Most every small business owner desires dedicated, hardworking and loyal employees. The problem is how to do you cultivate and reinforce those values? We pay people what we believe to be a fair and competitive wage for their work, yet that may not be the only means required to foster the winning attitudes desired. How many times have you heard “but that is what I already pay them to do.” Maybe. Do you pay them enough not to make mistakes? Maybe. Do you pay them enough to give extraordinary customer service? Maybe. Do you pay them enough to go the extra mile? Maybe. Do you pay them enough to expect quality work all the time? Maybe. The answer might be that we pay the going wage and expect all of the above but don’t always get it.
Naturally, owners have high expectations for their money spent; not all of which get explained conveyed or taught to all of the employees. So, are you getting your money’s worth? More importantly, are you reaching your company goals and expectations?
A vast number of small businesses do not have goals or measurements in place to rate employee performance. When it comes to the majority of their employees; “We really can’t tell how to distinguish among most.” They can name a few of the best employees but really can’t rank the others. They do not measure performance. For that reason, companies revert to the bonus system as their method of reward. Some may get a little more money, but others may not even get recognized. As we have maintained all along “You cannot manage what you do not measure.” However, once you put measurements in place, it becomes incumbent on ownership to put rewards in place to continue to encourage the best practices.
What are we looking to accomplish?
- Increase productivity.
- Reward high achievers.
- Develop “team players.”
- Retain key personnel.
- Say “thanks.”
- Increase profits.
These may be our stated desires, but our ultimate objective is to set goals and keep score by measuring how close we come to achieving the goals. Some of these may be obtained with an incentive and others may require different means of stimulation.
A brief look at the most common means of additional motivation might be advantageous.
- Probably the most common form of motivation is the bonus, typically based on the overall performance of the company. Unfortunately, the amount given often depends on longevity and not individual performance. It is often arbitrarily determined. There are usually no real criteria applied to determine the amount awarded; nor do the employees know what to do to better qualify for the award. Often the same amount is allocated for the same class of employee regardless of individual performance. Structuring a bonus this way can often accomplish the opposite of the desired outcome because it creates jealousy and resentment among the employees who worked the hardest when they get the same reward as some who do not perform as well.
- The bonus may be one means of saying “thanks” and buy some short-term loyalty, but that seems to be the only two on the list of desired goals.
- Another common problem with bonuses is they become an entitlement. That is, the employees come to expect they will get a bonus at Christmas regardless of how they perform, which has the adverse effect of not increasing productivity or motivating better performance.
- It lowers profits (pay-out) without getting much in return.
The usual requirement for an incentive is that it comes from an increase in profits brought on by the change in behavior that the motivation has created. The best example of this is in construction. We have bid a job with 100 hours of labor, but we tell the foreman that if the crew can complete the work in less time than the bid, we would split the savings with him and his crew. For example, if they finish the work in 90 hours, we have saved 10 hours. If our combined crew rate is 80 dollars per hour, we have gained $800 in savings on this job. Therefore, splitting this brings the crew $400 and the company an additional $400 in profit. Productivity now increases as well, as an extra 10 hours may be applied to new work.
It accomplishes most things on our list of goals:
- Increases Productivity
- Increases Profitability
- Rewards High Achievers
- Promotes Teamwork for that Crew
- Says Thanks
- Helps Retain People (As long as they earn the Incentives)
- Increases Profitability (Company keeps a share itself)
So, this incentive accomplishes all of our goals to some degree. The drawback to this incentive is that the hours needed for the job are set by someone else (an estimator), and they may not be accurate. Secondly, the degree of reward may vary significantly from job to job.
Not every project taken on by the company is conducive to creating additional measurable profits. For example, a data entry person has little they can do to increase profits. The company receptionist will also be hard-pressed to improve earnings measurably. However, if they are perpetually out of the incentive loop, we will be defeating the motivation goal and that goal of retaining the best employees.
This would be a hybrid product. Measurable goals need to be set for each position. They may be as simple as a customer call, email or letter to praise the employee for the job they did. We say that we will pay $25 for every customer citing this good behavior. We cannot say that it immediately raised our profits, but we know that 56% of people share their positive experiences. A dissatisfied customer will tell 9-15 people, and 13% of the dissatisfied will tell 20 people about the problem. So, why do we want to reward excellent customer service? It likely leads to more positive word-of-mouth marketing and referrals for the business. It is what we want in an employee, but we do not always get these results. It is an out-of-pocket expense, but since it is tied to performance or goals, we hope it will result in positively affecting behavior which will lead to referrals and higher profits.
Other forms of measurement can be rewarding crews for documenting their critical work with photos that we can keep on file, or for sending in the daily reports with the time sheets, all of which slow down the back-office work if not done on time. Obviously, there may be duties that we already expect for their pay, but if it is critical to company performance, we may need to measure and reward on top of the base pay.
Now, this system can also have deductions for mistakes found in work; such as failing to pass an inspection or for the poor quality of a particular installation. So it can work both ways with positive cash for good behavior and deductions for mistakes made. Keep in mind that deductions may not come out of the employees pay but can be deducted from the incentive dollars they have earned.
This would be a situation where we have not set any specific employee achievement goals, but we recognize behavior or actions that are above the norm. It may be someone just taking extra time to explain a situation to a customer. It might be someone going out of their way to make a delivery, or it might just be an outstanding attitude on the phone.
Whenever this “going the extra mile” is observed management should be prepared with gift cards, cash, discount coupons, ballgame tickets or extra time-off to bestow on the valuable employee. These rewards are best if disbursed swiftly and accompanied by an announcement of the reason for the reward.
This approach can be one of the most influential tools to modify overall employee behavior by getting others to go out of their way in hopes of being recognized themselves. The reward must be meaningful and spontaneous for performing above the average expectations.
Recognizing that we pay people a base wage for their work, and once we set goals or begin to measure performance, we will need to reward those who out-perform the majority. The basic bonus is probably the least desirable. A combination of incentives and incentive/bonus, coupled with the spontaneous reward will probably get the most desired outcomes while boosting morale and getting the measurements and results the company strives to achieve.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: