Understanding the financial impact of swine industry wages

Organizations that understand, quantify the costs of labor can make better decisions about compensation, identify areas where labor costs are excessive.

April 25, 2023

5 Min Read
Understanding the financial impact of swine industry wages
National Pork Board

Professional sports organizations have cracked the code to success - they know how to grow their value and keep players' salaries attractive. Can the swine industry learn from this example? With labor costs per pig on a steady rise, it's time for leaders in pork production to ask themselves: are we achieving all of our potential returns? It may be that getting pigs ready for market is just scratching the surface when considering overall profitability.

Let's dive into what you could be missing in your performance management and compensation plans that you and your employees could benefit from moving forward.

First, let's go over two definitions. What is a performance management system? This is your alignment of employee development and performance with organizational goals. And second, the compensation plan is your philosophy on how you choose to incentivize your employees to execute their assigned responsibilities.

We're all too familiar with the temptation to cruise on autopilot when it comes to compensating our team; letting regional and industry wage surveys steer us into taking a 'lag, match, or lead' stance. In certain circumstances, this is fine, with one condition. You know the actual loss or return on those costs just like any other input.

For businesses in competitive labor markets, high costs can quickly eat away at your profits. What if there were ways to keep the value up and losses down? It's all about getting creative - finding how you as a company can maximize the value of each dollar spent on wages. The market determines the price; it’s up to us to find that extra edge when covering our labor cost.

Where do we start in order to grow value in our labor cost?

First: Process execution transparency
In your strategy, there are key actions that need to be executed at a certain quality and consistency in order to extract the value. Labor, health, feed and facilities need to have calcuated process to reap the value out of your investment. For example, if those actions are only completed 70% of the time and at a 80% quality level you are only at 56% of the full value!

Your first step is identifying the process in which your organization can effectively track process execution in each of these areas. A good starting point is identifying both:

  1. What actions are the most critical?

  2. What actions can be easily tracked?

Excel sheets, audit programs and workforce management platforms such as PigFlow are different solutions your organization can adapt to create a solid process of consistency and quality in how your team executes in each area of the business.

Without this, then what? When it comes to employee development, a lot of organizations can't pinpoint where their team needs extra help. What about bonus or incentive programs? The jury's out on whether they really make any difference – after all, you need insight into what your team is doing for those rewards to be effective.

Result: We now have a system for tracking process execution.

Second: Designing and implementing operational expectations
It takes a team to get the operational strategy right- from vendors, vets, and consultants alike. With research (and many mistakes!) used to decide the best way forward, expectations need to be clear on who's responsible for what as well as tracking quality and consistency of results. What if things don't go according to plan? You'll now have the backbone in place to understand where in the process is either not effective or not getting executed well.

Result: Now you can train your team.

Third: Impactful talent management
With an effective performance strategy and the right tools in your tool belt, you can now provide direction to your talent development initiatives. Arming your team with the necessary skills to ensure success, but also being able to continuously fine-tune operations for even better results. Be sure to remember step one. If there's no insight into what tasks were completed effectively in alignment with the subject matter experts guidelines you are again playing a guessing game. The key continues to be clarity to the team and transparency in results.

Result: Now you can begin to tie it to wages.

Last: Compensation plan that pays … everyone!
Moreover, without an understanding of the impact of employee actions, organizations may make uninformed decisions about wages. They may give wage increases based on seniority only because they have to proceed with extreme caution. This method of compensation does not incentivize employees to work harder or produce better results. If you want to maximize the potential results of your team and organization this alone will not provide the results you desire.

An organization that understands and quantifies the costs of labor can make better decisions about compensation. It can also identify areas where labor costs are excessive or where bottleneck exist, and productivity improvements might make sense. This approach ensures that compensation plans align with performance management systems and drive a positive ROI for the organization.

Finally, an organization with a transparent understanding of process execution, labor costs and ROI can create a more motivated workforce. When employees understand how their performance directly impacts the bottom line, they are more likely to work hard and provide value. This understanding also helps employees to understand where to focus their efforts, leading to better job satisfaction and a more engaged workforce.

In conclusion, understanding the financial impact of labor costs is paramount for any organization that seeks to remain competitive and continue to grow. A performance-based compensation plan encourages employees to work harder, focus on their strengths and produce better results, creating a more motivated workforce. In addition, organizations can identify areas where labor costs are excessive, leading to productivity improvements that are beneficial for both parties. Overall, nothing is possible without having a reliable and transparent understanding of what is getting executed on a day by day or minute by minute basis.

So please ask yourself:

  1. Do I know what's working and moving the needle?

  2. Do I know where bottlenecks exist in my operations?

  3. Do I know the ROI of hiring a new employee?

  4. How much does the execution of my farm staff impact the value that I am getting back from my investments into genetics, nutrition, health programs, etc.?

  5. What am I going to do today to take a step towards better understanding the value of my people and future hiring decisions?"

For any help in developing your performance-based compensation plans feel free to reach out to Barrett Eller via email or visit the SwineTech contact us page.

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