Whirlpool Builds a Performance-based Strategy

In the late 1980s, Benton Harbor, Michigan-based Whirlpool Corp. began to seriously assess itself and the increasingly competitive appliance industry. The longtime maker of home appliances realized that to strengthen its position as a dominant player in the industry—and expand into European and Latin American markets—it would require an unwavering focus on customers, as well as a commitment to become the best-cost, best-quality producer in the marketplace.

To carry out its goals, Whirlpool’s management knew that the company needed to forge a higher level of commitment and dedication from employees, especially those working in the company’s plants and factories. So it opted to institute a performance-based compensation system for employees at its Clyde, Ohio, automatic washer manufacturing plant. Several other facilities were later added, and the company has never looked back.

The gain-sharing program—with its self-directed teams—slashed $36.4 million in costs the first two years alone. In 1992, two of the company’s plants managed to cut $800,000 in utility costs. And if one examines quality-control issues, it’s clear that employees are making a commitment to quality that couldn’t have been imagined a few short years ago. There now are 98% fewer quality problems than five years ago, and the service rate on dishwashers and other appliances has been reduced 60% to 80%.

The cornerstone of the program is an HR approach that provides workers, especially those on the line, with the incentives and motivation to treat their work as if they’re an owner of the company. Whirlpool places the money from all cost savings, business improvements and productivity gains into a fund for each specific facility, and workers receive a quarterly cash payout for their efforts. In some cases, that has translated into more than $2,500 a year per employee.

Of course, the company also gets a slice of the pie. And that can be significant. The total cost savings during the first two years for the company’s facilities in Clyde, Marion and Findlay, Ohio, measured $36.4 million—with payouts of $19.2 million. Says T.R. Reid, Whirlpool’s manager of financial communications: “It’s a program that benefits everybody. It has led to fundamental changes in the way top executives and hourly employees think about work and their job.”

Indeed, employees are more knowledgeable, there’s greater cooperation and involvement, and financial and quality-control benchmarks have reached all-time highs. And because hourly and salaried employees share equally in the gains, the program has helped narrow the culture gap between the two groups. Meanwhile, for the corporation, payouts have alleviated pressure for base-wage increases (however, the company maintains a philosophy that gain-sharing never should replace wages) and the program has led to greater profitability. In short, the program’s been an unqualified success.

Says Reid: “You see managers and line workers doing things they wouldn’t have considered just a few years ago. If an inexpensive plastic part fell on the floor before, for example, it would get thrown away. Today, somebody picks it up and makes sure it gets used again. If there’s a machine that needs to be fixed, people step in and do it.”