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A well-structured incentive program can boost productivity and instill
a sense of shared responsibility among employees.
Fed up with compensation plans that are fueled by an entitlement mentality,
some employers are turning the tables and indexing pay to the one thing
that really matters: performance.
It's no big surprise that compensation is the issue that causes the most
anxiety in American workplaces. Employees want more of it, but it's becoming
harder and harder for employers to justify raises simply on the basis
of time served.
Based on my many conversations with small-business owners, I can tell
you that most employers don't have a problem giving raises to their employees
if the employees are doing their part to ensure business growth and profitability.
However, in many companies that's a big "if." When profitability
plateaus, employees generally interpret flatline compensation as a sign
of disrespect instead of making the connection between compensation and
job performance.
Does your workforce suffer from a unionesque mentality that expects raises
regardless of performance? If so, it's time to become more reliant on
incentive programs to motivate your workers. A well-structured incentive
program can dramatically boost productivity and provide workers with a
sense of shared responsibility. A haphazardly designed program, on the
other hand, can make a bad problem even worse.
Although the details of incentive programs will vary from company to company,
here are some common characteristics I've observed in the ones that are
most effective. Here are seven incentive pay best practices:
No. 1: Reward Individual Achievements
The gut-level reaction of employers launching a pay-for-performance program
for the first time is to offer a company-wide incentive based on the achievement
of a shared goal, usually related to the year-end bottom line.
While this type of program is easy to administrate, it never works. No
matter how big the carrot you dangle in front of them, your employees
will not respond uniformly. Some will give it their all and others will
slack off, causing resentment even if the shared goal is achieved. A better
option is to individualize your incentive program and break it down into
specific results each employee needs to accomplish in order to realize
the larger goal. It's your job to make sure that all the individual goals
will enable achieving the bigger goals that power organizational success.
No. 2: Find Relevant Goals for Every Employee
We all know that sales commissions are the most ubiquitous performance
incentive. Sure, motivating a sales person to hit a goal is easy, but
how do you motivate your accounting department or your receptionist to
do a good job? Best practices in incentive pay suggest that you need to
develop incentives for every employee. If your goal is that your bookkeeper
gets the monthly invoices out as soon as possible, then reward him if
all invoices are sent out within the first few days of the month.
No. 3: Create Rewards for Teams of Workers
Individual incentives are essential, but they are only part of the solution.
Adding in a few team goals mixes things up a bit. The reality is that
most businesses do best when teamwork thrives, so you want to motivate
your teams to do well.
Without team goals, you may find that one of your employees refuses to
help out a fellow colleague. That type of behavior is counterproductive
to business growth and needs to be nipped in the bud. The best way to
encourage teamwork is to pay the entire team when they hit team goals.
No. 4: Communicate, Communicate, Communicate
You simply can't maintain a quality incentive program without good communication.
Management may have a definite vision of acceptable outcomes, but unless
departments and individuals understand their role in helping to achieve
those outcomes, an incentive program is worthless.
Successful incentive programs leverage every available avenue of communication
to clarify expectations and delineate achievable goals in a way that is
fair and mutually acceptable. My strong recommendation is that you remind
employees about their incentives at least once per week.
No. 5: Measure Results Mindfully
The power to measure results is another must-have characteristic of pay-for-performance
programs. But the process of measurement is more complex than just charting
metrics on a spreadsheet. What constitutes a vital outcome? How do you
measure intangibles? What happens if circumstances change?
The key to measuring performance is flexibility. Desired outcomes have
to take into account the individual’s personal limitations, as well
as the possibility that business goals or outside influences may make
stated goals unachievable or no longer relevant. The best measurement
tools integrate circumstances-aware tools, such as progress reviews, with
the hard numbers that make the incentive program worthwhile in the first
place.
No. 6: Empower Your Workers to Be Successful
Probably the single most important feature of incentive-based compensation
is employee empowerment. Unfortunately, that's also one of the most difficult
things to achieve. Incentives are supposed to motivate workers to overcome
obstacles, right? But if employees are unable to directly resolve challenges
when they arise, they quickly become demotivated.
Employers need to give workers the ability to accomplish their objectives
and control their own fate. In our organization, we often give workers
a small budget to achieve a certain goal, and we let them use that budget
however they need to in order to be successful. If they run into a roadblock
that they can't overcome, we encourage them to escalate the issue to the
attention of upper management, and we move quickly to help them obliterate
roadblocks that curtail their success.
No. 7: Cash Isn't Always King
You don't want performance incentives to make your workers feel unmotivated
unless there is a cash bonus attached to completing a task. Indeed, too
much of an emphasis on cash incentives can be detrimental, as your workers
may end up like seals in a circus who only do tricks when there is a fish
to be had.
At SurePayroll, we offer many non-cash incentives. You'd be surprised
how motivated employees become when you provide free Cubs tickets or a
gift certificate at a nice restaurant. Employees appreciate -- and remember
-- non-cash bonuses, especially when they were received unexpectedly.
Don't bet the ranch on performance payments. Remember, incentive programs
are not a panacea for motivational problems in the workplace. At best,
pay-for-performance programs are just one resource employers have at their
disposal for recognizing the efforts of hard-working employees. Other
resources like gratitude, enthusiasm, and respect play an equally important
role and have to be taken into consideration when it's time to rally the
troops.
Still, it's clear that performance pay can be a useful tool for any small
business owner. By aligning your business interests with the interests
of your employees, you create a win-win scenario that will fuel your business
growth to levels of success you never dreamed you could achieve.
