Can You Penalize Employees for Mistakes?

A discussion of motivation, quality control, accountability, and labor law. September 7, 2013

Question (WOODWEB Member) :
In 7 years of business we've never charged for any employee driven errors. This has cost us much over the years. But worse than the cost it has developed an attitude of no accountability or fear of repercussions.

We have great staff, but they don't own the projects they're working on. This is becoming a challenge because we are growing and need these issues reduced to increase productivity as well as profit.

Do other business owners have a system to discourage mistakes by way of repercussions? How do you make your employees own the projects to increase productivity and lessen errors?

Forum Responses
(Business and Management Forum)
From contributor D:
I believe in the US it is illegal to charge an employee as you suggest, but you may have that option. Sub-contractors can be set up however a contract is worded.

However, positive reinforcement is a more reliable tool than negative reinforcement, at least in a workplace. First, train in standards and practices so they know what and how. Second, monitor for success or failure. Get rid of those that cannot get reasonable success. Third, motivate with bonuses. Better than raises (they go on forever), a bonus is a direct plus for a smoothly produced job.

From contributor P:
You can try to charge an employee for their mistakes, but be prepared for an unhappy employee who might work slower, do unacceptable work, and not be happy, and he/she will pass on that attitude to other employees. And you might get notification from your state government for unfair labor practices.

A subcontractor can be charged back. A subcontractor can be made to redo it, because he/she gave you a set price for the work, based on your contract with them. A subcontractor can have a profit or loss. An employee cannot have a profit or loss on the work; you pay them by the hour. You can fire them, but donít ever deduct money from their wages for a screw-up.

I worked at a shop where they tried to deduct money for a screw-up; the employee was a good worker. He not only worked slower, but badmouthed the boss to everyone, including clients. The clients started to scrutinize every piece of work. The employee did get fired, and he did call the state. The company had to pay the back wages, and fines.

The upside to the story is that the rest of the employees worked harder after this and mistakes were cut way down.

From contributor K:
You said it yourself... you are permitting it to happen by not having any accountability. Their standards are your standards. You are in a growth phase (congrats) and now is the time to take the reins on this.

Set up an employee accountability process in which the goal is lowering mistakes. It is not realistic to think you can eliminate them, but you also don't want an environment where continual mistakes are tolerated. Employees are paid to perform just as you are paid by your clients to perform.

Explain that you are in a growth phase and that you want all your employees to be around for that growth but that the amount of mistakes that you've allowed to continue over the years are incompatible with this goal as the effect of the mistakes are magnified with larger growth. Approach it from a team perspective. We all are important to the process, and profitability of the company is what keeps you all employed. Therefore, keep an open environment on discussing ways to keep improving. Weekly target meetings/updates are helpful (we are talking about 1/2 hour, not hours) to define any problem areas and how you will address it as a company.

It is then incumbent upon you to put in place processes that support this goal. After that, it is incumbent upon the employee to meet the goal. First mistake, more training and possible process improvement to correct it, continued mistakes puts them on notice, continued mistakes after this, it is time to reevaluate their employment. At all stages, you must give them the results you expect, otherwise it is open to interpretation.

I would also encourage cross-training of your employees so that if you do have to make a change, you already have staff in place to do the job if it has to be sudden change.

From contributor V:
Gotta be blunt. You are having a fundamental failure in 2 areas. The first is demanding from yourself that your crew is A-team. The second is just the follow through of telling your employees "If you keep doing this and this, I can't continue your employment."

All the methods of positive reinforcement and motivation are great, but give yourself a leg up and hire the right crew in the first place. And start by letting them know what that right crew is. In the states, we call that verbal warning, written warning, etc. It is both fair and respectful.

In the end, you will find there are plenty of people out there in the world with great attitudes, excellent work habits, and a desire to make a difference.

From contributor S:
I will make a deal with you. You share profits with me and I will let you charge me for the mistakes I make. Deal?

From contributor K:
Contributor S, I am curious... If I gave you part of the profits only if you didn't make the mistakes that steals away the profit, would you consider that fair?

From contributor M:
I am an American and worked in the industry for decades. Now I am in a country similar to the Bahamas and it is common practice here to use salary deductions as a penalty for all kinds of mistakes in production or breaking company policies, like being late for a shift.

Because of my background I can't deduct my employees' salaries and feel okay about it. The way I look at every mistake is like this... Exactly when and where was the mistake made? This means which machine, bench, department. Was information missing that allowed the employee to make the mistake? This is usually the reason. Better reports or standardized processes will fix this. What part of the process was not done correctly? This usually has to do with part orientation on the machine, or a simple setting.

Once I understand exactly what happened and how, I take steps to make it harder, or impossible, to repeat the mistake. On some machines I have removed the adjustment knob for a hard stop type adjustment. Our line boring machine always has either a 32mm or a 37mm setting. So I removed the expensive precision adjuster and now the fence will only move to 32mm or 37mm. One position is painted red, the other blue. Our boring patterns are colored either red or blue as well. This makes it very easy for the operator to notice if the machine is correctly adjusted.

Through this process I have been able to out produce shops that have CNC machines using only line boring machines. It is not easy - you need to have a very good understanding of the process in your company.

Penalizing employees will encourage them to hide mistakes, let bad parts slip through, and make them afraid to innovate or try new ideas.

From contributor J:
Yes, it's illegal in the US to charge employees for errors, and for good reason; that sort of system just begs to be abused. Take a look at the Fair Labor Standards Act. I have no idea about The Bahamas, though.

As far as ownership of the projects goes, keep in mind that this ownership is not just a freestanding state of mind, it's a set of conditions and relationships that may or may not actually exist in your business. If you demand that your employees do everything in very specific ways, they don't own the process and will never act as if they do. If they don't have some measure of control or influence over how things get done, then you own everything.

From contributor H:
It would help readers, and you, to give some examples of mistakes that would be billed, and those that wouldn't, and who would pay for what.

If there is a mistake on a cutting list, does everyone using that list, and the person that made the list, and the people that worked the parts through, all share the cost on a pro-rated basis? How about smaller mistakes, like leaving a glue bottle open, so that a pint of glue gets ruined? To be fair, all mistakes would have to be accounted for accurately, and tallied into one big spreadsheet of shame.

What you're talking about is reverse profit sharing on a micro level. Setting up an effective system that fairly distributes blame and cost is possible. It might be better to look for the positive, and write up the negative as warnings and firings.

From contributor A:
Everyone makes mistakes here and there. Typically they're minor and can be corrected without creating a big financial loss. That's been the price of doing business since the beginning of time. Of course, that's in a completely professional environment. Most important question for you is: What kind of people do you have working for you? What do you pay them? What do you expect from them? Beginning to see the bigger picture here?

Give people a chance to prove themselves. If they continually make errors and cost your company money, don't charge them and keep the same old broken wheels working. Fire them and get better people. Time is more valuable than money.

From the original questioner:
So grateful for all the responses. We don't charge for mistakes, and after reading the responses I can see the counterproductive nature of that approach. To be honest, more than mistakes, we have lost productivity. Let me share a scenario.

Every now and then we push a rush job through for a preferred client. Typically we would contract these jobs to our staff to do after hours. This basically means the sooner they complete, the sooner they get their cash on the spot type of deal. In this scenario, they work very fast and efficient and definitely take ownership of the project.

However, if we put that same job on the floor during regular hours, their productivity declines tremendously and there is very little urgency to complete. So they are very capable, just once the incentives are to their favor. This is one of our biggest dilemmas. I'm sure we as managers have enabled much of the behavior we are faced with now. We have good guys and I don't want to lose them, but of course I would in order to save my company and make it run more efficiently.

Many of you have touched on improved systems and management styles. I think the answer is there. And also the "if a project is done quickly and efficiently" bonus type of incentive I'm leaning towards. Please share any other ideas especially as it relates to productivity. I am closely following this thread and already have learnt a great deal from you guys.

From contributor V:
"Quickly and efficiently" is a job requirement, not something to hope for and bonus if achieved. Or, just pay all jobs on a contract basis if your crew is that good. You go in knowing your cost on a job. I like that in principle; maybe they would too.

From contributor Q:
It is illegal to take back hourly wages or salary wages. There are two obvious ways to deal with poor performance. The carrot and the stick. The legal way to make it a financial solution is the bonus. You can set it up as a carrot or a theoretical stick if you understand the psychology.

For instance you could pay someone a fixed salary of $40k per year. On top of that they will receive a performance based bonus. It starts at $1000 per month. Each major mistake deducts $250 from the $1000. If one makes no mistakes each week, one gets a $250 bonus. However, from a psychological basis, it actually means that you have lost the $250. You had it in front of you and now it's gone.

This has been proven to work with male students from grade school up to university level as a way of encouraging good grades. My remarks are based upon economic research at the University of Chicago school of Economics.

It doesn't work well with little girls. They seem to do pretty much their best without the incentives. They basically put a $10 bill or a toy on the student's desk. If they do well, they get to keep it. If they do poorly, it is taken off of the desk. Technically it was theirs to earn, not taken back.

This psychology works wonders with defiant, bored, active boys. I have one. It is exponentially more effective in multiples (daily, weekly, monthly) rather than one long term end of the school year report card reward.

Putting the fear of God into someone by threatening losing their job typically is counterproductive. It causes test anxiety and usually creates more mistakes than would have occurred with no intervention.

From contributor V:
The questioner is in the Bahamas - are you sure withholding wages there is illegal? Also, you might as well deduct the amount of the mistake if you are going to withhold something from their bonus.

Regarding threatening the loss of a jobÖ You are dangerous, sir. How is it counterproductive? It is just being honest. (You suggest that mistakes are tolerated because to upset someone could create more mistakes?) If someone makes mistakes, then makes even more mistakes after being told the gravity of the situation, then they are a cancer that needs to be removed in emergency surgery.

From contributor Q:

Regardless if it's legal in the Bahamas, it certainly isn't ethical in my mind (and the US government's). Maybe I should have been more specific in my threat of firing. I meant it generally, because the original poster was talking generally about all of his employees.

Telling everyone that they will lose their jobs if they make another mistake will gradually make your company fail.

I am obviously not tolerant to multiple, consistent mistakes by anyone including myself. I simply offered a different method of punishment. Obvious offenders should obviously be let go. My post was on how to motivate everyone not to make mistakes.

From contributor R:
To the original questioner: I don't understand the "contract" part, but maybe you should look at piece work or performance bonuses if they respond well to these contract jobs.

From contributor W:
If they are not doing a professional job by your standards then you have the wrong people. Get new ones if they will not follow your rules.

From contributor U:
I agree with contributor Q on a couple of points. In times when we had more employees and lots more orders, we used a base pay that would meet all legal requirements and one which most employees were happy with. At least they took the job when hired. Rather than give per hour raises, which meant they got more money even when they made mistakes that cost our company money, and sometimes losses in profits, we offered a bonus based on production. Production was defined not by work leaving each work area, but entire orders that were delivered and installed to completion. This does not stop paying for all mistakes, but it did stop employees being rewarded for mistakes. It also gets your good employees to encourage the poor ones to step it up. And where some employees may be reluctant to bring your attention to another's poor workmanship, this system motivates more of this being done. Might be hard to start this with some employees if they already have a high rate of pay per hour.

From contributor A:
In a professional, high end, output type shop the words "rush" and "quality" are rarely mixed, and for good reason. All bosses demand accuracy and speed of their craftsman. However, that tempo is usually set in early by the management, with their particular professional expectations. So all the projects being worked on should follow those expectations. When you add another job which should be rushed on top of what your guys have going, and burn them out with overtime work after a long day, you cannot seriously expect the same results. This is of course if you're talking about custom milled and built pieces, not CNC factory assembly type work. You need to stop most of your production during regular hours and get a crew to solely get that project completed with a deadline. That is how to get your rush job done. I can't tell you how many times I have seen good craftsmen ruin pieces on installs or the building process because they were being rushed by owners who kept adding in other new jobs without any clear indication of what was priority and in what order those tasks needed to be completed.

From contributor O:
The only fair way would be a two way street. In my experience, management makes the highest number of mistakes as well as the costliest mistakes. Mismeasure job, write down wrong numbers on plans, order too much or too little high dollar material, forget to convey important details, etc. It is frustrating but we are only human.

From contributor B:
Tell you what, give me a job down in the Bahamas, I will bust my hump for you all day, every day. I screw something up, you're on the hook for the shop and the materials, but I'll do the labor for free.

Seriously though, my favorite method is rewards based. We have a production quota. If the quota is exceeded, the employees are rewarded. It has been a bit divisive amongst staff at times, though. If quotas are not met, the finger pointing begins. It seems that your crew responds well to the idea of extra cash, so it may work out for you.