Compensating safety

May 11, 2015
Amid a violent contraction of the oil and gas industry, as companies jettison work and workers to confine spending to diminished cash flow, one function must escape the blade.

Amid a violent contraction of the oil and gas industry, as companies jettison work and workers to confine spending to diminished cash flow, one function must escape the blade. Asserting the priority of safety-personal and environmental-is easy, of course. Company executives do so continuously and mean what they say, most no doubt with commendable passion. Top-level concern for safety is essential. It's just not enough.

The priority of safety means safety has to be the priority, the one and only priority. At every level and in every operation of every company, safety has to be more important than anything else-even profit. How many chief executives will say that to a group of shareholders or investment analysts?

Profit and safety

Profit is supremely important, of course. It reflects value created by a company for its owners, which is the reason to be in business. But safety relates to the work itself, what a company does as part of a group of companies performing similar activities-an industry within a society that accepts or rejects its activities based on collective judgments about economic benefits in balance with risks of harm. Work by a company and industry depend on those judgments. When an industry, or a single company within it, routinely injures its workers, customers, neighbors, or surroundings, society judges harshly.

Safety performance is a test an industry and all companies in it must pass continuously as a condition of being allowed to compete for profit. Safety precedes profit. That, coupled with the healthy revulsion most managers and workers feel about injury to themselves and others, is why it must be the priority.

When the price of crude oil is low, making profitability elusive in the upstream business, these relationships can become dangerously easy to forget.

Since the Macondo tragedy of 2010, the industry and its regulators have overhauled systems of safety management (OGJ, May 4, 2015, p. 28). Those improvements are welcome, important, and ongoing. They will mitigate many problems, including the weak-link employee insufficiently trained or motivated to work safely in all circumstances.

Another kind of employee needs different attention.

Many companies manage employees above certain levels of responsibility with incentives-extra pay dependent on the achievement of company operational or financial objectives. Incentives align individual behavior with corporate priorities. The continuing popularity of managerial systems centered on incentives indicates that they work.

But how many incentive systems give safety the priority it must have?

A weakness of performance incentives is the temptation they impose on workers to take injudicious risk to influence evaluation metrics. People of course differ in their susceptibility to this pressure. The susceptibility can vary circumstantially within an individual. Some well-incented workers habitually test the boundaries of caution, ever ready to dismiss warnings with assurances that all safety standards are unnecessarily strict. Other workers normally more prudent might, in spells of personal stress, cut corners opportunistically to nudge performance-based bonuses.

Safety systems should integrate performance incentives. More than that, they should dominate performance incentives. They should ensure not only that workers have the training and resources to perform safely in all circumstances but also that they do. That means no worker ever should be willing to compromise safety in the interest of personal gain. The risk of an accident must, at the personal level across every company, always outweigh the reward for starting a well early or pushing cost-reduction into the next bonus tier.

Embedding the balance

This balance must be embedded in incentive systems. How to do this varies from company to company and falls within the realms of human relations and compensation specialists. What's important is that incentive systems recognize that safety precedes profit, therefore takes precedence, and thus represents the managerial priority.

Safety lapses can't be tolerated, primarily because they hurt people and damage nature and secondarily because they diminish the legitimacy of vital work. Preventing lapses must be a priority that affects people's pay.