Feedback and Incentives Improves Performance
Proof Operators at Union National Bank, Little Rock, Arkansas

by Bill Abernathy, Ph.D.

The improvement of item processing rate for twelve bank proof operators was the purpose of the plan. A baseline-processing rate of 950 items per hour was computed from historical data. The national average rate for NCR machines was 1300. Initially, we implemented a feedback system in which the operators could compute their rate (net of errors) at the end of each day and compare to a goal of 1300. The average rate rose to 1300 in three weeks. However, over the next several months the rate declined to 1050.

At this point I implemented an incentive plan in which operators could earn up to 3% of their base pay for improvements in rate. The plan paid a percentage based upon the percentage of a goal of 1650 items per hour. Within a two-month period, the rate rose above goal and then settled in to an average performance right below goal. This plan remained in effect for two years and sustained performance at just below goal level.

We then converted the operators to a “piece-rate” (minus errors) in which they were paid per item rather than by the hour. We computed the piece rate by dividing the past three months total operator pay by the total items processed. To give the company its share, we then subtracted 15% from this amount. Over a few months, the average rate rose to 3100 items per hour and consistently remained there for a period of 18 years (until the bank was sold). Other interesting outcomes were that the supervisor decided she could earn more as an operator (she had been an operator before). The group was unsupervised after than and was self-managed. Turnover had been 150% a year. After the introduction of the piece rate it dropped to 0% and remained very low for the next 18 years.

An adverse effect of the plan was that the operators were resistant to doing anything but processing items. They could not be counted on to train new operators (which they didn’t want anyway since it reduced their opportunity), attend meetings, or help out in other areas that had inadequate staffs.

In the bank’s branches we implemented a teller incentive plan that measured percentage of days balanced, percentage of days batches were sent to operations by the deadline, items processed per window hour, and sales referrals. All these dimensions improved. There was an unanticipated effect of measuring items per hour. Before the program, branch managers complained that tellers were always asking for additional tellers. After the program, the tellers tried to prevent the managers from hiring new tellers arguing that they could handle the customer traffic themselves.

Over several years, we designed incentive plans for all the job positions in the bank. Our pay target was to pay a wage or salary 15% below the local market value but offer employees a 30% above market incentive pay opportunity. The bank was highly profitable and sold at 2½ times book value. Employee turnover, tardiness, and leaving early were dramatically reduced. Managers stated that this system recruited better employees than the traditional wage and salary system had provided.

Dr. Abernathy is founder and CEO of Abernathy and Associates. Learn more about Abernathy and Associates at http://www.abernathyassociates.com/