Decreasing Direct Labor Costs Through Employee Reward Programs

June 16, 2012 by  Filed under: Management 

Reward programs are used in a lot of companies to encourage and motivate employees. Motivated employees are more likely to be productive contributors to the overall goals of the organization. The benefits from these programs greatly outweigh the cost, which is the reason they are used in a variety of different companies.

This idea can be beneficial to several different industries. I worked for five years in the retail industry for a company that utilized an incentive program. My company used the program to drive sales and increase the number of brand credit cards opened in our store. Managers awarded points to employees that were successful in completing their monthly sales and credit card goals. More points were given if sales associates exceeded their goals by certain percentages. The points could then be traded in for gifts on an external gift website. They could be saved up and spent whenever the employee wished. The value of the gift increased as the reward points increased. The program encouraged healthy competition between the sales associates and increased sales each month. Therefore, the program is beneficial to both the employee and the company. If the sales associates are motivated, then they will be more productive and committed to the company. The gift structure will also motivate employees to reach past their usual goals to earn even more rewards. Some of the gifts included the company logo, which also increases company loyalty.

In addition to increased productivity, the company will also see a decrease in company expenses. As a result of these programs, employees will be absent less and stay with the company longer. The company I worked for also used a reward system for employees that stayed with the company for a certain amount of years. They gave gifts for 1, 5, 10, and 20-year anniversaries. This was used to decrease the amount of employee turnover. This also reduces costs because the hiring costs for a sales associate can be significant. They have to be paid for 12-15 hours of training, which would be lost if they do not stay with the company. This can have a large impact on company loyalty and increasing a sales associate’s commitment to the company. These programs help show employees that their work is valuable and that they are a contributing part of the organization.

In the manufacturing industry, direct labor is a large percentage of the cost of goods manufactured. If they can be decreased a small amount, it will have a significant impact on the total direct labor cost. One way employers try to reduce direct labor costs is to provide incentives for completing certain tasks correctly and quickly. By decreasing absenteeism and employee turnover, direct labor costs will decrease. Furthermore, more productive employees will be able to reach and exceed their goals. All of these benefits create a means of cost saving for the company.

Another way employer can use recognition programs is to reward employees for suggesting ways to cut costs by changing their processes. The employees doing the tasks are experts in their areas and will be able to find ways to speed up processes or make them more efficient. Their suggestions should replace a current process or make the current process better. There are a few ways the employee can be rewarded for their process improvement. Companies could award them a bonus that is a certain percentage of the cost savings for that year. Also, they could award them a bonus that is a percentage of cost savings over a period of years. This system will encourage employees to be innovative, which will in turn increase employee motivation. Motivation increases because they have a higher sense of job satisfaction. They will feel like they are appreciated throughout the company and are getting rewarded at the same time.

Overall, employee recognition systems are truly a beneficial way for companies to reduce expenses. If they are utilized correctly, they will motivate employees and increase productivity. In my opinion, companies should adopt a system if they do not already have one in place.

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