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SZA Client Case Studies

Breakthrough client case studies that help organizations realize reward strategies

Periodically we’ll call your attention to what we consider breakthrough client outcomes that not only add value to the client’s business but also add to the body of knowledge relating to alignment of employee pay and rewards with practical business tactics and goals.

Giant Eagle

Giant Eagle is a market-dominant East Coast grocery chain that employs 30,000 mostly-unionized retail grocery workers. The company is privately owned and has grown market share consistently year after year. It has demonstrated the ability to grow in a highly competitive and traditionally low-margin business where it has been successful competing with major non-union supercenters and warehouse clubs having a less expensive workforce and no burden of restrictive work rules hindering workforce flexibility and adaptability.

Jack Flanagan (then Executive Vice President, Retail Operations) believed that for the company to improve on key dimensions, including customer satisfaction, the unionized workforce had to become stakeholders in the success of the stores in which they work. This meant that they must share in the financial performance of the store as measured in terms of customer satisfaction, store sales performance, and controllable cost. Because the focus was on the store, company profit sharing or broad-based gainsharing was not viewed as a viable alternative. Private ownership made stock in the company unavailable at that time.

Giant Eagle’s Chairman and President joined Flanagan and other executives to develop an incentive strategy with the goal of aligning unionized employees with key measures of success at the store level. Measures of customer satisfaction, sales, and cost were selected as paramount. Union pay was traditionally based entirely on tenure, and the stores struggled with restrictive work rules dictated by many years of negotiations. Differences in store performance had not impacted how store employees were paid—they were not stakeholders in the success of the store, and their rewards were not tied to how an individual store or Giant Eagle in general performed. The strategy called for the design of an incentive plan that focused performance on key goals. Although Giant Eagle is able to measure nearly all aspects of store performance, a commitment was made to add measurement tools if these were needed to make the incentive plan more viable.

Giant Eagle store managers and staff managers comprised an incentive design team to work with Flanagan and SZA in developing the incentive plan to match the strategy. The design team devised a way to more effectively gather and apply customer input at the individual store level and developed operational measures to ensure a positive cost/benefit relationship between dollars expended on incentives and value added to the store. When the incentive paid off, both employees and the store gain measurably.

The result was an incentive plan based on individual store goals or key performance measures. Measures and goals were communicated throughout the stores, and a monthly check was paid based on goal achievement. This is a key breakthrough in the use of performance incentives in a unionized retail grocery workplace:

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Strategy and tactics, goals and outcomes for the new incentive plan developed by a management design team

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Strategy to tie unionized employee performance to changes in key indicators of store performance sponsored by top management

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Key measures of customer satisfaction, sales, and cost at the store level to show that incentive payments added value to individual store performance

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Team incentive plan for store hourly employees based on key performance goals achieved at the store level

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Standards of performance for setting store-by-store goals

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Communications, implementation, and management techniques for the ongoing management of the incentive process

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Cost/benefit analysis to demonstrate that dollars expended on incentives help stores meet their goals

The communications strategy is significant and continuing. Gaining commitment from a large unionized workforce to the key measures of store performance requires strong leadership and management sponsorship. Giant Eagle envisions a complete transition to take several years and much training and nurturing as incentives and new customer measures become a new way of life for store employees.

Public Utility District No. 1 of Chelan County

Chelan County PUD is the second largest non-federal hydroelectric utility in the United States. Their customer/owners enjoy what are among the lowest electric rates in the country, and the organization is a proven performer in terms of quality, fiscal responsibility, and customer relations. Periodically the utility looks at compensation. Early discussions with the leadership team indicated that Chelan PUD wanted more than just a competitive review of compensation practices. Instead, it wanted a reward solution that was focused on its customer/owners.

Charles Hosken, General Manager, along with his executive leadership team and SZA developed a strategy to align the total pay of salaried nonexempt, exempt, and management (and represented workers as well) with the 14 most essential measures of success the District must deliver to customers annually. Being a public electric utility, the organization can publicly and openly communicate its customer-focused goals and show customer/owners how it is doing compared to these goals. The newly designed total compensation program takes advantage of this ability.

A management design team of directors and managers were chartered by the compensation strategy and Hosken. This team worked with SZA to develop, communicate, and implement all elements of the program. This involved a significant change from the prior program that was based on internal equity, was much less focused on performance, and didn’t emphasize the key measures and goals that typify what customer/owners of a public electric utility expect from their District’s workforce.

The results were lauded by the public and PUD Commissioners. The elements of total pay at Chelan PUD are clear benchmark results in public electric utilities and also among public organizations in general:

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Strategic reward direction reflective of a customer-focused public electric utility

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Pay for performance throughout the organization based on cascading customer goals to which all employees are committed

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Base pay levels determined by competitive practice and a four broadbanded system to encourage growth of competencies and skills from within

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Pay adjustments based on an individual’s value added

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Annual incentives based on the 14 customer goals and a promise of no electric rate increases during the foreseeable future

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Performance management focused on the achievement of cascading goals, the competencies needed to grow in a customer-focused electric utility, and development

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Recognition program to parallel the cash compensation program to acknowledge individual and team excellence on the spot

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Effective communications, rollout, and continuing education to ensure a solid and sustained transition to the new program

The program is unique among public electric utilities. An article written by Chelan PUD employees Elaine Gentilo and Kirk Hudson and SZA for the American Public Power Association (APPA) journal People to People (Summer 2003, Vol. 3 Issue 2) focuses on the results of this effort. (Click here to read article Customer-First Rewards: New Performance Directions for Public Power [pdf]). 

 

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