A Worker-Incentive Plan That Works
You could conclude that something strange, maybe even brilliant, has been going on in the giant warehouses of Ralphs Grocery Co. if you judged the employee-incentive system there by the offhand remarks of just one worker who says his job is relatively easy.
But the results of the system are equally persuasive: Productivity has jumped 40%, company profits are up significantly, absenteeism and employee turnover are negligible, grievances are rare and most warehouse workers are making well above the basic $15.54 hourly wage scales negotiated by Ralphs and Teamsters Local 630.
More amusing than the statistics, though, was a brief conversation I had the other day with Manuel Luna, 26, a relaxed-looking warehouse worker, as he clocked in his hours on a computer while talking with me and Larry Cooper, a high-ranking company vice president.
Asked how he could consistently do about 119% of the work the company and union agreed should be the average for any worker doing Luna’s job, he laughed, and, right in front of the top boss of the company’s distribution system, replied:
“Easy. I could yawn through my shift if I only did 100% of what is expected of me.”
He was quite comfortable in front of Cooper, a sign of an harmonious workplace. It would have been a remarkable response even if only one worker felt that it was easy to keep up with the minimum pace and not too hard to earn 119% of the base wage.
The standard was set jointly by the company and union at a level they felt could be met easily by young, strong workers and that older, less vigorous ones could maintain without undue strain.
But some employers hearing Luna would figure that the production standard was a horrible mistake and fight, if necessary, to increase it.
Cooper, though, smiled smugly, knowing that the standard helps both workers like Luna and the company.
Luna’s work speed is somewhat faster than the average of 114% of the standard, which means many of the employees are making 120% or more, and a few superstars are hitting 160%.
The jobs are not easy. A worker must move steadily and rapidly to load often heavy boxes of groceries from warehouse shelves onto carts to be rolled to a truck for delivery to retail markets.
But their incentive rewards are clearly worth the effort. The workers must divide their incentive gains between cash and time off, which gives them thousands of dollars a year more income and several weeks of vacation time in addition to their regular three weeks a year.
The reason they must take at least part of their incentive in time off is to avoid injuring themselves in a race for large paychecks.
The Teamsters first began trying out the incentive system in 1982, after the idea was developed by the local union’s secretary-treasurer Jerry Vercruse and Robert Walz, then a vice president of Certified Grocers Ltd.
Company and union officials also agreed that as long as an entire crew’s average was 100%, workers who were not able to keep up the pace for any reason could continue to earn the basic wage as long as they made at least 90% of the standard.
Ralphs says only new hires fall below the 90% mark. So, if the incentive plan at Ralphs is so brilliant, why hasn’t it been spreading rapidly across the country? Less than 15% of grocery warehouses use it, and at least one, Vons, is discarding it.
Part of the answer is that some managers are suspicious of surprisingly high rewards to rank and file workers, even if the company also gains dramatic productivity increases.
Also, a good incentive plan requires constant attention. Managers must resist the strong temptation to try to speed up standard work pace unless automation or new mechanical advances significantly and obviously reduce the time it takes to do the job. And changes must be made only with the agreement of the workers.
Some workers try to take advantage of the system by finding ways to clock in more production than they actually achieve. That spurs more management discipline against workers accused of cheating, and that can seriously disrupt the system.
To avoid these real problems, mutual trust must develop, with the unions and companies cooperating to make the system work. They apparently have that trust at Ralphs.
Executives at Vons did not respond to questions asking why they are killing what seems to be a profitable way to increase productivity, profits and worker satisfaction.
Paul Kenney, the union business agent, says that about a year ago, Vons’ management started changing work standards unilaterally, infuriating workers whose incentives were reduced. Some workers retaliated by slowing, and company officials finally decided to drop the system.
Others knowledgeable about the Vons decision say it stems from the massive management shifts resulting from Vons’ takeover of much of the operations of Safeway, which had been gobbled up by the giant investment firm Kohlberg Kravis Roberts.
“Those money people at the top didn’t understand the inventive system, and when they heard of workers getting 160% and more of the base wage, they wanted to put a stop to the whole thing,” said one well-informed source who didn’t want to be identified.
But the basic concept sounds like a good way to increase productivity, not only in warehouses but in any facility where output can be measured.
Tight rules must be developed and included in formal union contracts, not as a side agreement, which it is now. And workers must be protected from abuse by management and even from their own willingness to work so fast that they damage their health to earn extra money.
