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Rewarding Employees for
Discovering Efficiencies
Makes Sense

Mark Caliguire  Kristing P. Hadinger
By Mark Caliguire
Former Mayor, Montgomery Township
& Kristina P. Hadinger
Montgomery Township Attorney,
NJLM Assistant Counsel
man standing pointing to large letters spelling out IDEA
In 2006 Montgomery Township adopted an ordinance to create a program to reward employees who make suggestions for operational efficiencies resulting in demonstrable savings to the municipality.

How many times have you heard your constituents lament “If only you ran the government like a private business?” Of course, the simple truth is that the business of government differs fundamentally from the business of private industry. In large part, government’s core products, such as emergency and public works services, are labor intensive and must be provided without regard to profit. Further, government bears the burden of considerably more—and usually costly—regulation, particularly in the public contracts arena.

Yet, any business, be it a private or governmental one, can benefit from increased efficiencies and employee morale. With the establishment of an “Employee Efficiency Incentive” Awards Program, Montgomery Township in Somerset County has seen both (1) enhanced operational efficiencies, resulting in savings to the municipality, and (2) increased staff satisfaction despite cuts in compensation and benefits.

In 2006 Montgomery Township adopted an ordinance providing for an employee awards program - specifically, the “Employee Efficiency Incentive Program” - to reward employees who make suggestions for operational efficiencies resulting in demonstrable savings to the municipality.

Provided the decreased expenditure does not result in a diminution in services or have an adverse environmental impact, an employee suggestion that generates actual cost savings to the township can also generate cash for the employee. The award is provided one time, and represents a portion of the savings to the municipality in the first year of the suggestion’s implementation.

Examples of suggestions that have met the requirements of the township’s program, together with the corresponding annual savings to the municipality and award to the employee, include:

 

• Transfer of responsibilities of a local construction board of appeals to a county construction board of appeals: initial annual savings of $8,305 and eligible employee awards of $3,738;

• Entry into shared services agreement for recreation bus driver: initial annual savings of $44,557 and eligible employee awards of $11,139; and

• Identification and elimination of unused phone lines: initial annual savings of $9,438 and eligible employee awards of $2,832

The township’s ordinance actually establishes two separate programs—one for department heads and the other for everyone else on the staff. Non-department head employees whose suggestions result in actual savings of at least one thousand dollars during the first year of implementation are eligible to receive 20 percent of the actual dollar savings, up to $10,000. Thus, a non-department head employee who made a cost savings suggestion that the township implemented and that resulted in savings of $15,000 during the initial year of implementation would receive $3,000. If, instead, the savings were $60,000, the employee’s award would be $10,000.

To qualify, the employee’s “suggestion” must represent a definite, constructive, original (to the municipality) idea or a new application of an existing idea or procedure that is intended to increase productivity, conserve municipal resources, increase efficiency and reduce costs. Mere increases in existing fees are not eligible suggestions.

The program is overseen by a five-person committee, officially titled the “Public Employees’ Awards Committee,” whose authority includes the promulgation and adoption of rules for the conduct of the program. The committee’s procedures are designed to encourage participation in the program. The committee includes one member of the governing body appointed by the mayor, two department heads appointed by the administrator and two non-department head employees from different departments, also appointed by the administrator. Committee members’ terms are for three years, with the duration of initial appointments staggered so as to provide continuity in the program’s operation. In addition, the chief financial officer is an ex officio member. The committee undertakes a thorough evaluation of the suggestion and projected savings before acting on a suggestion. A key aspect of the program’s success in Montgomery Township has been maintaining a well-balanced, neutral, apolitical and professional Public Employees’ Awards Committee.

Ultimately the committee’s recommendations are submitted in writing to the governing body, which, in its sole discretion, makes the final decision with respect to award recipients. Though the governing body does retain that final authority, over the course of the program’s implementation in the Township, none of the committee’s recommendations have been rejected by the governing body because the committee’s review has always been comprehensive, unbiased and professional.

To promote leadership by department heads in the development of realistic budgets and encourage their staff to remain vigilant about operational efficiencies and cost-savings, the governing body also makes awards to department heads. These awards are based upon a percentage of the actual funds, as determined by the governing body, that were not expended as a result of the efficiencies generated in the department whether thorough the efforts of employees or the department head. If more than one department is involved in the cost-savings measure, the governing body determines the allocation of the award among the affected department heads.

Pursuant to the ordinance, the amount of the award is not considered in calculations of base compensation, and is not a factor in computing an employee’s retirement allowance under the applicable retirement system.

A statutory basis for establishing an employee awards program is found in both N.J.S.A. 40A:5-31 (Award program for local units) and 40A:9-18 (Awards program: appropriations). Finally, in towns where employees participate in the collective negotiations process, attaining the support of unions for the program is important. (See, In the Matter of Hunterdon County Board of Chosen Freeholders and Communication Workers of America, AFL-CIO, 116 N.J. 322 (1989)).

In the face of declining revenues, higher costs, and more restrictive caps, setting municipal budgets is an increasingly difficult exercise. Rewarding employees whose drive and ingenuity help you meet that challenge is simply a good business practice of which the public sector—just like the private sector—may avail itself.


Mark Caliguire is the former mayor of Montgomery Township. He served on the Montgomery Township Committee for nearly nine years before being appointed to the Somerset County Board of Chosen Freeholders in December 2011. During his tenure on the Committee, he introduced the concept of employee efficiency awards to the Township. He is the President and Co-CEO of ANW Crestwood in Lincoln Park.

Kris Hadinger is the Township Attorney for Montgomery and shareholder/director in Mason, Griffin & Pierson, PC in Princeton. She serves as an Assistant Counsel to the League.

 

Originally published in New Jersey Municipalities, Volume 89, Number 3, March 2012

 

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