Saturday, March 9, 2013

For Employee Incentives, Simple Works Best

Many small-business owners struggle with appropriate incentive programs for their employees. I have tried many different approaches over the years and have found that short-term, simple rewards are the most effective.

In the early days of a business startup, it is often hard just to find enough resources to create a competitive pay package for your first group of employees, let alone a comprehensive bonus or reward program that aligns their focus with the business's actual results.

The one advantage you might have in attracting and keeping talent is that your startup is innovative, interesting, or in a field or industry that draws potential staffers. New hires may be motivated by the sheer fact that your business is disruptive in its category and has amazing growth potential.

All of that may be incentive enough for starters. However, you'll need to live up to that interest and make sure employees benefit in ways that lines up with their expectations.

I've tried everything from bonuses tied to gross sales to employee share-ownership plans to even a complicated "bonus bank account," whereby weekly gross contribution margin values from sales, in dollars, were tracked and paid out against targets on a quarterly basis, assuming the account was positive. Sound exciting? No, it doesn't. In truth, none of them worked that well.

The gross sales idea didn't work as it ignored the profitability of those sales. Share ownership isn't that attractive if your shares are illiquid (as in, you are not a publicly traded company, so cashing out shares and even valuing them accurately is almost out of the question), and, the more complicated the "bonus bank account" became, the less alluring it was in the eyes of my staff.

What have I learned? Simple works best.

First, you need to understand that different employees are differently motivated. The cash bonus that one appreciates may be of little interest to another, who places a higher value on a couple of paid days off or the ability to participate with the company at an international trade show.

Gift cards, spa retreats, dinner out with a spouse and similar perks are all extremely valuable to certain employees, depending on their personal situations. Like managing people in general, this requires knowing each of your employees well, and adapting what you offer to them as much as is reasonable.

Simple incentives also benefit from immediacy and spontaneity. If you want to recognize an employee for going the extra mile, whether with cash or some other benefit, you need to do it as quickly as possible to the result you want to reward. Furthermore, you need to articulate to employees what it was about their performance that you most appreciated.

I usually tried to avoid creating expectations in advance. For example, I tried not to create expectations that a bonus was coming or available, but rather preferred to reward spontaneously after the fact. That kept all staff wondering which of their efforts might be rewarded in the future, and each reward was a true surprise to the recipient.

Simple also means keeping the value of the reward modest. I suggest this not out of greed or some cost-saving exercise, but out of my opinion that frequency outweighs value. I'd rather give small rewards often than big rewards infrequently.

With that said, no matter how you choose to reward your staff, the value of the reward needs to be meaningful. This will depend on the size of the business, the pay scale of the employee and, most important, the value that the employee's extra effort brought to the business.

Employees know that you pay them to do their jobs and getting above-average results can't always be singled out. Surely they get below-average results from time to time, and much of it works out in the wash.

How you measure the value of an incentive it is up to you. But as an example,a friend received a $20 Tim Hortons card when he discovered a $155,000 cost savings opportunity for his employer, connected to an area that was well outside the scope of his job. Plus, the savings could be enjoyed immediately without any additional investment.

My friend was insulted, rather than motivated. A restaurant gift card or afternoon at the spa for his wife valued at $250 to $500 would have been just as affordable for the business but much more meaningful to the employee.

So, when it comes to incentives, keep it simple. Make it personal. Do it frequently. Make it a surprise. And make it meaningful relative to the company's benefit.

Special to The Globe and Mail

Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and sold seven businesses.

Thanks to Chris Griffiths / TheGlobeAndMail /  The Globe and Mail Inc.


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