Incentives Can Make or Break Your Company
By Brian McKay
It can be said that incentives drive everything we do in life. No matter how altruistic or selfless we think we are, incentives play a role then as well. Maybe Buddhist monks escape them, but even that is in doubt.
Incentives are currently driving everyone working for you. The chance for a commission, the opportunity for a promotion or a raise and even just a little praise, all come into play. Even the employee who is the most loyal and dedicated has a need to fill. That said, structuring incentives can be more important than almost anything your company will ever do. A bad structure can destroy moral and performance. The right structure of incentives can make your company great. As employees are your most expensive line item on the income statement and your most valuable resource, your company can’t afford to get incentives wrong.
Don’t skimp on incentives but don’t over-do it either. Sure an occasional stress bar or coffee mug with the company logo on it is okay, but a constant barrage of crap and candy bars can actually become devaluing. Your intentions may be good but the employee starts thinking, What’s up with all this junk I can’t use. They spend money on this when I’d much rather have a gift card to the grocery store. An occasional free lunch for your team is great but if their yearly raise is a measly $.14, all those lunches meant nothing. At the same time, lavishing employees with incentives can put you in a bad place. Overpaying commissions, salaries, too many perks, etc., can make it very hard to eliminate things when times aren’t so good. Big firms can afford to cut more slowly in bad times but your little company can’t. Making employees happy doesn’t require that you handle their dry cleaning for them unless your labor pool is impossibly tight.
People compare now with short periods in the past and memories become more distorted over longer periods of time. Short term is survival; long term is nostalgia. Removing, changing or scaling back incentives multiple times in a short period can create serious demoralization among your workforce. A single dramatic cut creates the same morale issue. Weigh out if the cuts equal the reduction in performance and loyalty to the company when planning them.
Measuring employee performance for a raise, bonus or commission is necessary but keep it simple. Convoluted incentive systems can confuse and discourage employees. If the measurements compete with one another wherein good performance in one can cause reduced metrics in another, you are going to definitely create a morale problem.
The more items that are measured, the worse the system. Period. Anything over two incentive metrics starts to increase difficulty exponentially for the employee and hinder their performance. Not only does it increase difficulty for them but for you as well. Incentive metrics changes become much harder to make because anticipating the actual effect is incredibly hard to do. If your salesperson’s main goals are net revenue and customer satisfaction, then only apply incentives to achieving their goals in those two areas. Do not start adding things like product mix and time to service the customer into the equasion. Once you starting adding more and more factors to measure you can expect turnover to increase substantially.
When there is an additional goal you would like employees to focus on, ask yourself if it is competing with their other goals first. If it looks good, offer a separate incentive that can be viewed as a bonus for practicing that behavior yet doesn’t impact the main goals you have for the employee.
Now that those ground rules have been established there is another really important tenant to keep in mind. Yes, everyone likes cash but it usually isn’t the only thing in the mix. As mentioned at the start of this piece, employees can be driven by things like promotions, additional learning opportunities, the opportunity to take on special projects or even upgrades to their workspace. One of the most important things you can ask your employee is what motivates them. Do it. Remember it. Consider it in all your interactions with them.
The final, and by far most important thing, is don’t announce how great business is or record profits and then reduce the incentives available. You just told your entire workforce that you don’t give a shit about them. If times are bad, sell your Lexus or at least don’t drive it to the office. Nothing is worse for morale and individual performance than employees being hit with cuts and seeing the company or management flourishing. Seriously, park the damn Lexus! Driving a nice car is worth far less than a loyal and motivated workforce.
A properly incentivized workforce can be amazing. Happy employees produce great results and make your company far more efficient. The income, customer loyalty and productivity that result make well planned, consistent and fair incentives an absolute must for sustainable, long term growth.
Discuss and zenrupt
Featured photo courtesy of Flickr, under Creative Commons Attribution-Noncommercial license
Brian McKay is a co-founder of zenruption and has his MBA from Boise State University. He has seen his share of really, really bad incentive systems in businesses. He also created a couple flawed ones in his own business and learned from it. Right now his incentive is in you taking something good away from this article.