Volume 38, Issue 3, March 2003
Making Safety a Priority Pays Serious Dividends
by Greg Shaw
The importance of safety in manufacturing plants isnít anything new. But knowing how your safety program affects your bottom line can bring the subject of safety to the forefront of your strategic plans. Case in point: Republic Windows & Doors.
In 1999, our company found itself in a new 350,000-square-foot, award-winning facility. We experienced rapid growth in sales, people, production, the pace of life and, unfortunately, accidents. The costs of an inferior safety program were undermining significant productivity improvements gained through an aggressive implementation of cellular manufacturing principles, skill-based pay and gain-sharing programs.
Retroactive Premium Program
As a risk-averse, mid-size company, Republic historically insured itself under a guaranteed loss program, which came with a flat premium for its workersí compensation insurance. After several years of increasing accident trends, Republicís workerís compensation premiums were increasing to painful levels. In 2001-2002, due to our poor experience and a hardening insurance market, a guaranteed-loss program was no longer feasible financially and Republic switched to a retroactive premium program.
Under this program, a company shares risk with the insurer through a sliding premium scale that is adjusted retroactively against incurred losses until that yearís claims are closed. This program galvanized the companyís resolve to reduce upside risks and reap the rewards of a substantial premium rebate opportunity. I am happy to say that we made it work. Letís look at the numbers, and then I will explain how we did it.
2000 Guaranteed Loss Program Premium (Final Year) $434,258
2001 Retroactive Premium Program
Minimum premium based on losses of $44,550 $196,521
Maximum premium based on losses of $500,000 $702,927
Initial premium pay-in $500,000
Year premium adjustment for increased payroll $169,710
Retroactive premium rebate for good performance -$249,460
Net 2001 premium $420,250
Net reduction 2001 vs. 2000 $14,000 3.2%
Please Note that 2002 numbers will not be available until August 2003. The retro premiums are not calculated until six months after the end of the calendar year to let the claims mature.
The story is in the details. As you may know, workersí compensation premiums are based on a charge per $100 of payroll, and charges vary by job category risk. Notably, Republicís payroll increased 25 percent from 2000 to 2001. This alone would have increased our premium significantly. Add to that the fact that insurance markets were continuing to harden in 2001-2002óa situation that inflated insurance renewals significantly. Under these conditions, Republic was able to reduce its worker compensation costs by 3.2 percent, giving the company a competitive advantage.
Injury Trends -
OSHA Recordable Injuries
2002: 21 YTD
Republic went to school on its safety problem and developed a simple but comprehensive safety strategy comprising the following elements.
We decided that it was impossible to punish our way to a safety culture through corrective action. We stopped issuing discipline for accidents and safety violations and emphasized analysis and coaching. We learned that punishment alienates employees and shuts down dialogue and reporting of near-miss incidents and other hazards. Learning stops.
Within months, we saw a dramatic increase in the reporting of hazards, first-aid injuries and near-miss incidents. This allowed us to understand root causes of accidents. We instituted bi-weekly inspections and rigorous investigation practices related to near misses and accidents. These inspections and investigations were documented through digital photographs. We immediately published these reports to supervisors and process engineers who held pre-flight meetings with employees to discuss these ideas. These tools helped to teach our management team and employees the art of seeing safety problems. They also allowed us to establish credibility with our employees that safety is a way of life and first in priority at Republic.
Once you understand that one injury can wipe out months of hard work and capital investment in equipment and programs to gain manufacturing efficiencies, itís easier to create strong incentives for safe work performance.
Our company offers a gain-sharing program to employees, with teams organized by production lines. The program pays an incremental hourly wage every two weeks based on the achievement of throughput, quality and safety goals. For the safety component, employees can earn up to an additional 50 cents per hour if they operate accident-free for a period of time.
The increment grows over time. If the team experiences an accident, they start again from zero. We are willing to invest this much because safety is integrated with quality and productivity. The psychology of rewards and interdependence has a multiplying effect on other important outcomes besides safety.
We established rigorous standards for every aspect of our safety program. This includes an annual safety program booklet of goals, metrics, standards and program elements that is reviewed and signed by the president and 12 other senior managers. The program is re-launched each year through meetings with our production supervisors and process engineers.
One example of a written standard pertains to accident reporting and investigation. When an accident occurs, the supervisor sends an immediate alert to 14 identified persons including the president and senior management team. The process engineers, supervisors and safety managers must complete a full investigation within 72 hours, documented with digital photographs, and must submit a written report. The report shows what went wrong and how to do things right. It serves as a safety work order and a coaching tool. The supervisors and process engineers then conduct coaching sessions immediately with all affected employees to re-sensitize them to the issues of concern. It works in our culture because we pride ourselves on the development and maintenance of standards. We measure and insist upon adherence to standards.
Each week, our safety manager, Tom Ayala, publishes an exhaustive list of safety reports that provide the details, graphs and measures on our safety performance. We track near misses, first-aid incidents, OSHA recordables, vehicular accidents, costs and incurred losses. We know where our safety problems are occurring, and we now have four years of solid data for comparison. This kind of weekly measurement emphasizes our relentless message: safety is a first priority.
There is no substitute for the involvement of senior management. We disbanded our safety committees and re-established them as safety councils made up of leaders. Our belief was that safety was suffering due to a lack of leadership, not employee participation. Our leaders got involved.
Safety is a passion of mine. Our president reviews the weekly safety reports religiously and questions and encourages the management team. We have a dedicated safety manager who is a tireless advocate for prevention, and we have one of the most dedicated manufacturing management teams with which I have ever had the pleasure of working. They made safety a matter of pride on their team. We preach a gospel of 100-percent responsibility. No one person leads; we all assume leadership.
We are proud of what we have accomplished at Republic and hope that our ideas can help others to prevent the unnecessary costs and human suffering associated with workplace injuries. Good luck!
Greg Shaw is vice president of human resources for Republic Windows & Doors in Chicago.
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