VideoIn the past, Sanford says, employees groaned when engineers intervened at the plant level to suggest operational improvements, and worker output tended to slow down at least temporarily in response. Now, when an engineer arrives, employees say, "How can I help you?" according to Sanford. Help, that is, to improve EVA.
"We have everyone buying into this system," Sanford says. "This drives our bonus. If we're not participating, we're not helping ourselves out."
In fiscal 1998, which ended May 30, they helped themselves out to an extraordinary degree, earning incentives totaling 23.1 percent of their pay because of improvements in the EVA number. That's up from 14.9 percent in 1996, the last full year of the former non-EVA bonus plan. The year before it installed the incentives, the company had negative EVA of $13.4 million, and a small net profit of $4.4 million.
EVA has shot up steadily since fiscal 1996, when it was $10.3 million, through last year, when it surged past $78.4 million. Net income also has been up each year, but on a slightly less spectacular curve.
One Standard Fits All
One of the longest track records for achieving positive EVA belongs to Briggs & Stratton Corp., the $1.3 billion Milwaukee-based maker of small engines. President John Shiely credits information systems that properly calculate and track measures for individual units, and a tenacious drive to extend compensation based on economic profit down through every level of the enterprise. In more than a decade of using EVA, the company has gone from granting 100 top executives incentives, to paying EVA bonuses to all salaried employees, to giving some type of value-based compensation to all hourly workers.
Spreading the economic-profit approach didn't come easy. "It replaced a profit-sharing plan we had in place," says Shiely, "and the preference for most union bargaining groups is for less incentive compensation and more fixed-incentive compensation." A major EVA selling point for hourly Briggs & Stratton workers: the company's argument that "it's the same standard used to compensate the chief executive officer, basically," Shiely says, noting that "that establishes credibility." The plan for hourly workers includes some slight modifications requested by the union, he says.
Briggs & Stratton has done plenty of training, much of it by internal consultants. It first gave the EVA classes to 1,100 salaried people in 1994, then added thousands more workers on the front lines. Today, it gives two- to four-hour classroom sessions to all 7,800 employees.
Briggs trainers start by explaining to all employees the company's strategy for competing in the small-engine manufacturing business. Next, they teach everyone how to calculate EVA and how to boost it in their own work groups. Newsletters and an intranet site reinforce the training by providing a forum for workers to ask questions and by enabling them to simulate potential EVA-increasing moves.
Finding EVA's Drivers
Shiely, who since 1990 has personally developed material for many training sessions, notes that one of the goals is to show employees precisely what levers must be pulled to boost EVA. "They have to understand what behavior drives value in their organization," he says, whether that means selling underutilized machines, outsourcing parts production, or collecting receivables more quickly.
To help workers understand the links better, Briggs & Stratton managers identify their own operations' EVA drivers. At the Ravenna, Michigan, cast-iron foundry, for example, the four major drivers are molding efficiency, uptime, scrap rework, and attendance.
Ed Bednar, vice president and general manager responsible for the Ravenna plant until 1997, and now vice president of the utility engine division, says he focused on the four drivers as he pointed out to workers where the foundry was running well and where it needed improvement. Workers caught on quickly, he notes, especially because EVA triggered bonus payouts of up to 12 percent of their salaries.
In one case, two machine maintenance workers located a jamming problem that involved a magnetic separation device that lifted castings from a conveyor belt as they made their way from the foundry to a cleaning area. The workers suggested bypassing the separator completely through a new conveyor system--not only to eliminate the jamming, but to allow the sale of the separator, reducing capital employed by getting the equipment off the company's books.
Whether for production-line workers or managers, says Bednar, the EVA emphasis "has forced us to continuously evaluate the investments that we're making in our business, making sure we're spending money in the right places."
Briggs & Stratton has beaten its cost of capital routinely in recent years, but last year it scored more than a threefold jump in EVA. During the same period, net income rose a more-modest 15 percent.
Complicate It, And Lose Them
At Georgia-Pacific, which dropped EVA years ago, the early trial with economic profit wasn't for naught. In fact, the company reintroduced EVA in 1995. This time, the company understood that support from chairman and CEO A.D. "Pete" Correll, and the linking of performance to pay--necessary though these are--wouldn't be enough to make the metric work.
Reader Comments» Post a comment