Managing Overtime Pay
"We can't really boost efficiency in our department," a manager complains. "Nobody wants to get the work done any faster for fear they won't be called in on the weekend."
The challenge here is to figure out ways that employees can get more done without suffering a loss of income. One way is to challenge employees to do what they can to increase revenues or throughput, so that overtime costs can be charged against a higher top line. Or, you might be able to tweak your compensation system to reward employees for what actually gets done, not just for the time they spend.
Randy Gilliland of G&R Metals, in Hampton, Va., chose the latter strategy. Seven of his ten managers had been paid on an hourly basis and typically put in 50 hours a week. He put them all on salary, with a chance to boost their base pay by an additional 15% if they met certain agreed-uponpersonal-development and operational objectives.
The plan didn't work as smoothly as planned. The newly salaried employees weren't enthusiastic. Senior execs didn't provide them the tools they needed (such as quick, accurate cost and sales reports) to meet all their objectives. Even so, the managers ended up making more money, overtime pay dropped from 10% of payroll to less than 3% almost overnight, and the company got more done in less time.
Good thing: G&R's monthly revenues are up 60%, and should double by the end of the year.
Copyright 1998 Open-Book Management Inc.