Viewpoint: Tying Safety Performance to Incentive Pay Can Backfire

In designing incentive-pay plans, measurable goals are essential to drive improved performance. When incentive plans use workplace safety metrics, however, problems can arise.

HR professionals have to talk honestly with managers about the possibility that employees may fail to report safety incidents or injuries that could jeopardize incentive-pay rewards.

At top-performing companies, management strives to maintain employee safety and remain compliant with the Occupational Safety and Health Act (OSH Act) and other relevant safety laws. Yet many managers fail to see how incentivizing safety metrics could adversely affect safety reporting. To overcome this blind spot, compensation managers should carefully review short- and long-term incentive-pay programs to ensure that safety-related performance goals do not produce unintended—and dangerous—consequences.

[SHRM members-only toolkit Designing and Managing Incentive Compensation Programs]

Regulatory Warnings

At the end of 2016, Improve Tracking of Workplace Injuries and Illnesses, an Occupational Safety and Health Administration (OSHA) final rule, took effect. The rule contains anti-retaliation protections that prohibit employers from discouraging workers from reporting an injury or illness, because "to the extent incentive programs cause under-reporting, they can result in under-recording of injuries and illnesses, which may lead to employer liability for inaccurate recordkeeping."

Earlier, in 2012, federal officials provided guidance on this topic. The Department of Labor's deputy assistant secretary for OSHA at the time, Richard Fairfax, wrote, "If employees do not feel free to report injuries or illnesses, the employer's entire workforce is put at risk. … While OSHA appreciates employers using safety as a key management metric, we cannot condone a program that encourages discrimination against workers who report injuries."

Instead, OSHA's voluntary protection program encourages positive incentives, such as giving T-shirts to workers who serve on safety and health committees, offering modest rewards for recommendations to strengthen safety and health, or throwing a recognition party at the successful completion of companywide safety and health training.

Better Ways to Promote Safety

How can companies create an incentive-pay program that addresses safety without risking a decline in injury and illness reporting?

Jeff Ross, president and CEO of the C. A. Short Company, a provider of employee engagement and recognition award services, wrote that tying incentive pay to lower reports of safety violations puts the focus on "lagging indicators [that] don't tell you how well your company is doing in preventing accidents." He distinguished between "a leading indicator … indicating a future event used to drive and measure activities carried out to prevent and control injury," and "a lagging indicator [that] measures a company's incidents in the form of past accident statistics."

Consider the differences between the indicators listed below.  

Based on regulatory guidance, OSHA would regard a cash bonus tied to lagging indicators as an incentive that could potentially reduce injury reporting. To ensure compliance with the OSH Act and final rule:

• Consider ways to focus on leading indicators (e.g., reporting near misses, communicating operational experience or requiring safety training).
  

• Make sure that safety-related incentive programs are regularly evaluated.
  

• Seek anonymous input from the workforce to determine if safety reporting is being deterred due to an incentive tied to safety criteria.
  

Most employees would probably not think twice about reporting an injury that they know will cost their department a pizza party. Would they hesitate to report the same injury if they knew it would cost their annual bonuses?

Juliet Gaffney Fitzpatrick, SHRM-SCP, is an HR manager and adjunct instructor in Washington state. She is a member of the Columbia Basin chapter of SHRM.

Related SHRM Articles:

OSHA Issues Anti-Retaliation Enforcement Procedures, SHRM Online, January 2017

Evolving Company Culture from Base Pay to Variable Rewards, SHRM Online, June 2017