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:

1. 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.
2. 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.
3. 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. 
4. 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.
5. 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.