The Wrong Key Performance Indicators Can Drive the Wrong Behavior

I recently was asked by a global client in the mining industry for advice on the company’s plans to introduce a new variable compensation system for employees related to safety performance.

The company’s previous bonus system only was connected to their lost time injuries (LTI) performance, which presents two potential drawbacks for organizations that have not yet reached safety performance maturity. First, when a bonus system entirely is based on LTI, or other lagging indicators, it can discourage reporting or make people come to work when they should stay at home. The second problem with basing rewards on LTIs is that it often does not result in any action, simply because people fail to see how it translates into their daily routines.

The mining company realized it needed to use a balanced mix of leading and lagging indicators. The new system that I reviewed 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, was dependent on several leading indicators, such as:

• 5S performance
• Execution of safety action plans
• Organization 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 examine performance management and what it is meant to achieve. The old saying, “What interests my boss, fascinates me,” is, of course, still valid. But a strong performance management system consists of much more than simply producing a long list of KPIs.

The fundamental elements of performance management are:

Strategy/KPIs/visual management

Regular performance dialogues

Structured problem solving

It all starts with defining your vision and strategy; not at a high level, but at a more tangible one. This allows everyone in the organization to make the right choices on a daily basis.

How often do we see a vision statement on a company’s lobby wall that could easily apply to any other? “We want to be the safest, highest quality, lowest cost producer of _______ while providng our customers with world-class service and innovation.”

It is essential to take a step back and rethink your actual strategy. In what specific areas do you really need to excel, and in which can you accept parity? A clear, prioritized strategy enables an organization to push decisions to the lowest possible level, enabling people at that level to understand the ultimate priorities.

Once a clear strategy is established, it needs to be translated into meaningful KPIs for every level of the organization. A high-level KPI, such as LTI, will not do the trick. Organizations need to think about how it can be captured into one or more meaningful KPIs that are tangible on the shop floor. Seen from that angle, the new list of leading indicators proposed by the mining company already is much more meaningful than their previous focus on LTIs.

Visual display and visual management of meaningful and real-time KPIs for each department enables regular performance dialogues and helps promote a daily cross-functional review between operations, maintenance and engineering. It also can help identify topics that need to be escalated to the weekly or monthly long-term management process.

The third leg of strong performance management is problem solving at different levels. Long lists of action items, or a long backlog in maintenance departments, are all too common because often, every deviation is referred to another department, buried in a work order or placed on a project list. Highly effective problem-solving uses the capabilities of the entire organization, including the lowest level possible. This may require a change in company culture toward a more independent or interdependent organization, so that operators, mechanics, lab technicians and customer service representatives not only feel permitted, but encouraged, to solve the majority of problems themselves, right away.

Many operators know their process and equipment so well that they can quickly identify when something deviates from the norm – companies should not ignore this familiarity, but put it to use. Of course, there always will 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, Kaizens or value accelerators, led by a project leader.

Questions to Ask Yourself when Setting KPIs

Let us go back to the initial question from this mining company: Can you advise on the leading KPIs for a bonus system? Before analyzing their five specific leading indicators, it is worth asking a few critical questions in order to find out what the organization can realistically expect to achieve:

1. How would you describe the safety maturity of your organization?
2. Where are you now in terms of safety culture, and where do you want to go?
3. What behavior are you trying to drive with this variable compensation system?

The answers to these questions matter. If an organization 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 organization can select additional KPIs, as well as react to more subtle signals.

In an immature organization that is just starting with an auditing system, it probably makes sense to track quantity metrics like the execution of the number of audits. As the organization develops in maturity, quality metrics should be introduced, e.g. audit scores and actions completed on time. Once this is under control, companies can add a focus on repetitive findings, and make a connection between audit findings and actual incidents.

Keeping KPIs Fresh

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

• 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

DuPont uses the last KPI, safety perception surveys, as a tool to probe and uncover safety culture performance issues that might otherwise go unnoticed and that could adversely affect our safety performance. They offer a proven and effective solution to pinpoint the “safety conscience” within the organization and allow us to address issues proactively before an incident occurs.

DuPont also has focused on improving idea-generation, or “bottom-up innovation,” by tapping into the problem-solving capabilities of the entire organization. We therefore are measuring the generation of ideas and their actual implementation. The aim, as mentioned before, is to move resolution of action items to the lowest possible level and avoid a long list of capital projects or maintenance work orders.

Another leading indicator that some of DuPont’s sites introduced is a safety culture pulse check. This consists of a targeted, short list of questions asking people how they feel about EHS, how leaders are behaving and how supervisors are responding to feedback from teams. This is in addition to our more extensive safety perception survey, which takes place every other year. The pulse check was added to keep safety perception alive and occurring at regular intervals. Emphasis is placed on promoting dialogue rather than the recorded results.

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 should be re-evaluating your KPIs and digging deeper.

Review of the Proposed Leading Indicators

As mentioned before, the right KPIs can drive the right behavior (if you include the other critical elements of a performance management system), but consequently the wrong KPIs can drive the wrong behavior.

In principle, EHS compliance and proactive behavior are a condition of employment. So it can be very tricky to reward people for behavior 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:

5S – It is good to make a connection between 5S and safety, and “Sustain” in 5S indicates that it’s critical to pursue this at all times. But adding it as a leading indicator connected to the bonus system might limit the process of cascading resolution of action items to lower levels of the company. Ideally, employees would be empowered to own 5S and do the checklists themselves. Incentivizing an audit of their own area with a variable compensation system might lead to a biased review.

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 organization. However, since most organizations do not use their first-tier problem solving capabilities very often, not many action items are assigned to the shop floor. Action items mainly will be allocated to engineers, supervisors, managers and professionals. And in that case, shop-floor employees might not be able to influence the implementation or closure of action items.

Organization of safety briefings – This clearly should be part of the job. Both organizing and attending safety briefings, trainings and toolbox meetings should be mandatory and therefore should not be rewarded monetarily.

Reporting of near misses – This is another important indicator of the cultural maturity of an organization. Mature companies want to ensure they actively are addressing near misses 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. At the same time, it is important to have a good reflection of reality when it comes to reporting near misses without driving an excessive amount of reporting. Therefore, “quality” near misses should be reported, or only those incidents that offer critical opportunities to learn.

Another approach is to track and reward the number of safety improvement ideas generated and implemented. This could drive the same behavior with a better KPI that tracks the level of learning in your organization.

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 that 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 organization. They will know that the organization’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 are looking at it with different eyes, which is what you want to encourage to constantly raise the bar.

A strong performance management system consists of several elements that need to be integrated to achieve the desired results. KPIs are just one of them. Companies can use KPIs to influence people’s behavior and, in the end, organizational performance, but it is essential to carefully consider what behavior you want to drive versus what it is that your existing KPIs will actually accomplish. What could be the unintended consequences?

Although a variable compensation system directly linked to EHS KPIs can work, companies also should consider the power of reward and recognition, beyond monetary rewards. Maintaining a strong safety culture requires collaboration among the entire organization. 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. Money isn’t everything when it comes to safety performance.

Mieke Jacobs is the global practice leader for operational risk management and employee safety with DuPont Sustainable Solutions.