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PAYING FOR PERFORMANCE A SMALL, BUT GROWING NUMBER OF LOCAL FIRMS ARE TURNING TO INCENTIVE-BASED PAY SYSTEMS

Disney chief Michael Eisner got a $7.9 million bonus because his company did well last year.

Lawrence M. Cass, head of Green Tree Financial in St. Paul, Minn., got one too but the figure on his check was $102 million.

So how about performance bonuses for the rest of us?

Well, if you worked at Curtis Screw Co. in Buffalo, you'd share a bonus for meeting the company's productivity goal for December through May. The amount wouldn't turn Eisner's head, but managers and workers shared a payout averaging $550.

"Everybody from the president on down has a stake in it," said Stanley J. Kaznowski, treasurer of the 350-worker company. Steel, tooling, oils and other materials account for 65 percent of the company's costs, so workers' everyday actions can save the company serious money.

But the West Side auto industry supplier is in the minority. Although performance-based pay is like furniture in the executive suite, relatively few companies in Western New York extend it to their workers, according to a recent survey.

Only 4.9 percent of surveyed companies pay their union employees profit-sharing, with similarly low numbers for individual and group incentives, according to the Greater Buffalo Partnership. The numbers were only slightly higher for non-union hourly workers.

Among managers, profit-sharing is more common, the survey indicated. Thirty-one percent of respondents pay their managers a bonus based on company results, and nearly 20 percent offer individual performance incentives.

Performance pay is supposed to motivate workers by tying bonuses to clear-cut goals. Productivity "gain sharing" at Curtis Screw, for example, sets a production and cost targets, then shares the gains over the target threshold with employees in the form of a bonus. Workers know that fewer defects, shorter machine shutdowns and less scrap will yield savings, and some of the money will go into their pockets.

"If you set it up right, a variable pay plan can yield 10 percent to 30 percent gains in profits," said Jerry Newman, director of the Center for Team Performance at the University at Buffalo. "The notion is . . . if you give employees more control over their destiny, they'll find ways to work smarter."

So why are only a few companies signed on?

Newman, a management professor who also does consulting work, said he sees steady interest in pay-for-performance plans in Western New York. Other compensation experts agreed.

"There's a trend in the area of offering team incentives, recognizing the team effort," said Candace C. Walters, president of Personnel Works Inc. in Pittsford. Many companies seek results from groups of workers, but only rate employees on their individual performance.

It's possible the business group's survey of 61 companies undercounts the plans' popularity. Several Western New York employers, including Outokumpu American Brass, Columbus McKinnon and General Motors, link bonuses to company performance.

But not every company or every department lends itself to performance-based pay, and sometimes the schemes have a slippery downside, experts say. Employees must be able to control the criteria being measured, and the plan must be communicated clearly and simply enough that everyone understands it.

"If those things are not done right, it can kill a plan," Newman said. "It happens more often than we like to think."

Frederick Johnson, a vice president at Personnel Works, worked at the human resources department of a Kodak division when it set up -- and scrapped -- an incentive bonus system years ago.

"They set measures . . . that were all bad," Johnson said. "What they did was divide departments against each other." The company replaced the plan, which measured departmental goals, with one that set division-wide targets of profitability and return on assets. The new plan encouraged department heads to work together. For example, Johnson took on a project involving a distribution glitch by e.

Curtis Screw launched its plan in 1986, during a painful period for auto industry suppliers. The bonus aimed to achieve productivity goals that would keep the company competitive. It was also the only way the company, at that time, could afford to give workers a raise.

"We took bits and pieces of what's out there and made up a home brew that fits our company," Kaznowski said. The result has yielded important savings, which translated to improved competitiveness and job security, he said. Targets are adjusted with input from United Auto Workers Local 55, which represents hourly employees.

But the precisely targeted performance goals at the maker of screw machine products are something few companies can duplicate. Manufacturers can measure things like defect rates and returned parts with ease. Performance is harder to quantify for, say, graphic designers or architects.

"You can't say to an engineer, 'turn out six more blueprints this year,' " Newman said. Some tasks take longer than others -- and some don't even respond to bonuses. "Creativity may be sparked by something other than money," he said.

One solution is to make the target a broad one, such as company profits. But simple profit-sharing doesn't connect nearly as well with workers' actions as targeted, gain-sharing goals, experts said. Consequently, profit-sharing doesn't boost company results as much.

"A guy who gets a $2,000 profit-sharing check at the end of the year may say 'that's great, ' and have no idea why he got it," Newman said. "Gain-sharing has more bottom-line impact than profit-sharing."

Then there's the question of what sort of behavior to motivate. Xerox found that rewards for individual performance could hurt group results, Newman said, as workers put their interests ahead of the team. But at AT&T, departments found that group-based bonus schemes alienated star performers.

Perhaps most worrisome, pay for performance may erode values that companies need to survive. After learning to jump through the hoops of a performance incentive, workers may become "mercenary employees" who focus on raising their score to the exclusion of larger company objectives, Newman said.

"There's a danger of employees constantly saying, 'am I getting paid for this?' " he said.

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