Construction Safety Improvement Through Incentive Compensation

1. KING FAHAD UNIVERSITY OF PETROLEUM & MINERALSCollege of Environmental Design Construction Engineering & Management CEM 517 - Construction Safety Management Construction Safety Improvement Through Incentive Compensation By: Neil D. Opfer Construction Management Program University of Nevada , Las Vegas AACE International Transactions; 1998

2. OUTLINE • INTRODUCTION • WHY HAVE SAFETY INCENTIVE • SAFETY INCENTIVE PERSPECTIVE • WAGE INCENTIVE VERSUS SAFETY INCENTIVE • SAFETY INCENTIVE MEASUREMENT STRUCTURES • SAFETY INCENTIVE REWARD LEVELS • SAFETY INCENTIVE REWARD STRUCTURES • SAFETY INCENTIVE PROGRAM IMPROVEMENT • AVOIDING SAFETY DIRECTOR DELEGATION • SUMMARY

3. INTRODUCTION • Construction ranks near the top of all industries regarding accidents. • Total cost of accidents estimated to be over $17 billion annually. • Contractors try to improve safety performance • Safety training • Better safety practice • Between years 1950s to 1990s accident rates dropped by more than 50 %. • Concentratedeffort lead to improvement in safety performance. • Knowing the fact that safety is everyone's best interest to work in a safe manner still Safety incentives have been used in some firms as a part of their safety program. • Some construction organizations have safety incentives only for : • Managerial and supervisory personnel. • Multiple-levels including first-line craft. • Rewarding systems.

4. WHY HAVE SAFETY INCENTIVE • Objections: • Some firms implemented safety incentive compensation only to realize no improvement in safety. • Construction firms fail to achieve results from safety incentive because of in effectiveness of their safety program. • Safety incentives will not improve construction safety by themselves without a comprehensive safety program. • “Construction personnel should want to work in a safe manner and not have to be bribed for this”.

5. SAFETY INCENTIVE PERSPECTIVE • In viewing Safety problems on a construction site, there are four perspectives : 1.Enforcement approach. There are rules to follow and when the rules are broken. 2. Psychological approach. Employees can be rewarded for safe work habits. 3. Engineering approach. Should attempt to design out the hazard. 4. Analytical approach. Cost-benefit analysis method of eliminating hazards and their associated accidents.

6. SAFETY INCENTIVE PERSPECTIVE • Safety incentives perhaps best fit in the psychological approach category. • The psychological approach to encouraging employees to work safely is obviously one aspect of the incentive approach, but in measuring incentives there will be aspects of enforcement. • In addition, construction personnel exposed to hazards and safety conscious may request job changes that would be in the engineering approach category. • In a sense, safety incentives can be a broader approach to safety improvement than any single of the above four cited approaches in the list.

7. WAGE INCENTIVE VERSUS SAFETY INCENTIVE • Wage incentives • Increase worker output, by basing compensation all or in part on production output. • Have a bad reputation amongst employees • Tampering with a safety incentive program may cause feelings of abuse on the part of construction personnel. • While in use in certain residential areas and other sectors of the construction industry, have failed due to the difficulties of overall project coordination and the quality issue. • Safety incentives • Safety incentive programs need to have objective criteria as their evaluation standard. • safety incentive programs are based on a team concept in that the contractor workers and their environment are evaluated as a whole rather than individually. • Since construction is a team process, safety incentive programs are more relevant to the construction environment than wage incentive plans. • Team safety incentives are better as a compensation basis since it is often difficult to identify meaningful and measurable individual contributions to safety.

8. SAFETY INCENTIVE MEASUREMENT STRUCTURES • How to reward improved safety on a project? • Project focus will provide an identification that those on the project can relate to for an incentive program. • An overall safety incentive program that focuses on company-wide safety results will lose identification. Craft personnel will rightly complain that their best efforts will have no impact on other projects in which they do not have a role, therefore the project focus makes sense. • question remains the issue of accident measurement or whether this is a criterion that makes sense?. • effort to cover up or hide certain accidents. • project manager for three projects: two large and one small. An accident occurs on the large project while a carpenter was picking up his tools in preparation for being transferred to the small project. The project manager or others may be tempted to assign this accident report for the carpenter to the small project. This way they still protect their safety incentive bonus for the larger project. • workers feel pressure from others or from themselves to not report an accident from fear that it will jeopardize rewards for the group.

9. SAFETY INCENTIVE MEASUREMENT STRUCTURES • What is the other measurements? • A more effective way to measure safety may be on the basis of project safety characteristics. Accidents often happen due to unsafe acts by workers and unsafe practices, along with means that can include tools and equipment. • Do accidents happen because workers want to work on an unsafe basis? • the worker is not thinking about the work at hand. Due to this surface mental attention or in a rush to accomplish a task, shortcuts may be taken by the worker. • Safety incentive program may encourage another worker viewing this unsafe behavior to step in and steer the worker away from unsafe behavior, or the secondary worker may observe a tool that is unsafe. Simple acts of observance by other workers and teamwork can help to improve safety performance. • Fewer Accidents or a safer job? • To measure the safety level of the job rather than accidents in setting incentive levels. A construction project with workers employing safe practices including their own acts and tools/equipment should result in less accident occurrences. Therefore, this seems the best course of action to be measured by the incentive program.

10. SAFETY INCENTIVE REWARD LEVELS • As broad as possible to achieve total involvement of project construction personnel. • worker on the site : safety improvement. • Total involvement : Management. • Result to the incentive program should encompass all workers on site along with management/supervisory personnel.

11. SAFETY INCENTIVE REWARD STRUCTURES • Failing area of reward structures. • If safety is to be the concern of everyone on a project and this heightened concern in part is to be accomplished with incentives, the incentives should be meaningful.

12. SAFETY INCENTIVE REWARD STRUCTURES • On a project with a $1 million labor budget, the number, would look as follows between competitor A and competitor B If the $ 1,000,000 50,000 workhours @ wage rate $20 per hour Competitor B is paying a worker’s premium of $1 an hour over competitor A. The 50,000 w/hrs might represent a 6-month project with 100 workers. For improved safety performance, competitor B may be willing to gain share half of the $50,000 = $25,000 with the workers on the project. The employer's share of the $50,000 or $25,000 is placed into improving their safety program. Employee share = $250,000 / 100 workers = $250/worker. The base wage total for a construction worker during this 6-month project would be $20,000. $250 / $20,000 = 0.125 x 100 = 1.25% of the worker pay.

13. SAFETY INCENTIVE REWARD STRUCTURES This 1.25% giving as a cash payment to the worker seems insignificant How about gift catalog. The value of an improved safety record as a competitive edge in hard bidding contracts is essential. They should find value as well in rewarding employees for maintaining an outstanding safety record.

14. SAFETY INCENTIVE REWARD STRUCTURES Indirect cost: Research has indicated that indirect accident costs are about 4 times claims costs. The indirect costs of interruption of supervisory costs, re-scheduling costs, training losses, productivity losses and others for a single accident may be in excess of $20,000. National Safety Council statistics show a disabling injury rate of 50 per 1000 workers in construction. Scaling this statistic to the 100 worker project model example, this would be 5 disabling injuries per 100 workers, or 2.5 during the 6 month project duration. Avoiding a single $20,000 accident by rewarding construction personnel for this potential savings needs consideration.

15. SAFETY INCENTIVE REWARD STRUCTURES The level of incentive compensation should be enough to be significant to the worker and should be separated from normal compensation. An incentive payment rolled into a standard paycheck won't have the effect of a separate payment or gift payment. Many construction company owners have a natural aversion to spending money, especially when they are unsure of the results. However. the potential benefits of improved safety benefit everyone, including owners. There are some owners that evaluate contractors in part based upon their safety record. A contractor with a safety record that is not above the industry average will not be invited to work on projects for these owners.

16. SAFETY INCENTIVE REWARD STRUCTURES Many experts in human motivation have found that money is not a motivator. One management theorist has held that money is not a motivator but rather a hygiene factor that can dissatisfy employees but not motivate them. A properly-structured safety incentive does act as a motivator in that by accomplishing the task of earning the incentive, this provides recognition to the employee. A safety incentive can enhance the sense of achievement and responsibility.

17. SAFETY INCENTIVE PROGRAM IMPROVEMENT • Periodically, on either a formal or informal basis, employee feed­back should be sought on the incentive program and possible avenues for improvement; also, safety incentives can become worn-out. • Contractors need to monitor safety factor and ensure that incentives do not become tired, thus reducing the impact of incentives.

18. AVOIDING SAFETY DIRECTOR DELEGATION • "Safety is their job and not mine seems to be the mindset“. • safety should be the responsibility of all individuals on a project and not just one or a handful of people • Safety incentives help to communicate that safety is everyone's business. • Safety incentives can help to achieve buy-in by all participants in the workforce. Responsibility for safety should not be viewed as something that can just be delegated to the safety director.

19. SUMMARY • Safety incentive programs are not a one shot cure-all or quick fix for construction organizations with safety problems. • Firms with poor in-place safety programs will experience minimal benefit, if any, by the implementation of incentives. • Whether or not a safety incentive program is successful will depend upon the construction project environment. • If construction personnel are on a project where they feel they are treated fairly, there are minimal labor problems, and the company has a strong safety program, safety incentives are likely to be successful • The structure and composition of the safety incentive program need to be well planned and systematic in their application. • Construction organizations with strong safety programs will find that the proper use of incentives can achieve additional benefits of improved safety records on a cost-effective basis. • Structuring incentives to focus on unsafe practices and unsafe apparatus rather than accidents with independent measurement is another key idea in program implementation.

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