Original Date: 09/15/2003
Revision Date: 01/18/2007
Best Practice : Performance Sharing Plan
United Defense, L.P. Ground Systems Division Aiken developed a Performance Sharing Plan that rewards its employees with the company’s business performance. It also fosters teamwork and employee development, and creates a focus on key performance parameters.
United Defense, L.P. Ground Systems Division (UDLP GSD) Aiken implemented a Performance Sharing Plan that rewards its employees based on the company’s business performance. The purpose of the Plan is to share gains from improved performance with the employees. The Plan is measured and pays an incentive directly to the employee on a quarterly basis. A booklet describing the Plan is distributed at an all-employee meeting at the beginning of each year.
UDLP GSD Aiken’s Performance Sharing Plan is based on the employees becoming shareholders in the performance of the organization, where both the employee and the organization benefit. The Plan uses cost-per-run standard hour as a key measure. A run standard hour is an engineer’s estimation of the set-up time, run-time, and inspection time required to manufacture a particular part. To ensure accuracy and fairness of the estimation, one part is run and compared to the estimated time. If needed, an adjustment to the estimate is made, and the run standard hour is locked in. The Plan also uses safety, environmental, quality performance, and average time required for set-up as measurements. The plant manager has the authority to suspend the Plan for a quarter if safety, the environment, or quality deteriorate, which ensures that cost-per-run standard hour does not become the only priority. All plant employees who are not participating in another performance incentive plan are included, with the exception of the plant manager, ensuring that everyone is a stakeholder. Additionally, team members with long-term disability and those who leave or join the company during a quarter have their payout based on quarterly earnings. If a team member dies during the year, the pay-out goes to a designated beneficiary and is also based on quarterly earnings.
The Performance Sharing Plan is run by a Performance Sharing Committee, consisting of 13 people from the UDLP GSD Aiken Plant Leadership Team and other select, non-exempt team members. The committee currently has nine employees from the shop, which is approximately one from each major area. Participation in the committee is voluntary. The committee makes suggestions, reviews the current year’s plan, and communicates the information, including current monthly status. The committee also makes recommendations and sets objectives for future Plan years. Monthly results are posted on a special Performance Sharing Plan board in the plant cafeteria and in the company’s newsletter, Communicator. The quarterly results are reviewed by the Plant Manager at the plant’s quarterly meeting.
Payout from the Performance Sharing Plan is not guaranteed. Occasions have occurred where the payout improvement requirement was not achieved or was very low. The Performance Sharing Plan is self-funding from savings, and uses a two-tiered system with two levels of payout to drive breakthrough performance. The higher payout tier is purposely set at a level that, while achievable, is difficult to achieve without “breakout” performance. The higher level of payout is unique to UDLP GSD Aiken, and has the potential of paying out a reward of 10%. From 2000 to 2002, the Performance Sharing Plan resulted in savings of more than $3 million, with an average payout of approximately $1,800 per employee, resulting in a return on payout of approximately $2 per $1 paid out.
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