The other outstanding issue was the 'incentive' issue. Within the Company there was a fair degree of discussion with respect to the organisation's 'pay for performance' scheme. There were a number of issues which the Company wanted to address in its system. Prior to the beginning of 1996, the 'pay for performance' system at Newfoundland Power was based on individual performance only, and was a pay system exclusively available only to managerial employees. As part of the formal performance evaluation process, managerial employees were given various % 'bonuses', based on the level or 'rating' they achieved in their annual performance reviews. Some of the concerns of Newfoundland Power with that system included: subjectivity of performance evaluations lack of consistency perception of a 'quota' system small payouts often viewed as 'entitlement' potential of compromising honest feedback in performance evaluations bonus system exclusive to managerial employees

In 1995, a number of key decisions were made, which mandated: fundamental changes to 'bonus' system for managerial system needed desire for a broad-based system remove link between performance rating and payout amount for managerial employees system to support Company objectives and support corporate values and guiding principles A considerable amount of research had also been conducted externally on the issue of trends in variable pay options, and clearly identified a growing emphasis on variable pay. As to why this trend was receiving additional emphasis, we identified that: it is cost effective links rewards to Company performance encourages broader participation of employees emphasises teamwork

Our research also found that plans that use 'corporate measures' had increased dramatically, as well as covering more employees. aS As a point of interest, the November/December, 1996 issue of ACA News noted that recent sturies have shown that compensation programs are becoming more strategic. Sandra O'Neal of Towers Perrin noted that key research findings identified that many respondents are developing or reassing total compensation strategies to ensure a closer linkage with current busienss strategy, remixing their pay to emphasize variable, performance-based components - primarily to guide behaviour, not control costs, and recognition programs are gaining new ground in helping reward - and publically extol - employee excellenc. While organizational change has been dramatic, compensation change is reported to be evolutionary, not revolutionary...At the same time, a majority are currently reassessing their compensation strategies with an eye toward modifying their rewards systems to more closely reflect today's business realities and emerging needs. 9

As a result of our research and trend identification, it was decided to move forward with an incentive pay plan for the Company based on the following guiding principles: remuneration should include some aspect of 'incentive pay' plan based on corporate measures and targets same measures and targets apply to all employees, union and management alike (this was a major step in the acceptance of a pay for performance scheme, especially on the part of the union - helps to break down barriers, establish trust, develop common goals) individual performance no longer directly linked to payouts process of evaluating employee performance and providing feedback remains in place

One of the aspects of the safety component of the current incentive pay system is that the 'awards' (cash payouts) are not dependent on individual accident records or lost time accidents, or the lack of lost time accidents. We have set a target of an all injury frequency rate of 7.9, with a range of a high of 9 to a low of 6. There are a total of 5 corporate measures and accompanying targets for Newfoundland Power. The measures are:

• Controllable Operating Expenses (Principle Financial Target) - 30%
• Residential Sales - 25%
• Reliability of Electrical Service - 15%
• Safety - All Injury Frequency- 15%
• Attendance - Sick Days per Full Time Employee - 15%

Each of these measures has been 'weighted' according to importance to the Company, targets have been set, and minimum and maximum payout levels have been set. Our all injury frequency measure has been weighted at 15% of a 100% payout. Our target for 1996 is 7.9. If we beat this target and reach an all injury frequency rate of 6.0, we will pay out 150%. If we reach our target of 7.9 we will payout 100%. The minimum level at which we will issue a payout is 9.0. If our all injury frequency rate is 9.0, we will only payout 50%. We will pay nothing if our results fall above an all injury frequency of 9.0. One of the main reasons why we have a safety measure is because it is a basic of our management system and core to our present philosophy. We reward for it in much the same way as we reward for electrical system reliability.

Some will argue that we still have a system based on statistics, and to some degree that's true; however, there are some important points to consider. Perhaps the main reason why safety is a key target is because it is considered basic to the success of the Company, due to the high risk nature of the work involved. It is, as some would suggest, one of the 'core values' which we have at Newfoundland Power. We have also, we believe, in the past 10 years, established a comprehensive safety management system whereby we measure and monitor the effort, and the quality of that effort in managing safety performance. Organisational standards for health and safety performance have also been developed (a performance document for management which outlined their roles and responsibilities for workplace health and safety, including legislative responsibilities). We educate and train our joint OH&S committees and we have each operating area identify and set performance and 'output' safety targets to help improve safety performance. We are also auditing our safety system to ensure its effectiveness and compliance the legislation, and we have designed and implemented in our high risk operations a computerized 'safety management system', which monitors and measures our 'processes' from a safety perspective - it evaluates what we do, and how effective we do it. On the 'promotion' side we are still using some very traditional methods of attempting to inform and maintain employee interest in select safety issues. From a wellness perspective, we make available hat, sweatshirts, kit bags, and other promotional items to market healthy lifestyle issues. One of the main marketing issues is Canadian Occupational Health & Safety week, during which the majority of our safety promotional items are given to employees - no strings attached: just a promotional event associated with health, safety and lifestyle issues. There are no targets to meet or no pre-requisites. COH&S week is a safety marketing opportunity.

There are a considerable number of other aspects of our safety management system which we feel is contributing to improvements in our safety performance, and lowered workers' compensation claims costs, assessed base rates and experience rates. Similar to the theory of multiple causation as a accident theory, we believe our safety performance is ultimately dictated by many factors, the least of which is safety recognition and incentives. In addition, our current focus is in keeping with the thoughts of others in the safety profession which suggest that if safety incentives are to be used, one of the most effective ways to use them is to tie them to pay. In Total Quality for Safety & Health Professionals, F. David Pierce notes,

'The last tool you can use to build participation is probably the most effective. Tie individual safety accountability to each worker's compensation program, including management and workers. So those who are highly involved in safety and keep the participation high are rewarded with pay increases. Pay is the most effective carrot'. 10

This is our present system. We believe in promoting safety and we belive in offering incentives to the entire workforce. We are not necessarily bound to one way of structuring our incentives schemes as much as we are perhaps opposed to some of the ways 'not' to structure a safety incentive program. There can be many ways to structure an incentive system. There are also certain fundamental issues to try and avoid when setting one up. The biggest thing we felt strongly about was to get away from the no lost time injury target, as it was felt this target could be easily manipulated in such a way as to undermine all the positive aspects associated with a safety incentive program.

In light of our own experience and the overwhelming evidence which has been documented on the negative aspects of lost time injury award programs, we feel this is a good history lesson, and trust others can benefit from the experience. We believe in general awareness and promotion to 'advertise' safety issues, but we are committeed to incentives based on whether we meet our corporate targets. We belive in paying for results, but we are also interested in how we get those results.

As to whether we will maintain the current system, improve it or eliminate it entirely over the next several years, and in what capacity, I cannot say; however, our present system of incentive pay is meant to endure over the long term, and we have structured it in such a way so as to reflect this long term approach. I can say, however, that whatever 'system' we decide to use of rewarding, recognising or enticing employees to improve performance, we will lobby strongly to have safety a part of that system in some way. We strongly believe we should not be rewarding or recognising for safety any differently than we reward for any other important issue in the Company. Our systems and programs will change and evolve as the Company changes, and is forced to change by internal and external pressures. The one constant will be the value which we place on safety. So how have we fared with the "new" system. Well, with an assessable payroll of over $38 million we are paying the lowest workers' compensation we have paid in years (.79 per $100.00 of assessable payroll) in 1996, we paid out only $15,000.00 for medical aid and lost time injuries, and we reduced our all injury frequency rate (total of lost time plus medical aid injuries) from 8.7% to 5.9%, and reduced our severity rate from a 1995 total of 869.9 to a 1996 rate of 113.5. And for our incentive pay, we paid out approximately 134% of the maximum 150%. Was our improvement the direct result of the incentive pay system. Good question, and not one to which I have a definitive answer. More than likely, it was the result of a number of factors.

What did our management team feel? Well, one Regional Manager said,

"There are perhaps a number of reasons why we had an exceptional year in safety, including having a safety audit performed, training, safety meetings, etc. I'd like to think incentive pay was also part of a larger picture, and I hope that we can continue to create these incentives to enable us to manage safety better. From my perspective, it (incentive pay system) would appear to have had some impact on safety performance."

One of our Vice Presidents, John Evans noted,

"Incentive compensation systems should contain some element of safety - it ensures an appropriate focus...It's also important to frequently change your approach so as not to contribute to complacency...you have to keep the approach simple."

So the bottom line is that we do not consider ourselves to be some lab or scientific, pseudo-psychological experiment . We think "out of the box". We live in the real world...we're not a text book case. Perhaps next year may be different. But one thing is clear. We do not believe in thinking that we know what's best for people, or that we need to create the illusion of motivation. We don't play games, with safety - or with people.

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