Should Local Governments Pay Bonuses To Employees For Their Ideas?

Many local governments on paper have a Employee Suggestion Review Committee, but few actually utilize such committees successfully. The Town of Amherst, NY as I mentioned in a previous post has such a Committee along with wooden suggestion boxes, which had not been opened in years.

According to an Arizona Republic news article at the local level in Arizona several municipalities have tapped into the power of obtaining ideas from their employees. The city of Phoenix has saved more than $15.3 million through its program during the past four years. Maricopa County’s program has saved the county more than $11 million over the past 17 years.

A state representative has taken notice of the success at the local level and is seeking to enact a program whereby employees can earn a bonus in the amount of 10% of the cost savings generated by their idea in one year. Through a previous state program, $100,000 was provided in 1981, but by the end of its life, the program had paid out only $17,000 to employees in $1,000 increments.

In the Arizona Republic news article, Will Humble, director of the Department of Health Services stated “When an agency is as big as mine, (2,000 employees) it makes it difficult for good ideas to filter up,”. “This seems like a short-circuit way for people to come up with ideas that, through the normal process, probably wouldn’t make it up the ranks.”

Since fiscal year 2003-04, Phoenix has received nearly 1,100 ideas through its employee-suggestion program. The city has implemented nearly 200 of those ideas, saving more than $15.3 million and paying out more than $163,000 to employees.

In Phoenix a five member committee decides how much compensation employees receive for their cost savings ideas. Employees can receive 5 percent of the first year’s savings, up to nearly $16,700. City officials give those with intangible ideas $50 to $750.

Alan G. Robinson, a professor at the Isenberg School of Management at the University of Massachusetts, conducted research which determined that the average U.S. employee’s ideas, big or small, are implemented only once every six years!

Employees who are engaged and encouraged to contribute ideas can be a tremendous asset to any organization. IdeasAmerica, an association for “suggestion administrators,” who manage suggestion submissions, surveyed 31 of its 125 members last year. The study found that submitted ideas saved respondents more than $110 million dollars in time, materials, labor or energy, an average of $1,256 per suggestion.

Toyota’s success as a company is in part due to its ability to engage employees who contribute ideas on how to improve operations. According to the book All You Gotta Do Is Ask by Chuck Yorke and Norman Bodek, Toyota implements an average of nine ideas per employee per year.

It is shocking to me how little effort is put forth by many local governments to encourage and obtain ideas from their employees. I think through a sincere and focused effort ideas can be obtained without paying for them, as people truly welcome the opportunity to be heard and to make a difference through their work.

What do you think about paying people a portion of the cost savings their ideas generate?


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Peter Sperry

Great idea but I would pay 2 percent of first year savings, 4 percent of second year savings, 6 percent of third year savings, 8 percent of fourth year savings and 10 percent of fiveth year savings. Payments to be measured agains an intial baseline and paid at the end of each year. Short term savings are nice and worth 2 percent but long term savings are what move governments from the red to the black and worth paying more to obtain.

Deborah Johnson

I’m concerned at the sense of entitlement that seems to infect workplaces. If you hire me, you hire my talent…and my ideas. A local government shouldn’t have to pay extra for the “good ideas” part. That said, if there is some kind of structure in place that represses ideas from lower levels, then the management should work out a way so that suggestions from all levels are treated equally.

William Blumberg

I am not incline to the idea of paying for cost savings ideas. Oh, I am sure that some good idea can be generated that way; but I do not think that this is the best method. Take a look at Drive: the surprising truth about what motivates us by Daniel H. Pink and his look at latest scientific discoveries about what motivates us and how money incentive can even drive down motivation.

What I think helps with motivation is listening and implementing staff ideas. In fact, having them part of the implementation would be best.

Tiffany Wan

Innovation Survey: How do Federal leaders advance innovation within their organization?

Discussing innovation within the Federal Government typically brings to mind images of Todd Park and Vivek Kundra or the TSA IdeaFactory and DARPA. This is not the common face of innovation for many Federal leaders. Federal executives lead innovative organizational changes from process improvements to new acquisition strategies regularly. I want to know what lessons you have learned and successes you have celebrated as you take an innovative idea or change initiative from concept through execution. How did you get from your initial idea to quantitative results? What were the pitfalls along the way and what had to be in place to ensure success? How did you manage the force of the status quo?

Please take 10 minutes out of your day to provide me your insights by selecting the below link.


Paul Wolf

You all make some great points. I share your concern Peter that only paying for cost savings that take place in the first year, leads to short term thinking. I like the formula that you propose.

Deborah and William I share your concern about paying for ideas. More important is developing a process that allows employee ideas to be heard and addressed. Instead of having a whole host of rules and bureaucracy about determining who gets paid and how much, I think good people will step forward regardless of being paid if management is sincerely interested in what they have to say.

Deb Green

Paul, I think you’ve hit the nail on the head. I manage an ideation program, and know people do step forward with ideas and do so quite in earnest if management is sincerely interested in finding a solution to a particular matter they’ve been grappling with. Recognition of the individual(s) offering the idea and the decision makers and action officers that DID something with the idea can be just as motivating (if not more so) as monetary recompense.

Leadership Reading Geek Out Follows: In The Leadership Challenge, Kouses and Pozner cite the “National Study of the Changing Workforce” findings that “personal satisfaction for doing a good job” is the most frequently mentioned measure of success on the job. It’s cited nearly two to three more times than “getting ahead” or “making a good living.” People want to work somewhere where they feel they make a difference and a personal contribution.

Money does pay the rent, but there’s more to a job than just a paycheck. For me, at least 😉

Peter Sperry

I still like the idea of paying cash for unexpected contibutions above and beyond what is expected of employees whether the are idea, or putting in emergency overtime or being available 24/7 when it is not in their job description etc. It may or or may not encourage more such behavior but the alternaitve fraknly seems a little cheap. When an employee has provided significant unexpected value, it seems only fair to respond with a reward that is at least a meaningful fraction of that value. Yes we can keep our budget out lays low by giving nothing but a pat on the back and a “Gee don’t you feel empowered speech” but that will not buy them a dinner out with the family. Unless the jurisdiction is really hurting, do the right thing and pony up some cash.