The wrong key performance indicators can drive the wrong behaviour

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SOURCE: https://www.shponline.co.uk/50905-2/

business-163464_640Mieke Jacobs, Global Practice Leader Operational Risk Management & Employee Safety, DuPont Sustainable Solutions explains how to identify the correct indicators and reward system to improve safety performance.

I was recently asked by a client for advice on their plans to introduce a new variable compensation system for employees that relates to safety performance.

The previous bonus system had only been linked to Lost Time Injuries (LTI) performance. That kind of system has two potential drawbacks for companies that do not yet have a mature safety performance.

First, when a bonus system is entirely based on LTI, or other lagging indicators, it can discourage reporting and/or make people come to work when they should stay at home.

Second, basing rewards on LTIs means that it often does not result in any action, simply because people fail to understand what they should do.

The company realised it needed to use a balanced mix of leading and lagging indicators. The new draft system that I was able to review included a combination of both. The main lagging indicator for the company was still LTI, and zero LTIs was the condition ‘sine qua non’ for employees to be eligible for the bonus system. The bonus amount, though, would depend on several leading indicators, such as:

  • 5S performance
  • Execution of Safety Action Plans
  • Organisation of safety briefings
  • Reporting of near misses
  • Execution of safety audits

Making the most of KPIs through an Integrated Performance Management System

These key performance indicators (KPIs) look good at first sight, but let’s consider performance management and what it is meant to achieve.

A strong performance management system should do more than just produce a long list of KPIs. It needs to formulate company vision and strategy in a way that makes them tangible, so each level of the organisation can make the right choices on a daily basis.

A clear, prioritised strategy enables an organisation to push decisions to the lowest possible level, because people at that level understand the ultimate priorities.

Once we have a clear strategy, how do we translate it into meaningful KPIs? How will the shop floor worker know that, at the end of his shift, he has contributed to the business goals? A high-level KPI, such as LTI, will not do the trick.

The ultimate question should be: How can you get the rhythm of the whole organisation ‘in sync’ to achieve business results? How is the shift change-over discussion escalated to a daily cross-functional review between operations, maintenance and engineering? And which topics need to be escalated to the weekly or monthly longer-term management processes?

The third leg of strong performance management is problem solving at different levels. We are all familiar with long lists of action items, or a long backlog in maintenance departments, because every deviation is referred to another department, buried in a work order or on a project list.

Highly effective problem-solving uses the problem-solving capabilities of the entire organisation, by moving the majority of actions to the lowest level possible. That may require a change in company culture toward a more independent or interdependent organisation, so operators, mechanics, lab technicians and customer service representatives not only feel permitted, but positively encouraged, to solve the majority of problems themselves, right away.

Many operators know their process and equipment so well that they virtually hear or sense when something deviates from the norm. Companies should not ignore that long-established familiarity with the process or equipment.

Of course, there will always be issues that need the involvement and expertise of different departments, but that should not be the automatic first response. This should be reserved for second-tier problem-solving that brings together the right people to solve an issue in the short term.  And some more fundamental problems may need to be solved in longer-term projects, led by a continuous improvement or project leader.

Questions to ask yourself when setting KPIs

Before analysing the specific five leading indicators set by the mining company, it is worth asking a few critical questions in order to find out what the organisation can realistically expect to achieve.

  • How would you describe the maturity of your organisation?
  • Where are you now in terms of safety culture, and where do you want to go?
  • What behaviour are you trying to drive with this variable compensation system?

The answers to these questions matter. If an organisation is not yet “mature” in its safety performance, it will need to focus on preventing fatalities and serious incidents, as well as high-potential near misses, before introducing a KPI for other more minor near-misses. With increasing maturity, the organisation can select additional KPIs, and react to more subtle signals, as well.

Keeping KPIs fresh

In DuPont, the traditional KPIs that we have been driving – but not necessarily rewarding financially – on top of our lagging performance indicators are, amongst others:

  • Audit execution and results
  • Execution of inspections (specifically on process safety critical processes)
  • Execution of safety action plans (including upgrading procedures, systems, investments, etc.)
  • Safety Observations execution (and, if possible, quality of observations and closure of actions)
  • Participation in safety training and safety meetings
  • Execution of safety training plans (legally required and other)
  • Permit deviations
  • Safety Perception Survey results and follow-up on action items

We use the last KPI, Safety Perception Surveys, as a tool to probe and uncover safety culture performance issues that might otherwise go unnoticed and which could adversely affect our safety performance.

In recent years, we have added other KPIs such as the timely investigation of incidents, the timely execution of action items, and more recently also date changes to action items. We added this last one because we noticed that people were changing execution dates, often for good reasons (waiting for an investment or more investigation needed). However, we wanted to control this and therefore increased the approval authority for a date change to a higher level, and began tracking them.

We have also been focusing a lot on improving idea-generation or bottom-up innovation, tapping into the problem-solving capabilities of the entire organisation. We are therefore measuring the generation of ideas and their actual implementation. The aim, as mentioned before, is to move execution to the lowest possible level, to avoid a long list of capital projects or maintenance work orders.

Another leading indicator that some of our sites (like Luxembourg, Landgraaf in Holland and Mechelen in Belgium) introduced some years ago and others have adopted more recently, is a Safety Culture Pulse Check. This consists of a targeted short list of questions which ask people how they feel about SHE, how leaders are behaving, and how they are responding to feedback from the teams.

The aim is to keep KPIs fresh and effective. Instead of just continuing to use the same KPIs as before, it is important to monitor performance against them. If all action items are closed, if your dashboard shows green all the time, that is the time to be suspicious, not the time to relax and be complacent. It is precisely the moment to ask yourself what is going on and whether you shouldn’t be re-evaluating your KPIs and digging deeper.

Review of the proposed leading indicators

As mentioned before, the right KPIs can drive the right behaviour, but consequently the wrong KPIs can drive the wrong behaviour.

In principle, HSE compliance and proactive behaviour are a condition of employment. So it can be very tricky to reward people for behaviour that is expected of them in the first place.

With all this in mind, here is my response on the leading indicators that the mining company was considering:

1.5S

It is good to make a connection between 5S and safety, and the Sustain ‘S’ in 5S indicates that it’s critical to sustain this at all times. Adding it as a leading indicator connected to the bonus system might limit the cascading down process though. Ideally, you would like employees to own 5S themselves and do the checks/checklists themselves.

2. Implementation of Safety Action Plans

Strong follow-up and disciplined closing of action items is a clear indicator of the operational discipline and the workload in an organisation. However, many organisation do not assign action items to the shop floor and are instead allocate them to engineers, supervisors, managers and professionals. Shop-floor employees may therefore not be able to influence the implementation or closure of action items.

3. Organisation of safety briefings

This should clearly be part of the job and should therefore not be rewarded separately.

4. Reporting of near misses

This is another important indicator of the cultural maturity of an organisation. Mature companies want to ensure they have visibility at the bottom of the safety pyramid, before actual injuries occur. They want people to be more proactive.

Sometimes when I visit a plant, I see damaged warehouse racks and protection bars, and yet there are no reports of any internal traffic incidents. Something clearly isn’t adding up. Reporting of near misses is important.

However, what target should you put on near misses? You want to have a good reflection of reality without driving an excessive amount of reporting. You want ‘quality’ near misses, capturing those incidents that offer critical opportunities to learn.

A more proactive way of capturing the bottom of the pyramid is to track and reward the number of safety improvement ideas generated and implemented. You might drive the same behaviour with a better KPI. You should be asking yourself whether you can track the level of learning in your organisation through the metrics you are using.

5. Safety Audits

Auditing your safety management system is critical. But where do you set the target? Do you focus on the audit score or on the execution of the audit plan? Execution of the audit plan is a straightforward KPI which people should be able to influence.

Putting a target on the auditing scores, however, includes some potential risks. This type of KPI might put pressure on the auditors in a less mature organisation. They will know that the organisation’s variable compensation system will depend on how strict they are (and an audit is never fully black and white). Sometimes, people have an increased understanding of what a standard really means, and they raise the bar for themselves. Sometimes, the audit score stays flat because they look at it with different eyes, which is what you want to encourage to constantly raise the bar.

So what to conclude?

A strong Performance Management System consists of several elements that need to be integrated to achieve the desired results. KPIs are just one element. You can use KPIs to drive people’s behaviour and, in the end, organisational performance, but it is essential to carefully consider what behaviour you want to drive versus what it is that your existing KPIs will actually drive. What could be the unintended consequences?

Although a variable compensation system directly linked to HSE KPIs can work, we should also consider the power of reward and recognition, beyond monetary rewards. Maintaining a strong safety culture requires the entire organisation to collaborate. Other recognition initiatives could consist of: team awards/team events when reaching certain milestones, verbal recognition for extraordinary achievements (president’s safety award, safety coins, safety medals) or team rewards for improvement ideas generation.

Share your experience with us in our LinkedIn discussion group and join the debate on how to use KPIs to drive performance.

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