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.
MICHAEL ALTER | Columnist | President of SurePayroll
Michael Alter is president of SurePayroll, America?s leading online payroll service. He received an MBA from the Harvard Business School and holds a bachelor's degree in economics from Northwestern University.