Original Date: 04/26/2004
Revision Date: 01/18/2007
Best Practice : Performance Sharing Plan
United Defense, L.P. Armament Systems Division (UDLP ASD) Aberdeen developed an effective Performance Sharing Plan that focuses employees on the profitability of the company and rewards them for achieving performance goals.
United Defense, L.P. Armament Systems Division (UDLP ASD) Aberdeen developed a Performance Sharing Plan (PSP) that focuses on performance targets that the employees can influence. The generic performance targets are safety, quality, schedule, and cost. The PSP’s objective is to improve the value of the company through improved earnings. The plan payout to employees is based on Earnings Before Interest and Taxes (EBIT) and the level of achievement of the organization's goals. Production employees have a direct influence on safety, quality, schedule, and cost of the product, and indirect employees increase earnings by accomplishing their work more efficiently and cost effectively. Reductions in the cost of rework and other expenses directly increase EBIT.
UDLP ASD Aberdeen funds an amount equal to 2% of employee earnings when the EBIT goal is achieved; an additional 36 cents for each dollar over the EBIT goal goes into the pool. There is no maximum on the EBIT pool; however, maximum payout is 6% of an employee’s earnings. The payout from the EBIT pool is based on a weighted performance factor (Figure 2-4). All full-time and part-time employees who are employed through the end of the performance period are eligible for the payout.
Employees gain increased job satisfaction and motivation through increased involvement and rewards. Customer satisfaction is greater because quality products are delivered on schedule and at the lowest achievable cost, and the number of defects per 1,000 hours worked has decreased from 8.0 to 2.8. Employees are informed of their standing against the goals on a monthly basis and are more conscious of safety, quality, schedule, and cost.
Figure 2-4. Performance Factor Example
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