Suggestion Programs

By Jim Fox and Bruce Lawson, Fox Lawson & Associates, A Division of Gallagher Benefit Services, Inc.

Question: a member of our city council has been advocating increased use of an employee suggestion program in order to generate ideas that will save the city money. he is also supporting a payment to any employee whose suggestion is accepted and implemented of 10 percent of the cost savings that are generated. this idea has taken on a life of its own. now the local newspaper editorial writers have weighed in and are suggesting that the amount is too much. even so, they suggest the program should be expanded to include any citizen that submits an idea that is ultimately accepted. I know that suggestion programs have been around for a long time but do you have any insights regarding this issue?

CompDoctorTM: Insights? Of course we have insights. Whether our insights will be taken seriously by elected officials and/or editorial writers is a different matter altogether. Nevertheless, we will share our thoughts on this issue and see what comes of it.

As you have correctly noted, suggestion programs unto themselves are not new. In fact, surveys we have conducted in the past tell us that they are used by a large percentage of employers in both the public and the private sectors. Whether there is a financial reward for the suggestion will vary based on the overall objective that the organization had in setting up the program in the first place. Most of the programs we see are individually based in that that an employee is encouraged to submit their idea(s) for change(s) or improvement(s) in some defined area. The organization then goes through some magical process to determine which suggestion is, or which suggestions are, the most noteworthy, and then the employee is, or the employees are, recognized in some fashion for their loyalty and dedication to the organization. The main problem with these types of programs is that they often do not work. One of the major failings is that while one employee may submit an idea and ultimately get the credit, others will argue that it was their idea first or that more than just one employee was involved in developing the idea. Or worse, if the employee had been doing the job right in the first place, the suggestion would not have been necessary.

Back in the early 1990s, a related concept called gainsharing became more well known in the public sector after being used in the private sector for many years. In a gainsharing program, a group of employees work collaboratively to figure out a way to accomplish some defined goal that will result in lower cost without adversely impacting productivity, customer/client satisfaction, or quality.

In a gainsharing program, a group of employees work collaboratively to figure out a way to accomplish some defined goal that will result in lower cost without adversely impacting productivity, customer/client satisfaction, or quality. Under a structured and formal gainsharing program, the employees and the employer will share in the cost savings for the first one to two years and then all of the savings will accrue to the employer. Typical sharing arrangements range from a 25-50 percent share for the employees with the balance going to the employer to help offset any costs associated with making the changes needed to generate the cost savings. The employees benefit because they can potentially earn a substantial award, as well as learn how to more effectively work together to generate cost savings. The employer benefits because their costs will go down over time and the incentive awards are paid for with cost savings, so no new money is required (unless an investment is needed to implement the cost savings.) Successful programs have a pre-established process that must be followed in terms of developing an idea for cost reduction and will also include an audit component to ensure that the cost savings are real. There is a similar approach called “goalsharing,” but these programs focus on achievement of an organizational goal and do not necessarily result in cost reduction. For example, an organization may be seeking to improve citizen satisfaction with a particular service. Under these programs, money is normally allocated for achievement of the stated objective.

What is interesting is that 15 years ago, in an article on gainsharing published in Governing, one of the reasons cited as a reason that, at that time, gainsharing hadn’t been tried much, was that states and localities had, for several, years prior to 1995, been focusing most of their attention on direct savings in personnel costs, primarily through holding down annual raises or out and out pay freezes. At the same time, governments had been focusing on holding the line on or cutting health insurance and pension costs. What is particularly interesting to us is that this statement, published 15 years ago, could just as easily have been made yesterday.

The whole idea around suggestion and gainsharing programs is that they are an attempt to make employees partners in boosting government efficiency rather than mere targets for savings.

As straightforward as the idea might sound, however, gainsharing carries some political risks. The concept raises tough questions that government officials have to be ready for if they are serious about trying it.

For example: If public sector employees can suddenly and significantly boost productivity, and then the public officials just start asking whether employees have been holding back (and some public officials might), and if savings are achieved, shouldn't they accrue to the taxpayer and not the employees, and shouldn’t budgets be cut commensurate with the new, higher performance standard? And finally, won’t government or individual departments eventually hit a peak performance level beyond which savings and efficiencies are simply not likely to be found? These are all legitimate questions.

The idea that the general public should be eligible for a reward through a gainsharing or suggestion program carries the same risks. One citizen submits an idea but many others may have had the same idea or were involved in formulating the idea. From our perspective, citizens benefit through either increases in service levels or reductions in the cost of government overall. Paying out an incentive to citizens reduces the value of what, in many cases, is a relatively small pot of money. Another issue is whether this would even be legal in your state. Under the equal protection clause, shouldn’t all citizens have an equal reward? While programs such as gainsharing mostly focus on the rank and file, we are seeing many more organizations focusing on something many have considered

extremely radical (pay for performance) as a way to get some extra money for a group of long-forgotten public employees: upperlevel managers. The idea is to address what some see as a fairly galling disparity: While rank and file workers have been seeing at least small raises over the past few years, there are some upper-level public sector managers who haven’t had raises in that period or longer. That has led to situations where some line workers may earn as much as or more than their supervisors.

If there is a downside to gainsharing within government organizations, it is fear of the unknown on the part of both employees and taxpayers. This is understandable, given that gainsharing has not been used extensively in the public sector. In fact, according to a nationwide survey we conducted several years ago, fewer than six percent of public sector organizations in the United States, from school districts to state level organizations, have implemented gainsharing programs. That makes the gainsharing and suggestion programs a convenient target for criticism by those who would call government efficiency an oxymoron.

Hopefully, these thoughts provide some insight as to how you might respond to your elected officials and the media.