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Remanufacturing & a Bonus Incentive Plan

8 May, 2008 By: Pat Evans imageSource

Remanufacturing & a Bonus Incentive Plan

When asked, “What pay plan is the most efficient for a remanufacturing
department?” it all depends on the person answering. In my opinion, most
companies choose to pay salaries and may add a per piece bonus for above average
production. I believe this form of pay plan is counterproductive if the desired
outcome is maximizing output while retaining workers and increasing quality.

A good alternative plan to consider would be one that offers a more complete
solution, one which includes salary, team bonus and a unique quality control
double check by the service department. This scenario takes advantage of peer
pressure by only allowing a bonus if the “team” achieves its target. For
example, Efficiency Plus is one company who implements this type of program,
among a few others. Their particular plan offers an exceptional twist on the
quality control issue. Normally, quality control is facilitated by a full time
person who thoroughly checks each machine before it is allowed to leave the
building. My suggestion is to have a meeting with your service department and
allow them to vote on a unique bonus incentive plan first.

Your firm does not need to hire a separate quality control person but you
must double check each machine. The conundrum is solved by allowing the service
department to visit the remanufacturing facility after 5 PM and on weekends, so
they have access to the machines which they will be quality controlling. The
service department is the team you want to check each machine. Why? After
remanufacturing releases a machine, the service department must install it. They
are the ones who get stuck with the poor quality, not the customer. Why? Your
firm offers a 90 day warranty on each piece of equipment so the service
department is making all the fixes on the fly with the customer breathing down
their necks.

Why not offer the service department a team bonus to be split evenly among
its group each quarter? Where is the bonus money going to come from? The money
would come from efficiencies your firm would establish immediately by cutting
the number of service calls during the 90 day warranty period on each machine.
You also save a QC manager’s salary.

Case in Fact

Let me give you an example by telling you of my own story of how this type
of plan was created.

Basically, EVCOR was a large independent competitor to Pitney Bowes in the
mailing and shipping systems industry. Our remanufacturing department in Chicago
had grown to ten employees and we were noticing quality problems during our
warranty periods. We analyzed the numbers and determined that the traditional
pay plan based on paying a bonus per machine was actually causing a culture
whereby workers rushed through the process. Our quality control person was a
manager who headed the department but we discovered he had become too close of a
friend with his workers and was lax in his oversight.

We decided to totally scrap the existing salary/bonus per piece QC manager
framework, & attempt a more revolutionary entrepreneurial team based plan. I
called a meeting and began by announcing that we were going to shut down the
remanufacturing department. I thanked everyone for their past efforts and then
announced that we would reopen the facility and pay workers a lower salary plus
a bonus going into a pot which would be distributed to the team equally. Four
people walked out of the meeting immediately. Six remained, and I explained that
we would not have a traditional quality control manager anymore. That position
would be filled by one of ten service technicians who would rotate every three
days so that every service person would have a shot at“QC-ing” the machines.

Service Staff Included

The service people jumped at the chance to run quality control when I
explained I would pay a team bonus to them based on the savings we captured in
reduced labor costs, travel and  parts cost during the 90 day warranty period.
Each service person and every remanufacturing employee was given unbridled
access to  the remanufacturing department. They could work at nights or on
weekends, so flex time became the norm. They loved it!

Five remanufacturing people ended up staying, and this team produced 33% more
volume than the ten people on the previous plan. Since their salaries were based
on a forty-hour week they were putting in additional hours to attain the bonus

Every machine was virtually problem free because the service people wanted
their bonus money which was based on less service calls in the field during the
first 90 days. The service people were not paid additional salary so why did
they want to be an efficient inspection team? If they reduced service calls, the
company made more profit and the firm agreed to split that new found money with
them. They flagged every problem they could think of.

Every person was transformed into an entrepreneur - with money at stake and
now making more than before. Another perk was that it became a really cool
environment to work in, and everyone in the firm noticed and appreciated that
momentous difference.

Patrick Evans is the author of the amazon.com Bestseller, SalesBURST!!, past
national spokesperson for NOMDA/BTA, and founder of EVCOR, which achieved 1019%
growth and eventually was sold for $60 million.  55% of SalesBURST!! net profits
are being donated to help fight Spina Bifida.

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