Doing the Right Thing: Optimizing Safety Incentive Programs Under OSHA's New Initiatives

The conflict between employers' love affair with effective safety incentive programs and OSHA's concern that those same programs may encourage under-reporting has gone on virtually since the OSH Act became law in April 1971.

• By Sean Roark
• Oct 01, 2011

An OSHA inspector and a private industry safety professional walk into a bar. I'm not sure what happens next, but my guess is that if one of them brings up safety incentive programs, the ensuing conversation will be no joke. The fact that there would be a pretty strong difference of opinion between these two barflies arises from differing takes on what it means to "do the right thing." Let me briefly outline the two points of view:

The Industry Point of View
To save ink, let's accept as a given that employers want their employees to be safe and avoid injury. It is in management's interest to encourage staff to follow the established standard operating procedures and safety regulations. In other words, the employer wants employees to do the right thing because it's good business. In return, many safety experts realize the effectiveness of encouraging employees by providing incentive programs that recognize the pursuit of using best practices and active compliance with corporate procedures and goals. This is in keeping with the "Going FAR" incentive approach espoused by corporate performance legend Dr. W. Edwards Deming: Focus, Achieve, Reward. They want to do the right thing to achieve those results and do the right thing in rewarding desired employee behavior. A very efficient and reliable way to do this is with a well-designed, well-managed incentive program.

The OSHA Point of View
From the regulatory point of view, let's also accept as a given that OSHA similarly wants all employees in the workplace to be safe and avoid injury. One of the most important regulatory tools available to ensure this is being sure that all such incidents are properly recorded, and, when appropriate, reported to OSHA by employees. They want employees, in short, to do the right thing. For years now, OSHA has expressed concern over incentive programs that might offer compensation, seeing it as a plot to threaten to take away that compensation if an employee files an accident report. The belief is that such a program will discourage employees from filing required reports, and OSHA would like employers to avoid any action that results in under-reporting of accidents. That's right; they are looking for employers to do the right thing.

This conflict between employers' love affair with effective safety incentive programs and OSHA's concern that those same programs may encourage under-reporting has gone on between the two groups virtually since the Occupational Safety and Health Act became law in April 1971. Last year, the conflict escalated.

A Little History
A year ago, OSHA announced a National Emphasis Program (NEP) designed to seek out and penalize improperly designed safety incentive plans. In their words, "Safety Incentive Programs that discourage the reporting of injuries and illnesses could be discriminatory." By the official OSHA definition, your company has a safety incentive program if:

1. Your corporation recognizes or rewards employees for their safe behavior or achieving performance goals or safety milestones; or

2. Some portion of managers' or employees' compensation in your corporation is based on the performance of the safety program.

OSHA likes participation-based incentive programs. These are programs where achieving specific goals and following best practices (such as identifying a potential hazard or volunteering to serve on a safety committee) are rewarded by incentives such as cash, gift cards, merchandise, or other forms of acknowledgement.

The disagreement between regulators and private industry seems to arise over the use of result-based rewards. The criteria for these rewards often include having a defined period without an accident, and this result-based milestone is an problem for OSHA, because they see any award that is based on an absence of an accident as also containing the implied underlying message to employees that if an accident is reported, they will lose benefits. In light of this possibility, they believe that such an award might keep an employee from doing the right thing by properly recording and reporting an accident.

This is not altogether an unfounded fear; history shows that some businesses with the specific intent of under-reporting to OSHA (and thereby avoiding oversight and fines) have structured their programs to attach an "incentive" to employees who don't file a report of an accident. On the other hand, OSHA is applying a very broad brush with this assumption, painting companies that use this technique as an integral part of a comprehensive safety incentive design with the same paint as the fellow who is trying to discourage reporting.

Financially, the über-test for determining whether the cost of a program is justifiable in the budget comes from the calculation of Return on Investment, which in our experience can be as high as 300 percent on a well-designed and expertly managed safety incentive program. Along that same lines, completely legitimate businesses that are aggressively following reporting rules have found that the gold standard in measuring the effectiveness of a safety incentive program is in the overall number and severity of accidents. People trying to cheat the system may try to manipulate these results by encouraging under-reporting, but my point here is that straight-and-narrow, by-the-book safety incentive programs consistently show heightened effectiveness when a results-based incentive is one of the key metrics.

So, how do you include results-based incentives in a safety incentive program without creating a conflict with the regulators?

It Seemed Like a Good Idea at the Time…
During the 66 years that our company has designed promotional product and incentive programs for clients, some may have been more effective than others, but we have always been motivated by the desire to produce consistent and predictable improvement in the workplace. These programs are often designed after consultation not just with management, but also with the participant employees. As Dr. Deming concluded, "People tend to support what they help create." Our challenge was to modify the etched-in-stone rules we knew to be effective so that they did not expose our clients to the unwarranted scrutiny by OSHA.

While our safety incentive programs rely heavily on participation-based metrics, we have consistently seen that results-based metrics are key to changing the "group culture" of a workforce. Offering a bonus to a team of workers if everyone on that team achieves a safety goal over a period of time (perhaps monthly, quarterly, or annually) can change the way that employees look out for each other. For example, instead of a couple of workers nudging each other and watching a fellow worker climb an improperly erected ladder, the reality that an employee falling from a ladder can cost the entire team a bonus motivates those employees to bring the potential hazard to their teammate's attention and correct it. Perhaps more importantly, if there is a "culture of silence" at that work site that normally would allow such an accident to occur, the results-based incentive actually gives permission to another worker to break ranks from that tradition and prevent the co-worker from being exposed to the potential hazard, using the "excuse" with his or her peers of not wanting to lose the safety incentive bonus.

Many programs in the past have also allowed these bonuses to grow over time, increasing the degree to which employees are excited about their success. This follows the logical conclusion that the longer there are no accidents at all, the greater the overall savings in lost time and medical claims. So an employee receiving a $100 bonus value after a full year of safety might see it increase to a $150 bonus value after two years, etc. The intuitive step in such a program where a participant experiences such an accident would be no earned bonus at all for that year and would then begin to build from the first-year base in subsequent accident-free years.

Another long-time accepted principle was that than an OSHA-recordable or -reportable accident was the ideal metric for earning performance-based incentives. OSHA was an impartial third party to determine whether the safety goal was achieved or not, and as long as the program was operated along a dependable set of guidelines that require proper reporting, it was a pretty good solution.

The problem with this design framework is that it also pretty much fits the OSHA-defined concerns for safety incentive programs:

• The design was performance-based and predicated on accidents that require a report. It can be pretty easy to misconstrue that if you are "paying" someone when no accidents are reported, then you are awarding them when no accidents are reported. While OSHA's jump to the conclusion that employees are being penalized for reporting (as opposed to receiving an incentive for achieving a safety paradigm) is arguable, the point of view is defensible.
• An incremental increase in a safety bonus also means that as the bonus grows, if that bonus resets to zero there is a commensurate increase in the "punitive penalty" perceived to arise from the filing of an OSHA-reportable accident.
• The standard of measurement in the current architecture is a reportable accident, the very event over which OSHA has expressed concern.

To address these concerns, everybody in the incentive design industry started looking for how to change the rules to avoid the conflict with OSHA. The question was, how?

The Search for the Right Thing
Many incentive providers chose the quick and simple route by removing any results-based criteria from their programs. This did solve the problem, but it seemed to some in our industry that this solution was kind of like removing the engine from the car to prevent speeding. The immediate goal is addressed, but the positive aspects of the incentive vehicle are so greatly reduced that it becomes a far less effective tool.

In our search for a design that would suit both our private-industry clients and public regulators, we first needed to clarify the issue. Over the years, the safety incentive designs we've implemented had been well received by both our clients and their participant employees and had resulted in dramatic improvement, both in tracking the occurrence of safety events and in return on investment. Like many in our industry, our structure encouraged reporting, including offering incentives for reporting an incident, reporting a near-miss, identifying a potential hazard, and assisting in an investigation.

The problem, by our thinking, was not that the pre-existing program was ineffective, but rather that it was unambiguous in how it addressed the OSHA concerns. We concluded the design needed to make it clearer that the safety incentive program actually encouraged proper reporting. On our side was the emphasis we always place on employees’ following the laws of the state and the rules of the employer, all of which require timely compliance with reporting requirements, but we saw the possibility of doing a little fine tuning to not only address OSHA concerns, but also improve our overall effectiveness. This required some modifications to our results-based awards, as follows:

Conclusions
This redesigned safety incentive program addresses the OSHA concern about programs that encourage under-reporting in several ways:

1. The program is specifically disconnected from accidents and reporting, and instead is based on an arms-length performance evaluation of how well an employee is following SOPs and pursuing best practices.

2. The "cost" associated with properly filing a required accident report is marginalized, and the program now is taking a broader look at the ongoing trend in safety performance by a team, rather than effecting a perceived punitive response to a single event.

3. The "cost" associated with failure to file a required accident report is now nuclear; far from using an incentive to discourage reporting, the cost of under-reporting is now so great that no reasonable employee would attempt it, and no reasonable auditor would infer that the program had such an intention.

This article originally appeared in the October 2011 issue of Occupational Health & Safety.