How to create wage incentives for foundry maintenance.

A 69% production increase and 30% reduction in labor costs were achieved through this practical program for maintenance workers.

To give all its workers the same opportunity to build their income by increasing productivity, management officials at OSCO Industries, a gray iron foundry with 225 employees, wanted to put all its foundry workers on an incentive program. Creating a fair system for indirect laborers such as those working in maintenance, however, drew concerns.

After careful deliberation, officials developed a wage incentive plan for maintenance and put it into place in June 1989. From 1989 to August 1993, production increased by 69.2% and maintenance labor costs fell by 30.53%. The payback to maintenance employees has averaged between $2500-$3000 per year in incentive compensation. Table 1 illustrates how the plan has performed since its installation.

Indirect Incentive Plans

Wage incentive plans for indirect foundry operations have always created problems for foundry industrial engineers. Many problems are encountered in attempting to measure the performance of maintenance department employees.

Time required to perform the same job varies considerably from day to day because of a multitude of reasons. Some of these may be nuts frozen on a shaft or a bolt requiring removal with a torch, or in the case of greasing or oiling, it may be necessary to remove sand from the TABULAR DATA OMITTED area requiring lubrication.

Any of these instances can occur in a foundry maintenance operation. The objective, therefore, must be to analyze the entire foundry operation and how well it performs as a result of good maintenance.

For incentives to be effective, they must be easily understood by the workers and goals should be attainable. Today, nearly all well-run foundries establish operating goals at the start of each fiscal year. Goals for each department within the foundry, along with corporate goals, can be used as a basis for a maintenance incentive plan.

OSCO's incentive plan is applied as a group maintenance plan. All maintenance workers share equally in the total incentive earnings based on the hours worked by each, which are considered as incentive hours and qualify for payment under the incentive plan. All incentive earnings are calculated weekly.

Wage Incentive Factors

The maintenance workers' wage incentive varies with how well they, as a group, control or contribute to the following wage incentive factors. Measurement of these factors is expressed as a percent performance, either above or below the established base factor of 100% performance. The factors and the basis for each are:

1. Man-hours per net ton (MH/NT) of good castings; maintenance hours--Maintenance's goal for this factor is 2.30 MH/NT of good castings.

2. Overtime hours per net ton (OTH/NT) of good castings; maintenance hours--The goal for this factor is 0.35 MH/NT of good castings.

3. Maintenance cost per net ton (MC/NT) of good castings--The goal for this factor is $34.38 allowed for each ton of good castings produced.

Factors 1,2 and 3 fluctuate from week to week, depending on the net tons of good castings produced and maintenance hours worked (including overtime). Control of these cost factors will have a great impact on the overall incentive earnings.

4. Plant scrap percent--The plantscrap goal for the entire operation is 5.5%. Earned point percent performance to a maximum of 133% can be attained here when scrap reaches 4.13% or below.

5. Coreroom percent performance--The coreroom percent performance average for the week adjusted by a factor of 0.9 is to be used as the earned point performance for this operation.

6. Finishing percent performance--The finishing percent performance average for the week adjusted by a factor of 0.9 is to be used as the earned point performance for this operation.

7. Melt percent performance--The melt percent performance average for the week, adjusted by a factor of 0.9, is to be used as the earned point performance for this operation.

8. Molding weekly productivity factor--The productivity factor for the week is to be used as a basis for the earned point performance for this operation. The productivity factor is arrived at by multiplying the machine uptime for the week by the average percent performance for the week. Because OSCO has three molding operations, three separate factors are included for the program.

Payroll Calculation

To put these factors in a usable calculation, total the earned points from the incentive factors listed above. Divide this total by 10. The answer is the average earned percent performance for the maintenance department for the week. Table 2 shows a sample payroll calculation (two shifts) for a one-week period.

If one of the molding departments doesn't operate for the week being calculated, there would be no percent performance for the week for that operation. For instance, because OSCO has 10 factors (based on three molding departments), the total point performance for the week would then be divided by 9 instead of 10 to arrive at the percent performance for the maintenance department for the week.

Some foundries may want to apply a variable conditions allowance or Hallsey sharing plan. In some situations, this prevents erratic fluctuations in performance for situations beyond their control. The earned percent performance for the week can then be applied to the employee's base rate, with the result being an incentive rate of pay for the week.

Performance and Efficiency

Foundries may want to apply penalties for poor performance or workmanship. One way to do this is to apply the following procedure.

Maintenance group incentive workers are expected to work efficiently while performing quality work at all times. Performance and efficiency include starting on time, working up to the lunch breaks, and eliminating early quitting and slow job changeovers.

The supervisor judges the performance, efficiency and quality of the work performed by the various maintenance workers. If their work meets the standards established by the maintenance supervisor, the time spent on the job will qualify for incentive pay.

If poor performance, quality and efficiency are observed, however, the worker will not receive any maintenance incentive for time spent on the job. The incentive money lost by the poor performer will instead be added to the incentive earnings for the rest of the maintenance group.

Table 2. Weekly Maintenance Department Incentive Payroll Calculation

Net Ton/Good Castings:    465.00
Operating Shifts:              2

Incentive Factors         Actual   Goal     Standard   Value    Points
                                               Point   Earned

MH/NT Gd. Castings          1.76     2.3     152.18       -      152.18
OTH/NT Gd. Castings        0.04     0.35    159.40       -      159.40
MC/NT Gd. Castings         26.63    34.38    132.36       -      132.36
Plant Scrap %               6.22     5.50     88.42     1.00      88.42
Coreroom % Performance    121.75   Actual    121.75     0.90     109.58
Finishing % Performance   144.04   Actual    144.04     0.90     129.64
Melt % Performance        127.72   Actual    127.72     0.90     114.95

Molding A

% Uptime                  88.14
% Performance            134.56
Productivity             118.60    Actual    118.60     1.00     118.60

Molding B

% Uptime                  80.34
% Performance            136.17
Productivity             109.39    Actual    109.39     1.00     109.39

Molding C

% Uptime                  88.14
% Performance            131.89
Productivity             116.25    Actual    116.25     1.00     116.25

                                          Total Points           1230.76
                                          Factors                  10.00
                                          Percent Performance     123.08

Maintenance time cards must be marked by a supervisor as either qualifying for incentive pay or not qualifying. This will be necessary for payroll calculation.

The procedure for penalties may have to be negotiated if a union is involved. Usually, if maintenance employees want an incentive, there should be no problem. The penalties are used by management and supervision to manage operations.

New Employee Outlook

Method changes within the plant or maintenance department may affect the maintenance department incentive and necessitate changes from time to time. Changes might include plant methods, production, machine additions, manning, materials or processes. Also, the maintenance department incentive will be adjusted yearly to reflect changes in the budget structure.

This incentive plan is based on group effort and productivity, with emphasis on overtime reduction and on-time completion of job assignments and safe quality workmanship.

OSCO workers, union and management responded very favorably to the incentive plan. It was a chance for them to increase their earnings by working together as a team, eliminating downtime, assisting in increasing productivity and not having to negotiate a contract to gain the incentive compensation.

This type of indirect wage incentive plan may be adaptable to most any type of foundry operation. The incentive factors used may vary from foundry to foundry, but the result should focus on reduced cost, quality and increased productivity.