Employees with money-saving ideas can be richly rewarded.
What should a company expect to pay to a member of staff who comes up with a good money-saving (or money-spinning) idea? Indeed should the company pay the employee anything at all? 'Suggestion schemes are very important as part of the process of encouraging employee participation,' maintains Shaun Tyson, professor of human resource management at Cranfield School of Management. But when it comes to expressions of thanks, he believes, cash rewards may be missing the point. 'It is their symbolic value which is usually most beneficial. Cash payments can be much less important - in terms of recognition and motivation - than getting a very public handshake from the managing director.'
Virgin Atlantic, for one, makes no awards for suggestions, but ideas apparently flood in nonetheless. 'All staff are encouraged to write to Richard Branson with their ideas,' says a spokesperson. Rather than being rewarded in the usual sense, they may be asked to put their ideas into practice. Thus the employee who suggested that Virgin should offer in-flight beauty treatment is now head of that department.
However the majority of businesses seem convinced that money motivates.
In a survey of 89 suggestion schemes carried out by Hay Management Consultants, only 5% confined themselves to non-pecuniary awards. Reporting in some detail on 40 schemes, IRS Employment Trends found that 5% of the companies offered no reward at all. Of the 38 businesses which rewarded useful suggestions, 31 offered cash. The majority linked the amount to a formula, most commonly 10% of the savings generated by an idea during the first year of its adoption.
Over 40% of Hay's respondents made the award proportional to cost savings, but more than half left the amount to the discretion of management - and a small minority paid a fixed sum. In most cases the employee received £50 or less.
Reed Personnel Services pays a fixed amount for suggestions. Reed Think, the brainchild of founder Alec Reed, has been running for six years and attracts well over 100 ideas a month. 'I believe that implementing a number of small employee-driven ideas can be more effective in increasing productivity than imposing one large management initiative,' Reed explains. The contributor of the best Reed Think idea in any month wins £500, and all contributions received are entered for a £100 monthly prize draw.
At the other end of the scale, British Telecom makes awards ranging from cash to gifts such as a barbecue set or a weekend holiday break. Good ideas which don't produce quantifiable savings are recognised by vouchers or presents according to management's discretion. Suggestions which save BT money earn a cash award equal to 5% of one year's savings, with an upper limit of £25,000.
In fact the Inland Revenue's Extra Statutory Concession (A57), which covers all such schemes, establishes a maximum tax-free award for any adopted suggestion of £5,000. However, many companies, like BT, have ignored this consideration when relating the rewards they offer to savings made. Smithkline Beecham Pharmaceuticals, in Worthing, offers 25% of savings - and no limit.
Boots Contract Manufacturing (BCM) also believes in flexibility. Employees receive up to 20% of savings, if applicable. Ideas which don't save money but make a valuable contribution are rewarded cash payments of £5 up to £100. The scheme's administrator, Andy Beddows, claims that it has greatly increased the flow of good ideas inside the company. Richard Postlethwaite, shift manager at BCM's Beeston facility, reports that: 'In this factory alone we've had a 542% rise in the number of suggestions put forward by staff to cut costs and boost productivity.'
BCM's 3,000 employees offered 1,800 suggestions in 1995, which produced savings of £250,000. One employee received £10,000 for a suggestion which improved the packaging of talcum powder. The 40 schemes uncovered by IRS Employment Trends generated savings last year, which ranged from £10,000 to £1.9 million, with an average value of £63,000. That's got to be worth something.