Sharing Savings from Improvements

By Ravi Patel

[dropcaps type=”circle” color=”” background=””]E[/dropcaps]xperience has shown that involving employees in coming up with improvements; empowering them to implement the enhancements; monitoring the results; and sharing in the rewards is a blueprint for success.bizpeople hitting the mark

•  Do you believe in continuous improvement?
•  Are you interested in reducing costs, improving productivity or increasing savings in your business processes?
•  Could your employees have ideas for improvement or cost reduction?
•  Do you encourage employees to suggest improvements?
•  Would you like your employees to be more aligned with your company and other team members?

Most often, employees are closest to the business processes that they are working on; thus, they are in a great position to notice issues and recommend and implement improvements. If they are asked, employees can get involved and make significant contributions to improving the bottom line of their company. Most employees like to be a part of a team and work together to contribute to group results.

Entrepreneurs would be best served to implement some form of a continuous improvement program in their companies and have a culture of “Doing Things Better”.

A manufacturing company supplying high-tech products to the aerospace industry had embraced the concept of TQM (Total Quality Management) and Continuous Improvement using world class manufacturing techniques. The basic principles call for completely understanding and documenting key operational processes; developing key performance metrics; finding ways to improve performance on these metrics; measuring and widely sharing actual results after implementation; and continually repeating the improvement and measurement process.

The company established teams of employees for each key process and held them responsible for continuous improvement. The teams met one hour each week to review and discuss the metrics for the previous week and brainstorm improvement ideas. The progress was shared with other employees once a month. Specific ideas for implementation were presented to the management team for review and final approval.

In order for the program to continually provide improvements throughout the company, Entrepreneurs should devise a system to share the rewards from improvements. The rewards in such Shared Savings plans should be meaningful and definitely motivational.

man riding the lightbulb balloonThe manufacturing company established a reward system based on the savings resulting from the implemented ideas. For every new idea that was implemented by the team, each member received a fixed dollar amount in the very next paycheck. This provided an instant gratification system for coming up with and implementing new ideas.

For each idea that had the potential to generate savings or increase productivity, an objective measurement metric was developed in conjunction with the finance team. The actual savings or other benefits were monitored on a quarterly basis and the team members responsible for that idea were given 25% of such amount as a shared reward in their paychecks for up to one year. Additional incentives such as group activities, such as trips and dinners were offered depending upon the scope of the savings.

Companies might even have group programs to improve general operational issues with ultimate cost savings.

A manufacturing company used a group program using continuous improvements techniques to improve the safety in their operations. The safety committee reviewed past accidents for common causes and developed procedures to mitigate such incidents. In addition to developing accident-free metrics, they appointed teams in different areas to monitor safety practices and suggest improvements.

The company and the safety committee established the total cost of each lost workday for different areas in the company and set aside a monetary pool for potential rewards. Based on improving the accident-free metrics over the previous benchmarks, the company paid out each quarter an incentive payment proportional to the number of accident-free days for the specific area of operations.

While such Shared Savings plans or programs have many names, the basic elements are quite similar. This list is by no means complete but offers suggestions.

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In addition to the actual monetary benefits, Shared Savings plans continually reinforce behaviors that promote improved performance. They are used as a tool to drive cultural and organizational change. Such programs heighten the level of employee awareness, help develop the feeling of self-worth, and build a sense of ownership and identity to the team and the organization.

Factors important to designing and maintaining a successful Shared Savings plan include:

•  Utilize clearly communicated objectives for the company and the with litebulb equals money
•  Employees should feel like they have ownership and control in the process of designing, implementing, and monitoring the plan.
•  Measurement formulas should be easy to understand and performance directly controlled by the employees.
•  Rewards should be tied directly to performance and payouts should be as close to the achievement of results.
•  Management should be fully committed to the established plan.

A downside associated with these types of Shared Savings plans or programs is that there might be payouts for these plans while the company as a whole might not be making money. High performing individuals may be frustrated as they have to share team rewards with lighter performers. Management should avoid the temptation to change benchmarks just because improvements and payouts increase.

Finally, a thought from Dana Borowka, CEO of Lighthouse Consulting Services, LLC ( and author of Cracking the Personality Code, that hiring the right people is key to future growth. If you would like additional information on raising the hiring bar, please click here to see an article on this subject.

Permission is needed from Lighthouse Consulting Services, LLC to reproduce any portion provided in this article. © 2014

Ravi Patel is President and CEO of Patel CFO Services that provides outsourced CFO services for Entrepreneurs and can be reached at

If you would like additional information on this topic or others, please contact your Human Resources department or Lighthouse Consulting Services LLC, 3130 Wilshire Blvd., Suite 550, Santa Monica, CA 90403, (310) 453-6556, & our website:

Lighthouse Consulting Services, LLC provides a variety of services, including in-depth work style assessments for new hires & staff development, team building, interpersonal & communication training, career guidance & transition, conflict management, 360s, workshops, and executive & employee coaching. Other areas of expertise: Executive on boarding for success, leadership training for the 21st century, exploring global options for expanding your business, sales and customer service training and operational productivity improvement.

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