High-Performing Superstars – Building and Retaining Your Team – Part 5April 24, 2019
Part Five: Incentives
Okay, you’ve hired right and trained right. Now… to get absolutely the best possible performance and the highest ROI from your people and certainly to assist in creating an employment environment conducive for maximum retention, provide them meaningful incentives. I know you’ve heard this before; to have meaning and provide the lasting benefits you are trying to achieve, your incentives/rewards need to come very close to the achievement being rewarded.
Incentive and bonus programs are certainly good ways to reward the organization and individuals for performance. From the company standpoint, you want to make certain, that in the majority case, your incentives are related to improvements to your bottom line. When incentives are applied to individual line item costs its common for actions taken to decrease those costs to have the effect of increasing costs in other areas. I’m not inferring that happens with intent. However, it can be difficult to control how changes in one area will affect others. One of the standards you want to consider is defining what percentage of the improvement to the bottom line, after return on equity to the owners and accrual for business-reinvestment, do you want to set aside as a pool for incentive payouts.
The variety of incentives and bonus structures is limited only by your imagination. The one commonality should be the incentives should be quantifiable and measurable. When designing your incentives program don’t think in terms of one-size-fits-all. An incentive that creates enthusiastic and effective performance within one individual may have no meaning to another. People respond best to rewards that are of specific interest and value to them. It has been shown; people value a reward that matches their interests. Dinner for two at good restaurant or a paid weekend at a local resort will be remembered far longer than had they received a cash bonus; of even greater value.
There is one program I’ve seen that offers significant potential benefit to both the company and employees. This program essentially combines the usual “merit” increase program and the incentives program into one. It’s not my intent to go into the details of the program, but simply provide you enough information to determine whether this approach might warrant further investigation. In most companies the dollars in the merit increase program become embedded as a large fixed cost. By combining that program with the incentive program with all payouts only from the pool of funds created from the growth in the bottom line, all those expenses are now variable.
At first, it could appear this might be restrictive to the amount of money an individual can make and therefore be counter to our interest in creating an environment for strong company loyalty. Reality has shown, the amount of money the individual is capable of realizing can be many times over what they might expect to gain via any other pay structure.
In general, an analysis is made on a departmental basis as to the normal percent of contribution by each department to the bottom line. Within each department, a similar analysis is done for the potential of each position to impact the department’s contribution to the bottom line. Once each week a short meeting is held by each department or by teams within the department to work on ways to increase their contribution to the bottom line. At the end of each measurement period, usually quarterly, these same groups meet to enumerate the actions they took within the period that had positive impact on the bottom line. An example would be, in the situation defined in segment two with a growing business, our example department might normally need to hire additional people. If they figured out how to handle the increased level of business without hiring, they have a quantifiable improvement to the bottom line. Another example might be where an individual is negatively impacting the throughput of that department. The other individuals in the department, seeing that person as taking money out of their pocket, will self-police the situation causing that individual to increase his/her throughput. This will result in a measurable improvement of the department’s contribution to the bottom line. In the same fashion that results are measured for the department, similarly, individual performance can be tracked and rewarded.
As you can see, the subject of incentives has the potential for providing significant benefit towards creating and maintaining high levels of company loyalty and retention.
Look for Part Six: Recognition & Appreciation
Sam Langfitt has more than 40 years of diverse business experience. This experience was gained leading companies overseas as well as domestically, with successful turnaround, M & A, joint venture and strategic partnering activities. He has served on Boards of Directors in Europe, Canada and the U.S. Mr. Langfitt has owned and operated two businesses, including his current practice, advising business, owners, CEOs and Presidents.
To find out more about the services provided by Mr. Langfitt, visit http://www.TriselCoaching.com/