Low morale costs money. Motivated employees make money too often. When a business wants to increase its sales or production, or wants to improve the quality of service being delivered, managers tend to look towards expensive methods.
This might include sending employees on extensive training programmes, increase expenditure on advertising or expensive machinery, and so on. Whilst these are all essential items in a successful operation, sometimes we tend to overlook the most basic of all schemes - having a motivated staff.
Before going any further we need to make one thing very clear. Managing by intimidation does not qualify as positive motivation, or even good management for that matter – this includes such actions as causing an employee to loose face in front of co-workers. Creating guilt only undermines motivation and eliminates staff loyalty and morale. Fear can definitely get some people to do what they are supposed to do, but for most employees a fear strategy is unproductive over the long term, and usually will lead to lower morale, which can adversely effect productivity.
Punishment may correct situations and improve performance for the short term – but again, this effect will disintegrate over the long term. Instead, try devising schemes, which will make your staff feel they own the company, and where they will share in its success. This way, instead of conditioning them to place blame of a problem on others, they will be more willing to jump in and get a situation corrected, or come up with some new and fresh ideas to increase efficiency.
Should you motivate your staff with money?
Many managers believe that employees only work for money or other tangible rewards. But studies have shown that when asked, employees rarely list money at the top. Items like recognition and involvement in decision making are more sought after and appreciated. You doubt this? Then try creating a short anonymous survey and ask all your employees, and let us know the results.
Whatever you do, remember…..low morale costs money…..motivated employees make money.
Peer- initiated recognition
All employees like to be recognised for a job well done, but recognition from one’s peers always has a special significance. Perhaps this is because these awards are seldom expected, and managerial favouritism plays no part.
Whatever the reason, when employees select someone from their rank to single out for recognition and praise, it is well earned and sincere. Not to mention the camaraderie that this creates within a team. Probably, the best example of a peer initiated reward we came across, was the “Wingspread Award”, adopted by the Office of Personnel Management in the Personnel and Management Training Division of the United States Government.
The “Wingspread Award” is a beautiful plaque engraved and given to the division’s “special performer” by the division head. After a while the recipient wanted to recognise in turn someone who was felt to be a deserving colleague. The recipient then passed the award on to that employee, who later wanted to recognise yet another peer. Over time, the award took on great value and prestige because it came from one’s peers. Each employee who received it could keep it as long as he or she liked, until another special performer has been discovered. When a recipient was ready to pass it on, a ceremony and lunch was scheduled. Other examples of peer recognition we came across in our research, involve the employees recognising – the best team player, the employees that go above and beyond their call of duty, the employee that has the best idea to be implemented.
Clients and employee recognition
Who is in a better position to decide whether your employees are providing a good service to your customers, than clients themselves?
A simple but effective customer-recognition program was adopted by Continental Airlines. The American airline mailed “Pride in Performance” certificates to its top 50,000 frequent fliers and asked them to pass the certificates out to particularly helpful employees. Continental workers could redeem the certificates for dinners, luggage, hotel stays, flight passes, and other merchandise. American Airlines has a similar program.
Seven simple steps for motivating your employees
You get what you reward. Be sure you have clearly defined what you want to get, then use rewards and recognition to move toward those goals.
What motivates people, motivates people. What is motivating to individuals varies from person to person. To be on target, ask employees what they want.
The most motivating rewards take little or no money. Try a sincere thank you, providing information, involvement in decision making – especially as it affects your employees.
Everyone wants to be appreciated. Competent people, quite people, even managers want to know that what they are doing is important and meaningful.
All behaviour is controlled by its consequences. Positive consequences will most quickly lead to desired behaviour and enhanced performance.
Management is what you do WITH people, not TO people. Tell employees what you want to do and why. By involving them, you’ll more easily gain their commitment and support.
Common sense is often not common practice. It’s not what you believe or say – it’s what you do. Practice recognising people and their achievements on a daily basis.
Incentive pay plan checklist
In the first article of this series, we saw an overview of why incentive plans should be used and the benefits they bring along. Unfortunately, many incentive-based programs fail miserably, despite the best intentions of the companies and professionals who design them. Below is a 14-point checklist of rules which should be followed when designing an Incentive Plan Checklist. Whilst this is not a success guarantee, it will definitely improve your chances of achieving the objectives established.
Never place base pay at risk
Never ask your employees to risk their family’s livelihoods on something beyond their control. Instead, use the base pay together with an incentive to motivate them to enhance their performance.
In our opinion, this is one of the major reasons why estate agents have to suffer such a high rate of staff turnover, and why the property negotiating business is many times not regarded as a viable long term employment.
One way of working with this, is to keep the base pay competitive within the market (not too low, but at the same time not so much that your sales personnel will lounge around all day doing nothing), and let incentives take overall pay to the high end of the market or even beyond.
Make sure everyone participates
Do not limit your incentive program to a restricted group of people, such as managers only, or sales teams only. A good incentive program is an option available to all levels of personnel. Getting everyone involved will unleash the potential of certain people, who otherwise would be too reserved to stand out. Also, the involvement of an individual within a company-wide program will make that individual feel part of a team and increase the camaraderie within the organisation.
Match incentives with your strategic objectives
Do not spend time and money designing and implementing an incentive program for the sake of it. The incentive plan should be aligned with the overall objectives of the company.
Utilise a “balanced scorecard” of measures
One of the traditional shortcomings of incentive plans is that they are one-dimensional. Employees are smart, they will soon figure out a way of maximising the incentives at the expense of some other part of the organisation, or even at the expense of their own colleagues.
When designing an incentive plan make sure that the reward is based upon the results of more than a single factor. This way, employees will be able to balance out their duties better without sacrificing anything.
Taking a retail store that sells shoes. Basing an incentive plan on the sales of one brand will put you in a position where the sales personnel will only try to sell that brand, and they might even be over-persistent with the clientele with the result of actually scaring them off.
Reward results, not activities
Rewarding activity will only bring more activity (together with higher operational expenses). A great example is over-time. Instead, if you reward the results that are achieved from that activity, employees will always be looking for ways of maximising the results whilst minimising the activity (and expenses).
Establish an equitable starting point for new personnel
Expecting that newly hired personnel achieve the same standards as the established employees is unrealistic and can lead to frustration.
However, this does not mean you should have two different incentive plans. This might lead to internal conflicts.
Instead, establish a reasonable threshold or baseline of performance that justifies base pay, and reward for performance beyond that mark.
Utilise stretch targets
Once you have established a threshold (and a base pay), start creating “stretch targets”. Stretch targets involve a non-linear increment in rewards – creating progressively larger rewards for achieving each increment.
Stretch targets encourage “out of the box” thinking and behaviour.
Compare measures based on ROI
When designing an incentive plan with multiple measuring factors, establishing the importance relative to another can be highly subjective especially for different managers from different departments.
It is usually best to decide the importance of a measure depending on the economic value of that measure, basically the amount of money it brings into the company.
Self-fund the programme
Fund your incentive program by using a portion of the profits from improvement. This way employees will start thinking like owners sharing the profits.
Offer incentives at multiple levels
Reward employees for organisation-wide, department and individuals results simultaneously. This will encourage them to get involved in a team environment, and also make them realise and appreciate the impact their actions can have on the company’s bottom-line.
Do not place a ceiling on rewards
Employees will stop working to improve their performance once they reach the rewards ceiling. If your incentive plan is based on performance, rewards should continue to increase according to performance, with no limits.
Include a consequence for under-achievement
The same way that improved performance is rewarded, the opposite should also be catered for when designing an incentive plan. In this case, you should penalise the reward pool, but never base pay, by the amount of deterioration in performance.
Create an additional, deferred incentive for key managers and executives
This has three benefits. First, a deferred reward that is at risk will force your key decision makers to take actions that are in the long-term interests of your organisation. Second, it will create a golden handcuff to retain and motivate your best talent. Third, it will cost next to nothing since it involves only a small number of employees.
Another factor to keep in mind, is that these top executives, are the people that will keep the rest of the staff motivated.
Provide frequent feedback and coaching
An important aspect of a good incentive plan is that the level of success depends on how well the employees understand the plan. Allowing them to express their opinions also makes them feel part of the organisation’s decision-making process.
How To manage a successful incentive programme
By now you are familiar with the pros and cons of incentive programmes and also the factors to be taken into consideration when planning on implementing such a programme. Now that we have got the basics down, it’s time to see how to actually implement and manage this incentive programme. A note of caution first. If you plan on introducing some sort of incentive scheme within your organisation, this how-to article should only be used as an outline. Every organisation is different, and warrants a program that is specifically customised to its own particular needs and targets.
What are your objectives?
Before anything, have a brainstorming session, during which you write down all your ideas, and make sure you know exactly why you want to implement such a program, and what you hope to achieve.
Failing to do so, means killing the program before even taking off the ground.
Make sure, that what you hope to achieve is realistic and fits within your organisation and current market conditions. Answer questions such as: What is the condition of the industry environment today? Who are my customers? What are the strengths and weaknesses of my products/employees/customers/competitors? Be honest with yourself. Once you know what your objectives and goals are – prioritise them. Your most pressing needs come first. Then place the incentive program’s focus on these issues. List the major players. If you are focusing your program around a specific product, make a list of the people with the best track record in selling the product, but also make sure to find out who are the most promising salespeople. Remember what we said in the first article? An incentive program is supposed to enhance the performance of employees who, otherwise, tend to be somewhat overshadowed by the department’s over-achievers.
Whatever your goals and objectives – be specific and keep them simple. Focus on one or two goals at a time, so your employees can direct and concentrate their efforts more effectively. Consider some backup plans. What will happen if a large number of participants don’t attain the objectives? Has such a goal been met before, either within the company or even the industry? Are there factors in the industry that could hinder the desired result?
The next set of questions relates to the analysis of the program. What factors are going to be used to measure employees’ performance? What are the financial and hidden costs involved in measuring such factors? Quantifiable successes include tracking salespeople’s progress according to how their sales have increased, or noting a factory’s improved safety record by a lower number of accidents. Consider the cycles of your business, and incorporate the peaks and valleys into your goal structure. Attune your objective to these fluctuations. For instance, in a program aimed at boosting slow periods you can never expect to receive increased sales equal to those of a peak period. How do these goals mesh into the overall objectives of your company? Feedback from those involved in day-to-day operations may help steer you away from goals that may be unrealistic because of the situation in the workplace or marketplace.
How much are you going to spend?
Even though a well-planned and managed incentive program will fund itself from its own profits or cost savings, there are still some initial expenses to be made during the planning stage and early into the implementation process.
As a general rule, companies should spend from 5% to 10% of incremental sales (the profit the incentive program generates), or 1% of total sales. A sample breakdown would be similar to the following:
70% to 75% of the incentive program budget should be spent on the awards themselves. When deciding this allocation take into consideration the following points: (1) For a short-term quick-boost program, the awards should be higher; (2) The higher the participants income and performance, the more expensive should be the award; (3) For a sales incentive, the value of the award should be between 3% and 5% of the participant’s annual income; in a non-sales program, that number may be as low as 1%.
The rule of thumb is to allocate 20% of the total budget for promotion. Administration. The range of 5% to 15% of budget for this category is broad because it depends on several factors, such as the details of the analysis, man-hours required to perform the administrative tasks among others.
Research & Training
If this is required, a percentage has to be allocated. Do not make the mistake of underestimating its importance. When choosing the budget that best fits your company’s plan, you can either choose an open budget or a closed budget. With an open budget you have the chance to sell more of your product, since there’s no limit on the number of points or financial reward that can be earned by the participants. However, administration costs and other overheads tend to be higher. With a closed budget, there’s a ceiling on the awards received, the cost is known up-front and so the overheads tend to be lower.
Rules & Regulations
Lay down the law! Make sure that there are specific rules and procedures to be followed, such as what is to be considered as part of the incentive program and what not. Avoid misunderstandings and prepare for surprises. All participants should be aware of these rules and fully understand them. One of the most important factors involved, is that employees should know exactly how their performance is measured and awards distributed. Measuring progress. The key elements in quantifying the progress of the incentive program participants, are fairness, simplicity and quantifiable progress. Ask for feedback from all levels of management, and especially from those that will be directly involved (such as the participants themselves).
The accuracy and methods of measurement will mainly depend on the budget allocated and also on the goals. The progress of a sales incentive program, can be measured through the number of accounts opened, number of referrals, repeated clients, totals sales, etc. In the case of a program aimed at improving the quality control of a production line, factors such as reduced number of errors, returns and complaints registered could be used. Examples of awards could be merchandise, group travel, individual travel, cash, cash substitutes, and even good ol’ simple recognition.
Until we start thinking about performance, enticing staff with financial rewards could be a dangerous game to play for anyone involved.
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