Take a Number
Does your receptionist have a production quota? At more and more companies, every employee has a quantifiable goal to meet
Ever wonder just how well each of your employees performs? Wouldn't it be great if you could quantify each person's contribution? That's exactly what Perry Klebahn has tried to do. Klebahn, CEO of $4.8-million Atlas Snow-Shoe Co., in San Francisco, has set up his company so that all employees have some of their compensation tied to a quantitative goal specific to the nature of each job. The sales staff have order quotas. The line workers in manufacturing strive to minimize "hours per person per pair" of snowshoes. Even the receptionist has a goal: to send out 50 of the company's catalogs each day. "I want to be able to measure everything," says Klebahn. "It drives people nuts, but if we can't measure it, we can't improve it."
Call it pay for performance run amok. Atlas Snow-Shoe is one of a growing number of small companies that are broadening the concept of individualized incentive pay to include every member of the workforce. The new incentive plans go beyond profit sharing (though some include it) in that each type of job has its own quantitative goal.
Is this concept the ultimate employee incentive--or just an administrative nightmare? Potentially both, according to Bob Butler, a principal at the Roth Group, a compensation consultancy in Tucson. Butler says that employees with incentive-pay packages often concentrate exclusively on their individual goals and neglect the work of the group. "They figure out how to work the rates," he says. "Individual incentive programs can become insidiously focused on 'me first.' "
Not if they're properly designed, counters Christopher Kuselias, CEO of Career TEAM, in Hamden, Conn. Like Klebahn, Kuselias sets quantitative goals for every member of his 10-person staff. But at Career TEAM, a $1-million company that places welfare recipients in jobs, each person's goals include individual, departmental, and companywide measures. That mix, Kuselias says, helps mitigate the "me-first" urge and encourages employees to add value to the entire company.
Sounds nice in theory. But the real question is, how do you set the individual goals? Devoted practitioners insist that they can set relevant measures for all their employees. But are such folks practicing a clever form of all-inclusive incentive pay--or are they just control freaks? Whether or not you agree with those CEOs' approach, you may learn something from their unconventional thinking. Here's how they set goals for some tough-to-quantify positions:
Information-systems employees. Charles Engler, CEO of Visual In-Seitz, a 40-employee multimedia-presentation company in Rochester, N.Y., measures the time it takes his computer-support staff to respond to requests for repairs--as well as overall system downtime.
Marketing people. At Atlas Snow-Shoe, Klebahn tracks the number of media stories covering Atlas's on-snow marketing events.
Support staff. Kuselias helps Career TEAM's office staff identify ways to increase their value to the company, such as increasing their typing speed or mastering new software.
Creative staff. For architects, designers, writers, and other creative positions, Karen Jorgensen, author of Pay for Results, suggests combining some measure of quantitative productivity, such as deadlines met or projects completed, with a qualitative review. The review might rate the employees on such scales as quality of work, cooperation with colleagues, and rapport with clients.
Why Incentive-Pay Plans Fail
Any type of incentive-pay plan has perils as well as potential. Plans are likely to suffer if---
They're explained poorly. Jerry McAdams, author of The Reward Plan Advantage, suggests that you focus as much on explaining your incentive-pay system as you do on designing it. "Research has shown that the more you communicate with and engage employees, the less you'll need to have in terms of payout," he says.
They're shortsighted. Designed unwisely, incentive systems can encourage employees to be penny-wise and pound-foolish. For example, if an employee's goals focus only on cutting costs, he or she may ignore opportunities that build value yet cost money.
They're changed without warning. If you're setting individualized goals, practitioners and experts agree that each employee's goals should change at least once a year--if only to stay ahead of people who outsmart the system. However, changes while an incentive program is in progress undermine trust in the system. As a result, it makes sense to let employees know from the start that goals will change, say, annually. Before implementing a goal-based system, Charles Coonradt, author of The Game of Work, suggests a trial period of six to nine months. During that time, set goals with employees--but don't yet tie their compensation to the results. That way you can more easily work out any bugs in the system.
They're confusing. Measure whatever you want, says McAdams, but base the incentive pay employees receive on no more than three numbers. That's all most people can focus on effectively, he argues.
Christopher Caggiano is a staff writer at Inc.
If you're looking for additional information on how to set up an incentive-pay program, many good books are available to help. The Game of Work, by Charles Coonradt (The Game of Work, 800-438-6074, 1991, $19.95), offers practical advice and is a pleasant read. The Reward Plan Advantage, by Jerry McAdams (Jossey-Bass, 800-956-7739, 1996, $30.95), is particularly comprehensive and, for those interested, offers a historical perspective of pay-for-performance systems. Karen Jorgensen's Pay for Results (Merritt Publishing, 800-638-7597, 1996, $29.95) includes many helpful work sheets, forms, and checklists that will aid the design process.
You could also take a look at the Inc. archives for articles on incentive compensation. Two in particular you might want to check out: " Games Companies Play," by John Case, October 1994, which examines how companies use game-playing techniques in their incentive systems. For a contrarian view, try Patrick Lancaster's " Incentive Pay Isn't Good for Your Company," September 1994. Lancaster explains why he's not a big incentive-pay fan, citing various bonus plans he's used that met with less-than-stellar success.
ATLAS SNOW-SHOE, Perry Klebahn, 1830 Harrison St., San Francisco, CA 94103; 415-703-0414; firstname.lastname@example.org 117
CAREER TEAM, Christopher Kuselias, 3 Industrial Circle, Hamden, CT 06517; 203-407-8800 117
CHARLES COONRADT, The Game of Work, 1912 Sidewinder Dr., Suite 201, Park City, UT 84060; 800-438-6074 117
KAREN JORGENSEN, 2505 Foothill Blvd., La Crescenta, CA 91214; 818-957-8838; email@example.com 117
JERRY MCADAMS, Watson Wyatt Worldwide, 8182 Maryland Ave., Suite 1001, St. Louis, MO 63105; 314-725-8760 117
VISUAL IN-SEITZ, Charles Engler, 225 Oak St., Rochester, NY 14608-1702; 716-454-4350 117