happy. Herzberg calls it the “Two Factor” theory of motivation, and its validity has been widely verified through numerous studies.

One other important concept in human motivation is equity theory. This one can sneak up on you.

It turns out that even when you make pay information secret, everyone seems to figure out what everyone else makes. People are funny. They compare the ratio of their perceived net contribution to the organization relative to their peers. If they believe they’re getting a raw deal, they’ll either ask for more rewards or reduce the level of their effort to match their perceived value contribution. Perceived is an important part of this theory. It, like Herzberg’s theory, has been extensively researched and proved valid. So, when we pay OT, we’re providing extrinsic rewards. And, when we seek out and thank the crafts people for getting the plant back on line, we’re providing intrinsic rewards. Both of these are tied to failure. The crafts feel satisfied, but the reliability manager, production manager and plant manager sure don’t – particularly if the failures are costly in terms of parts, labor, downtime, non-delivery penalties, etc.

How do we adjust the reward structure to reflect our mission and goals without getting sideways on the equity theory side?

Reliability-centered Rewards
First, the literature is full of advice on providing “soft” rewards in the form of recognition, awards, special parking places, employee-of-the-month designation, etc. It’s all great. I think these kinds of intrinsic rewards help the employee achieve job satisfaction. But these externally generated intrinsic rewards must be coupled with a true inner belief that he or she is contributing and growing to achieve true satisfaction. People are all different. Some prefer the internal sense of self-worth, while others prefer outside recognition.

To you smart managers thinking, “Hey, we can cut salaries 25 percent, give the team a plaque now and again, and they’ll be happy,” I say hold on. That dog won’t hunt. Remember Herzberg. Money is a dissatisfier if it’s not right. All the touchy-feely stuff won’t do any good.

The bottom line is the bottom line. You are currently paying an amount of money that’s based on market value. You pay less than market value and your best people will leave you. There will be plenty of jobs for crafts folks in the next 10 or 15 years. Hang on to your good ones. The question is, do you want to: 1) pay X and have poor reliability; 2) pay X and have good reliability; or, 3) turn a blind eye and continue to beat your head against the wall trying to improve reliability with a team that’s not motivated to do so. Since reliability reduces parts and materials costs, increases production, and cuts penalties and risk-based costs, I’ll take No. 2 every time. Once you accept the fact that pay is what it is, it’s just a matter of figuring what rewards structure works best for your organization and what metrics to employ.

I’d like to offer you a cookie-cutter answer, but as is usually the case, it depends. It depends upon the makeup of your team, your relationship with the labor union (if there is one), how good a handle you have on the game plan for improving whatever metric that will affect the team’s performance-based pay, management style, etc.

Here is a set of extrinsic reward schemes that researchers have found improves the success rate when deploying Total Quality Management-based systems (this is similar and highly related to implementing reliability in a manufacturing or process plant):

  • Profit sharing: The company distributes a portion of the profits to the team.

  • Gain-sharing: The benefits of productivity improvements (e.g. OEE, reliability) are shared with the employees in the form of a bonus.

  • Employment security: The company has a formal policy protecting the employee against layoffs.

  • Comp time: Employees receive extra time off in lieu of extra pay for working overtime.

  • Individual-based performance system: Pay is based upon achievement of individual goals agreed upon in advance

  • Quantity-based performance appraisals: Performance appraisals are based on quantifiable achievements.

While the relationship wasn’t as strong as for the extrinsic rewards, researchers found that intrinsic rewards did positively affect the success rate when implementing TQM-based systems. These include:

  • Non-monetary forms of recognition (plaques, certificates, letters, etc.).

  • Celebrations (parties, lunches, dinners, etc.) to acknowledge the achievement of goals.

  • Regular expressions of appreciation (pats on the back), but these must be aligned with the desired behavior.

  • 360-degree performance appraisals (employee is evaluated by co-workers and stakeholders).

  • Suggestion system (allows the employees’ ideas to be heard); you must listen and act on the suggestions for this to work.

  • Development-based performance appraisals (evaluate an employee on personal-development goals).

  • Goal-based promotions (tying promotions to the employee’s role in helping the organization hit reliability goals).

This can be set up an almost infinite number of ways. A combination of extrinsic and intrinsic rewards is your best bet. I’d also suggest a combination of individual and team rewards to foster individual effort and teamwork. Regardless of the reward structure, you must align the rewards program with your goals. One way to set up the remuneration structure is to pay approximately the same amount as normal OT if reliability objectives are met, so the team can effectively make the same money for a 40-hour work week as they make on a 50-hour work week. The amount of overtime can actually be incorporated into the reliability equation.

How it looks will depend upon the particulars of your company and its relationship with workers. Again, the key is to reward the behaviors that you seek and to make sure that the metrics are within the control of the team that will receive them. There is nothing worse as an individual than to have your reward system tied to variables that fall outside of your control. In some instances, the reward should be tied to measurable activities that you know positively affect reliability and definitely fall within the control of the individual, like PM compliance, overall plant vibration levels, overall oil contamination levels, percent of machines conforming to balance or alignment goals, percent of machines within temperature limits, etc.

The higher-level metrics, like return on net assets, overall equipment effectiveness, etc., are good for managers, but they are usually beyond the direct control of the crafts because their outcome can be influenced by many variables. The goal to which the rewards are tied must be reasonably achievable.

Conclusion
Kurt Vonnegut said, “If only it weren’t for the people . . . always getting tangled up with the machinery. If it weren’t for them, earth would be an engineer’s paradise.”

The bottom line is that it always comes down to people, the culture and the degree to which the culture and management system motivates the team to achieve the organization’s goals. If you are a manager, their performance is a direct reflection of your vision and leadership. Rewarding failure while expecting reliability is probably not the reflection you want to see.

References

Troyer, D. (2001) “How Rewarding Is Your Lubrication Program? Machinery Lubrication, Sept/Oct.

Allen, R. and Kilmann, R. (2001) “The Role of the Reward System for a Total Quality Management-Based System,” The Journal of Organizational Change, Vol. 14, No. 2.


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