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Has your company ever admistered a cost savings recognition program?

Tim Northup's Profile

employee cost saving programsI am very interested in hearing if you or your company has introduced a company cost savings recognition program.  This would involve employees submitting ideas within a company that, if enacted or executed and yielded a savings, the employee was financially recognized. 

If you have any experience please share how the program was developed, administered and ultimately how the tangible recognition to the employee was calculated.

Thanks in advance for any comments.

Answers

Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

Tim, I have implemented similar programs and suggest the following:

A. Conduct focus groups with cross section of employees and business leaders to:
1) define / crystalized the business objective for the programs
2) assess organization culture and business operations to find out the best way to solicit and operationalized ideas
3) gather feedback on both individual and team based recognition
B. Develop recognition plan based on focus group and include these key aspects of a well- designed program:
1) How ideas will be solicited from employees: depending on the culture/demographics, employees may feel more comfortable submitting the idea to their performance manager or directly; have solicited ideas various ways like placing a box in break room for handwritten suggestions, emails or via a surveymonkey/ zoomerang
2) How ideas will be selected and how decision is communicated: establish a cross functional committee and define the evaluation criteria for idea selection
) Who / how the idea will be implemented and results measured
5) When / How / Form recognition will be made
C. Implement the plan: Employees need to feel it is a fair / non biased program and transparency in communications and process are key
Internal PR to get everyone “jazzed” about the program starting with Leadership supporting and delivering the message (some behind the scenes with performance managers required to train them to field questions from their teams and further promote participation)
D. Evaluate plan effectiveness of achieving intended results
Would recommend you use both individual and team recognition as well as financial and non-financials awards.
How the financial recognition is calculated is determined by A) the cost savings target B) the levels of employees involved in the project C) scope/duration of the projects

Some general guidelines for calculation:
a. Low hanging fruit / quick hits implemented in 1 – 4 weeks: $50 dollar increments depending of those submitting the ideas those implementing the ideas with public recognition (certificate plaque or trophy..something “symbolic) at the department level
b. Medium hits: 1 to 3 months: $100 dollar increments with public recognition at the business unit level
c. Longer shots: 3+ months up to one year: No less than 5% of base salary adjusting based on roles, prorated for duration with public recognition at the corporate level
Hope this helps.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

My approach is much simpler, not saying Malak's approach is incorrect. Send an e-mail to all your employees that the company is sponsoring a contest for the best "Productivity Improvement Initiative." Don't ever mention cost cutting. That concept creates fear.

Let them know - If your idea is chosen you will receive _______________________. The prize should not be taxable. So bonus compensation is out. Prize alternatives may include - dinner with CEO; company box seats; lunch for your department. The key is to create buzz prior to the event. And announce the winner and runner up ideas to the entire company.

What will usually happen - the first contest may only have a few participants, but you will get great ideas. The next time you run it, the entire company will participate, as they watched how the first contest played out.

Good luck and remember an employee that wins "bragging rights" is just as happy as an employee that wins a $500 bonus.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Any program, regardless of the type is all about selling (marketing) the concept to the ultimate end-users/customers.

Using positive verbiage is always more productive than naming the program with a title that can have (rightly or wrongly) negative connotations.

I have been part of organizations who have sold programs that had negative connotations to it; with very negative results.... morale plummeted.

In this respect, Regis hit the nail on the head!

Ted Monohon
Title: VP -Finance / Controller
Company: Fantex
(VP -Finance / Controller, Fantex) |

We had a program many years ago at Bank of Hawaii that was called "The Big Idea" Program. It was simple - employees came up with either revenue enhancing or cost saving measures. The ideas had to be specific and be implemented by the affected department. The employee got 5% of the 1st year effect of the idea (either higher revenue or lower cost). It was capped at some level like $10k I believe. The cash award was grossed up for taxes.

It was very successful and several people received the maximum benefit by looking critically at processes and procedures that cost the bank real money. The submissions were taken seriously by executive management. They were reviewed at a pretty high level and then assigned down to the correct department for further assessment and either rejection or implementation. Rejections needed to be justified back to the executive committee that oversaw the program.

And not to knock Regis, but not all employees are just as happy with bragging rights as $500.00. Motivation and satisfaction are personal attributes. I work with many people that are outright embarrassed with public recognition and would much more prefer the cash and have it all be kept very quiet. It actually would be a negative to the employee. It really depends on the individual, so keep that in mind when designing a recognition program. Survey your employees and see what rewards they would value.

Good luck

Lyle Newkirk
Title: CFO
Company: Corrigo Incorporated
(CFO, Corrigo Incorporated) |

I have done this a few times and it helps make people aware of spending issues. Each time, I offered a percentage of savings to be paid out once the savings began.
Be sure to have Finance make the calculation on the savings because sometimes what people think are savings are really not.
Also be prepared for a few whacky ideas.
Does it work? At a software company where I worked in the 1990s, two of our support technicians came up with an idea that materially lowered our overall cost of upgrades. That was in the days when software was still sent via UPS. Those support guys were presented with large checks in front of the whole company. Their idea was a home run. The home runs don't come often though but that one was worth it.

Harold D. Tamayo
Title: Vice President of Finance
Company: MHA Inc., a Roper Technologies Company
LinkedIn Profile
(Vice President of Finance, MHA Inc., a Roper Technologies Company) |

I have worked with such programs and they work and as some have mentioned a clever name for the program helps. First, you need to understand controllable and non-controllable spend and what is a real saving and a cost avoidance.

You should have a defined structure and roll out a common framework for, capturing and reporting, spend and cost savings. Leverage existing investment in technology to deliver Spend & Savings Analysis tools or else the process will become tedious to track. Defining what goods/services you buy, enabling you to categorize all third party spend, both Procurement and non-Procurement (e.g bank interest) relevant. There are activities around:
- price reduction
- contract optimization
- demand (goods/services) management
- process improvement

Keep in mind that some actions will drive direct savings, some will improve the working capital (e.g. approval flow of contracts).

Develop a rewards framework baked into your budget, operating plan, forecast. Also, have weekly or monthly reviews of the savings and communicate the progress not just to Sr. Management but also to the entire subsidiary, division and/or company.

Lastly, do not change your process for rewards and recognition once you get started. In my opinion, there is nothing more suspicious to an employee than a management team that changes the process for rewards and recognition midstream of an initiative unless is to the benefit of the employee. I analogize changing the rewards and recognition process to changing a bonus structure of a sales force because they are earning too much.

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