Critical Position

July 1, 2009
Keeping employees motivated during a recession improves the odds of long-term business survival. Companies with misguided workforce strategies may find the next move is their last.

Hiding behind the barrage of gloomy economic reports are some slight silver linings. Though employers continue to struggle to keep profit margins from sinking, they are nevertheless benefiting from some positive side effects.

Revised non-farm productivity figures released last month by the U.S. Labor Department show that output per worker rose at a 1.6% annual rate in the first quarter. That number was well above the initial estimate of a 0.8% increase and the 0.6% drop in the fourth quarter of 2008. For manufacturing, productivity in the first quarter of 2009 fell by 2.7%, a slower rate than the Labor Department had predicted.

Analysts claim the productivity gains are the result of massive job cuts and fewer hours worked by employees. Hours worked fell 9%, the largest decline since the first quarter of 1975.

As companies cut jobs to reduce overhead costs and trim operations, more is expected of surviving workers. Those employees fortunate enough to keep their jobs are cranking up their productivity with the belief that their employers will conclude they are too valuable to let go. Whether that's true or not, this is a self-preservation strategy fundamental to human psychology. When employees see the axe fly, they move faster to avoid the blade.

But that doesn't mean supervisors can forget about motivating employees, developing retention plans and creating ways to increase productivity. The rise in worker output may be a temporary reaction to widespread anxiety. When the economy begins to recover and companies start hiring again, the immediate threat of unemployment will subside, and employees will need something other than fear to motivate them.

Shifting Motivations

What exactly do they need? Most material handling professionals assume compensation is the most important factor in attracting and keeping good employees, and for good reason. Experience has shown that hourly workers will leave their jobs for other positions that pay more, even if only by a couple of cents. Though a salaried executive is unlikely to take another job for a few thousand dollars more, chances are good that an hourly worker making $10 per hour would leave a job to make $10.30.

But economic conditions over the past year have changed many long-standing priorities for hourly employees in manufacturing and distribution. ProLogistix, a division of Atlanta-based EmployBridge that focuses exclusively on logistics staffing, has conducted a workforce survey each year since 2007.

The firm, which recruits, screens, trains and helps hire order selectors, material handlers and other employees for warehousing and distribution jobs, polls three groups of logistics employees: those it has placed in positions, full-time employees of clients that were not recruited through ProLogistix and applicants with previous warehouse experience.

Brian Devine, division vice president of ProLogistix, offered MHM a preview of the results of the most recent survey as well as some past findings. When asked to rank factors that contribute to job satisfaction, 62% of the 1,100 respondents in 2008 said pay, and 45% said job security was either most important or second-most important.

The 2009 survey revealed a shift in those priorities. While pay was still relatively high on the list, 56% of respondents said job security was the biggest motivator. “That's one of the biggest swings we've seen,” Devine says.

This year's survey also revealed that higher pay doesn't necessarily lead to better employee satisfaction. “Workers were asked which they would prefer if they could choose between getting an extra 30 cents per hour or six days of paid time off,” explains Devine. “Fully 91% of respondents said they would rather have six days of paid leave than a pay increase.”

The survey also revealed that 66% of employees prefer receiving incentives for productivity over raises based on seniority. ProLogistix polled about 1,500 people, but results were compiled from all 56 of its locations throughout the U.S. to compensate for regional differences.

Out With Old Thinking

So, what do the survey results mean for material handling managers and plant supervisors? For starters, these are unusual times, and traditional assumptions no longer apply.

“Most companies we deal with do not have incentive programs,” Devine says. “Instead, they give increases based on tenure.” He points out that some workers try to beat the system when there are no incentives for being productive. They realize they can make more money if they take longer to do a task, he says, and this means the company pays more wages for less work.

Another mistake many businesses are making, according to Devine, is trying to save labor costs by cutting hourly wages. “That's a huge mistake in my opinion,” he says. “Companies that try to balance profitability on the backs of the hourly workers become a training ground because employees will leave as soon as they find a job with slightly higher pay.”

Cutting pay also leads to resentment among the rank and file. Employees feel as if they are taking on the whole burden of the company's losses and have a more difficult time paying their bills. As anger builds, morale declines and inevitably drags productivity down with it. A task that used to take 10 people starts to require 12, and the company needs more headcount to do the same work. “It's more expensive in the long run to drop pay,” says Devine.

And, as profit margins decline, companies must get more work out of fewer people, so motivating employees makes good business sense, even during a recession. “There is a direct link between motivated employees and protected, or increased, profits,” Devine notes.

That said, companies still need to cut costs while keeping materials moving, but Devine says there's a better way. “Bake in an opportunity for employees to earn paid time off for perfect attendance or excellent results,” he suggests. “Increase pay based on performance only, not tenure. That goes a long way in motivating people.”

Soft Motivators

Still, some companies cannot afford even small amounts of incentive pay or paid time off, but there are non-financial ways to motivate employees, according to Werner Heydlauf, regional vice president at conveyor manufacturer FlexLink Systems in Allentown, Pa. Heydlauf has worked with Cleveland-based Direct Recruiters Inc., a staffing and human resources consulting firm, for several years.

Heydlauf says workplace stress leads to reduced productivity and can drastically reduce employee motivation. “A lot of anxiety comes from lack of communication,” he says. “Managers should be open about the state of the company, explain why certain decisions are being made and empower employees to make decisions and feel positive about their worth to the company.”

Dan Charney, managing partner at Direct Recruiters, says material handling professionals, as frontline managers, have a vital role in improving worker productivity. “The CEOs are trying to keep the company afloat,” he says. “It's the middle managers who must take the lead on employee relations right now.”

Charney says he has noticed a disturbing trend: employers taking advantage of employees because they can. With the unemployment rate at 9.5%, the worker shortage that companies were struggling with just months ago is less of a concern.

But short-term thinking can backfire when the employment situation changes. Even in these troubling times, employers must do all they can to support worker loyalty. One of the simplest ways to retain productive employees is to give recognition for a job well done. A pat on the back once in a while doesn't cost a dime.

“Most of the time, managers will notice when employees make a mistake,” says Charney. “And, when they do their jobs well, it goes unrecognized. But it's more important to give praise than it is to criticize.”

When layoffs are unavoidable, Heydlauf suggests making job cuts in one swift action. “Have the fortitude to make one change,” he says. Just as it's less painful to rip off a band-aid in one fell swoop than it is to peel it off slowly, it's less damaging to morale if a company makes one large but quick staff reduction. “Then, have a staff meeting and explain why the layoffs happened, who is affected and outline a tentative plan to move forward,” says Heydlauf. “Let them know what to expect.”

All this advice sounds simple because it is. It doesn't take a degree in psychology to understand how to motivate people. Simply being open to their needs, communicating regularly and treating them with respect goes a long way toward achieving a highly productive operation that survives well beyond these challenging times.

Shrink Labor Costs without Sinking Productivity

Gregg Gordon, senior director of manufacturing industry marketing at Kronos, a provider of workforce management systems in Chelmsford, Mass., says workforce management technologies can help employers reduce labor costs without damaging productivity. “Technology integrated into timesheets can reconcile productive hours with hours paid,” Gordon says. “Managers can determine what it costs in labor to do a job.”

In a recent report, Kronos outlined six ways for manufacturing operations to manage labor more effectively and achieve better business results, even in a tough economy. The following six strategies can work for distribution centers and warehouses, as well.

Tip #1: Put systematic controls in place to pay employees accurately and fairly.

Automate and enforce your pay rules with an advanced time and attendance system. Configure the system to capture your own organizational, union and regulatory rules, and eliminate underpayments and overpayments that lead to business risk.

Tip #2: Reduce inflated payroll by eliminating “buddy punching.”

Buddy punching — the practice in which one employee punches another's timecard into a time clock to hide a friend's lateness or absence — has been found to inflate payroll by 2.2% on average. Technologies such as biometric verification, badge swipe or PIN entry can help eliminate this problem.

Tip #3: Shrink administrative overhead by letting employees serve themselves.

Frontline supervisors often get bogged down responding to employee questions about payroll, vacation time and related issues. According to a Nucleus Research study, providing electronic or software-enabled self-service capabilities for workers can save $210 per employee annually.

Tip #4: Control the costs of employee absences.

The cost of unplanned employee absences equals 6% of base payroll on average. This number, according to a 2008 Mercer study, represents the total cost of incidental absences, including the indirect costs of replacement labor. In fact, according to the same study, these types of absences translate to as much as 21% of net lost productivity per day. An absence management system can provide visibility into absenteeism trends and shine a light on workers who exhibit problematic attendance patterns.

Tip #5: Use overtime the right way.

Overtime is a great way to increase capacity, as needed, to meet output targets. Sometimes, however, the use of overtime can mask problems that, if left undiscovered and unchecked, can cause ongoing damage to productivity and competitiveness. Sometimes, overtime is used to make up for production or supplier-related delays. Automated time tracking solutions can provide up-to-date reporting to managers so they can see and understand where and how overtime is being used and drill drown to determine root causes of overtime use.

Tip #6: Apply lean techniques to the workforce.

Many organizations have successfully employed lean manufacturing and Six Sigma to achieve important goals such as quality improvement and inventory reduction. But the same firms have often overlooked the opportunity to apply these techniques to carve out the workforce-related waste that remains hidden in their variance reports. In fact, lurking within many manufacturing workforces is a tangle of inefficient practices and processes ripe for analysis and improvement. Workforce management solutions can help measure the time employees spend on direct and indirect activities, allowing supervisors to zero in on the root causes of low productivity.
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