KEMA, the Netherlands: Make work pay – make work attractive
KEMA is a company specialising in technical consultancy, inspection, testing and certification. KEMA has introduced a profit-sharing system, based on the business results of the company, and a system of competence management. KEMA believes that the profit-sharing scheme leads to a greater focus on reducing costs in the company, while the competence management system supports the personal development of its staff and enhances corporate development.
KEMA is a commercial enterprise, specialising in high-grade technical consultancy, inspection, testing and certification. Much of the company’s work is based on innovative technology. KEMA supports clients concerned with the supply and use of electrical power and other forms of energy. The global workforce consists of 1,363 employees in 50 offices. Of these, 780 are employed in The Netherlands. The average age of the Dutch work force is 43 years, and about 20% of the workforce is female. KEMA staff are highly educated. Turnover was almost 170 million euros in 2005, of which 58% originated from the Netherlands, and the net profit was 13.6 million. The company’s working conditions are negotiated with trades unions and established in a collective agreement, although union density is quite low (estimated to be less than 20%).
Description of the initiative
In 2001, KEMA introduced performance-related payment and a profit-sharing scheme for all employees. This scheme was negotiated with the unions. After some doubts, related to elements of performance-related pay, the unions agreed with the proposal because the new system would eventually be beneficial for workers. This case study focuses on the description of the profit-sharing scheme.
Employees benefit from the scheme only in the case of the company making a profit. The operating profits need to be more than 3% per year to qualify for the profit-sharing. Only then will the bonus be paid to employees in addition to their normal salary. The bonus amount is calculated in a multi-stage process, depending on the result of the business unit and the evaluation of the individual function. If the operating profit exceeds the 3% benchmark, every employee is entitled to an extra payment of 0.3% of their annual salary. The bonus can increase, depending on the performance of the business unit and the evaluation of the individual performance of the employees. According to management, the new system led to a change in corporate culture and to more focus on cost reduction at the employee level.
While the profit-sharing system focuses on the quantitative elements of performance, a new competence management system was introduced in 2005 to make the ‘softer’ elements of behaviour more visible. The approach provides personnel with feedback concerning what is expected of them and what opportunities they have for further development, inside or outside the company. Competence management also makes it easier to effectively direct the activities of the workforce. The way that personnel deal with internal and external clients and their inquiries is particularly important for an organisation such as KEMA, whose success is almost entirely dependent on positive specialist–client interaction. The competence profiles clearly state how people working for KEMA are expected to deal with clients. Hence, application of appropriate competence in a work setting must promote good customer relations.
AnalysisKEMA allows employees to benefit financially when the company makes an annual profit. The profit-sharing scheme depends on several factors and allows workers to obtain payments in addition to their regular income. The success of each business unit in conjunction with evaluation of individual employees has an impact on both interest groups.
As a result of the profit-sharing system, the company culture has become more practical and competent and costs are more controlled. However, the change of culture has drawbacks. The distinct focus on financial aspects had an adverse effect on innovation and on sharing knowledge and work. To overcome these undesirable effects, qualifications were defined to measure desired behaviour, such as sharing knowledge and cooperation. As a consequence, these ‘softer’ elements could be included in the evaluation.
The effects of the system on productivity were not measured either quantitatively or qualitatively. According to the management, the profit-sharing scheme induced overall positive effects. While it is believed that employees are satisfied with the system, their opinion is not systematically evaluated.
Exemplary and contextual factors
This case is exemplary as the company has introduced a profit-sharing system over and above existing pay, which increases the attractiveness of work. KEMA allows its employees to participate in the financial profit of the company, with no adverse effect to the employees in the case of annual losses.
Swenneke van den Heuvel, TNO, Hoofdorp