Reprint from Occupational and Health & Safety Magazine–
Lemon Juice or Lemonade?
In order to justify and run a truly successful safety incentive program, you must run the numbers.
By Buck Peavey
"What do you mean, I have to figure out the cost of the lemons and paper cups before I open my lemonade stand? Geez, Dad, that's hard to do!"
My dad told me that before I could establish the selling price at my lemonade stand, I had to figure in the price of the lemons, cups and sugar! I tried to tell him my goal was simply to quench thirst and make people happy. My wise father explained I would lose a lot of money unless I priced my lemonade for a profit. It is no coincidence that we hear a similar message from company owners, CEOs, CFOs, plant managers, HR managers, and safety managers, too!
In the safety incentive business, my company has worked with thousands of people who have learned firsthand that in order to justify and run a truly successful safety incentive program, you must run the numbers. The message does not change because the concept is tried and true.
Let's face it: The benefits of higher morale, teamwork, safety awareness, and employee recognition, like quenching thirst, are sometimes not enough to convince upper management that they cannot afford not to run a safety incentive program. This is especially true in a slow economy. Many times, companies cut recognition and safety incentive programs at the first blush of revenue slow down. Why? Because on the surface it seems frivolous to reward employees to do what you hired them to do. The minimal time it would take to crunch a few numbers would quickly show the investment in an incentive program is one of the better investments during "belt-tightening" times. The evidence tells us this is truly a big mistake and a disservice to the bottom line.
Some companies simply run an incentive program not knowing the bottom-line return on investment. When management decides to cut the program to control company costs, it actually hurts the company in dollars and morale. With the proper structure, an incentive program usually is just what the economic doctor ordered!
First, let's quickly review the necessary components for a properly structured incentive campaign. Then, we will touch on how to dive into the numbers to ensure a return on investment.
• Use more than just a carrot. Use an entire campaign that promotes your program, building teamwork and interaction with your employees. Build in smaller prizes everyone can win, and then toss in a grand prize award that the program builds up to.
• Use Frequent reinforcement. Establish an awarding "vehicle" that is handed out weekly.This may contain points and a trading component. Game cards can be a fun way of accomplishing this. Using a flexible "point vehicle" you can award for weekly prevention behaviors to discourage underreporting.
• Award merchandise rather than cash. Give an employee a $20 bill as a reward, and where is it spent? At the grocery store, maybe at the gas station. Will he/she even remember? That's my point. Have your fun game-based program and build "Trophy Value" by offering a choice of merchandise items they want, not need. It works better.
Promote the program. Posters, caps, balloons, newsletters, flyers, parties, and drawings; you can't do enough of these!
• Make everyone a winner! I know, doing this costs more money, right? Wrong…when we run the numbers, you will see the return on investment is far greater.
Number Crunching Time!
Before management decides to "cut" our incentive program, or before we take our new incentive proposal to the budget meeting, we must crunch the numbers. In most cases this can actually be easy.
I can tell you it usually does not require a mathematician, just resourcefulness and your child's school calculator. Some of our clients really get into the nitty-gritty details, others do not. What's the bottom-line starting point? Find out what your average incident/accident costs the company. It's not just the raised worker's comp premiums, either. Figure in downtime, cost of employee replacement, time of training the replacement, production loss, direct medical costs, property damage, etc. Getting numbers for these items can be tricky, so many people just average and estimate. Be sure you don't forget these. Many companies will find out these costs are far higher than the worker's compensation costs alone!
The next step is to run the figures. Calculate your break-even point on your incentive program. We have seen thousands of break-even scenarios. Some companies need to reduce accidents by 8 percent, some 12 percent, and others need 25 percent to break even. The good news? With a well-designed incentive program, thousands of our clients have seen an average accident reduction of 61.9 percent. In my eyes, that's no lemon.
Examples of Big Savings
A major Sheraton Hotel crunched the numbers and learned firsthand. One would think that a hotel would not have high accident costs, certainly not high enough to justify an incentive program. After running the break-even numbers, they decided to make the investment of an "expensive--everybody is a winner" type incentive program.
For Sheraton to invest $80 per employee, which equated to $20,000 per year, meant spending a lot of money. The hotel ran a program that contained the proper structure for success, as I mentioned before. Sheraton handed game cards to its employees each week for meeting set safety criteria. The top of the card contained points, the bottom a letter. Once the employee spelled "Jackpot," he or she received 1,000 bonus points redeemable toward catalog merchandise. And, to add excitement, his or her name was immediately entered into a grand prize drawing. The hotel promoted the program with posters, flyers, stickers, and articles in the company newsletter.
The numbers? After a $20,000 investment, this Sheraton lowered its annual costs by $152,993. The bottom line was more than a 7-to-1 return on investment. A Marriott hotel running the same program achieved a 10-to-1 return with a 40 percent cost reduction. There are no losers with those numbers.
A Nabisco manufacturing facility crunched its break-even numbers and made the investment, too. One year later, it hit the "one year mark" with zero lost time accidents for the first time ever. The dollars saved were far better than initially projected. The original goal was simply to increase employee safety awareness and to boost morale, but the program obviously delivered more.
A Pepsi manufacturing facility wanted to "create better lines of safety communication" along with building morale through recognition and fun. Could Pepsi make its safety incentive campaign show a "hard dollar" savings return too? You bet! After running a weekly game card program with catalog awards for each employee. Pepsi reduced lost workday rates by 60 percent in one year. The total incident rate dropped by an astounding 71 percent. In addition, this facility also hit its "soft dollar" goal. "Everyone has greater appreciation for our everyday activities and how we can make our workplace safer," a Pepsi operations manager commented.
Many companies have also found that there are other "hard dollar" savings that can result from a good incentive program. An electronics company in Kansas City realized that after running its program, it also had lowered tardiness and non-scheduled personal time by 95 percent!
A division of Ryder had a lofty goal of reducing work-related injuries by 50 percent from the previous year. Management figured this would give the division a great return on investment. Ryder cut injuries by more than 58 percent. They commented, "we were able to increase overall safety awareness by 1000 percent simply by awarding deserving employees on a weekly basis instead of quarterly."
Osco Inc. took the numbers to heart and invested in a game card-based incentive program. Sure enough, this company's homework paid off. It outperformed the break- even many times over and showed a 64 percent reduction in injuries with a 57 percent reduction in lost days. "My only regret is that we didn't start sooner," said Thomas Bellino, the operations manager for Osco. In addition, the company incorporated attendance into their program and had its absentee rate fall from 3 percent to less than 1 percent.
An Eye on the Bottom Line
A well-designed, properly structured incentive program not only achieves the goals of an improved, energized work environment, but it also pays for itself and adds dollars to the bottom line.
You must first make sure the program you are considering is properly structured. It should encompass an entire campaign, not just a merchandise carrot. Your program should deliver frequent reinforcement with an awarding vehicle that can be handed out weekly. It should use a variety of merchandise instead of cash, to build "trophy value." The program must include a promotion campaign, and the ability to make everyone a winner.
Once you have created this type of program, take the time to run the numbers. I think you will see the rewards substantially outweigh the risk.
There are not many situations that everyone comes out a winner in today's society. Worker safety increases, accidents decline, morale and teamwork become more visible, and money is saved. Can you afford not to invest in an incentive program where there are no losers?
The bottom line is this: When you count in all the necessary ingredients and mix well, you get lemonade. When you don't separate out the pieces to crunch the numbers, you get lemon juice. Now, go quench your thirst!