The CEO was standing in my office steaming mad. I had just sent him a summary of our most recent employee engagement survey results. He wasn't angry at the results. They were excellent - demonstrating that the investments we were making to build a solid employment brand were working. He was upset about one particular comment made by a single employee. He demanded to know who the employee was.
Even though I would have had a difficult time determining who might have made the comment even if I wanted to, I simply said "no." He was a little taken aback, but he continued with his argument, "We can't have someone who feels that way working here, they'll poison their co-workers. We must get rid of them." I said "You're right, but if they truly feel this way, they'll make themselves known through their performance or through other behaviors. If we tell our employees that the survey is anonymous and they begin to suspect it isn't, we will no longer get honest feedback. We can't sacrifice the trust we've built to simply flesh out one disgruntled employee." When he calmed down, he agreed that I was right.
When I think back over my years as an HR leader, protecting business owners and division managers from themselves was one of my more valuable contributions to those organizations. Owners and managers have a lot of pressure on them. They must make difficult decisions, often quickly and without all the data they would prefer to have. When those decisions will impact the workforce, consulting an HR leader who understands the big picture can help the owner frame business challenges and potential solutions in ways that achieve the buiness objectives with the least negative impact on employee engagement and performance. For example:
Company X needed to reduce its workforce due to the loss of a key client. The CEO considered across the board pay cuts and temporarily eliminating the 401k match as ways to protect cash flow and spread the pain evenly. His HR leader pointed out that the big winners with that strategy are the poorest performing employees and the biggest losers are his "A" players. On the HR leader's advice they opted instead to keep the benefits structure in place and lay off 20% of the workforce, carefully chosen to have the least impact on productivity and avoid discriminating against any protected class.
The CEO of Company Z wanted to fire an employee immediately as a result of a mistake. The HR leader saw the potential impacts of that snap decision, including establishing the precedent that a mistake results in immediate termination, the impact the termination might have on the rest of the team, and costs associated with losing the unemployment hearing. The HR leader asked, "Would you fire our top sales rep if they did the same thing?" The CEO admitted it would be difficult. The HR leader suggested the CEO allow him to document the mistake and develop a performance improvement plan for the employee instead.
When Jack Welch was CEO at GE, he had that type of relationship with Bill Conaty, GE's head of HR. Jack often took Bill with him to visit plants around the world to help him think through people and leadership issues. Of course if you happen to be CEO of a Fortune 500 firm, it's easy to drag your trusted advisors along. But what about the CEO of the small and mid-sized organization?
Unfortunately, many small business owners find themselves on an island making decisions such as these without the counsel that the large company CEO enjoys. But the smart ones surround themselves with trusted outside advisors, including a part-time HR leader, who possesses the confidence to help protect them from themselves.
Monday, July 13, 2015
Incentive Pay for Non-Sales Workers
Sales professionals should be and expect to be compensated based on their results. In fact the more confident the sales professional is, the more they'll push for less guaranteed money (base salary) and a higher commission percentage.
But what about the manager, the route technician, the construction superintendent, the factory floor worker or the administrative employee? Do variable pay plans work for them, too? The answer is, sometimes.
I was once a program manager for a large company, assigned to a fixed-fee account in the Florida panhandle that was bleeding money and had high levels of customer dissatisfaction. My task was to cut costs dramatically and improve customer satisfaction simultaneously. Sound like fun?
With the promotion, I became eligible for an incentive bonus. But since no one communicated it to me, I had no idea the bonus plan existed until my regional manager attempted to explain why I wasn't getting it. In six brutal months our team was able to implement significant process improvements, erase the losses, and improve customer satisfaction ratings. But the complex formula that our company used to calculate bonuses couldn't account for the improvement from massive losses to break-even, so I was given a thank-you instead. In this case not only was the bonus plan not motivating (I didn't know about it), but it became significantly demotivating once I found out about it.
A similar situation frequently exists in the construction industry when job bonuses are calculated on the job's financial performance. The contractor assigns his "A" superintendent to a very difficult job with a very slim margin (and little margin for error) and assigns his "B" superintendent to a relatively straightforward job with a healthy margin. Since the bonus is calculated the same way for each, the "B" superintendent gets the larger bonus. When this gets repeated job after job, the company is, in effect, rewarding mediocrity and punishing excellence.
In order for financial incentives to be effective as a motivator of performance, employees must understand the goals of the incentives, must believe they can impact the outcomes, and they must trust management to do what they say they're going to do. Here's a list of mistakes companies make when developing incentive bonus plans for non-sales people:
But what about the manager, the route technician, the construction superintendent, the factory floor worker or the administrative employee? Do variable pay plans work for them, too? The answer is, sometimes.
I was once a program manager for a large company, assigned to a fixed-fee account in the Florida panhandle that was bleeding money and had high levels of customer dissatisfaction. My task was to cut costs dramatically and improve customer satisfaction simultaneously. Sound like fun?
With the promotion, I became eligible for an incentive bonus. But since no one communicated it to me, I had no idea the bonus plan existed until my regional manager attempted to explain why I wasn't getting it. In six brutal months our team was able to implement significant process improvements, erase the losses, and improve customer satisfaction ratings. But the complex formula that our company used to calculate bonuses couldn't account for the improvement from massive losses to break-even, so I was given a thank-you instead. In this case not only was the bonus plan not motivating (I didn't know about it), but it became significantly demotivating once I found out about it.
A similar situation frequently exists in the construction industry when job bonuses are calculated on the job's financial performance. The contractor assigns his "A" superintendent to a very difficult job with a very slim margin (and little margin for error) and assigns his "B" superintendent to a relatively straightforward job with a healthy margin. Since the bonus is calculated the same way for each, the "B" superintendent gets the larger bonus. When this gets repeated job after job, the company is, in effect, rewarding mediocrity and punishing excellence.
In order for financial incentives to be effective as a motivator of performance, employees must understand the goals of the incentives, must believe they can impact the outcomes, and they must trust management to do what they say they're going to do. Here's a list of mistakes companies make when developing incentive bonus plans for non-sales people:
- They don't consider the unintended consequences. For example, over-incentivizing volume of work can easily result in a drop in quality; and an over-emphasis on individual contributions can easily discourage teamwork and collaboration.
- They assume all people are motivated by money. Some people are more motivated by other things, like work-life balance, than they are achieving that bonus. If you want financial incentives to drive higher levels of productivity, you better hire people who are motivated by financial incentives. Utilize a pre-employment assessment that will tell you how important money and achievement are to a candidate.
- They create entitlements not motivators. Safety bonuses or attendance bonuses, for example, can easily morph into another line on the paycheck that the employee doesn't really think about. It may not really be motivating them to work safely or to show up for work.
- There is no feedback. Want to get more bang for your bonus check's buck? Spend a few minutes reviewing with the employee what they did to earn it and how they could get an even bigger bonus next time. Feedback can be just as motivating as a bonus. Owners often overvalue the check and undervalue the feedback.
- They unintentionally create a compliance issue. If your company pays bonuses or commissions to non-exempt employees for being on-call or for achieving a production goal, there's a good chance you are calculating their overtime pay incorrectly. Your incentive bonus plan might be working, but you might be creating a costly liability if faced with a wage and hour audit.
A well-designed, self-financing incentive bonus or commission plan can indeed provide powerful motivators for your non-sales personnel. Just make sure the incentives are simple to understand, easily calculated, the employee can control the outcome, it's accompanied by feedback and it's compliant.
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