Increase Employee Upside
by Rob Marchalonis.
Are you among the majority of employers today who desperately need talent to compete and prosper? What’s your plan to fill open positions and field a winning team? How will you rise above others to recruit, hire, train, motivate, and retain talent?
Feeling Compensation Pressure?
As the supply-vs-demand curve for labor strains employers, many believe they have few options but to raise hourly wages, salaries, or benefits. However, doing this comes with enormous cost and risk. Here’s why – in a traditional workplace, wages, salaries, and benefits are almost always disconnected from actual business results – sales, margins, net profitability, or productivity for example.
The standard employer-to-employee agreement looks like, “If the doors of the business are open, you can expect to receive the same compensation and benefits.” Barring bankruptcy or layoff, most employees feel little or no change in their paycheck regardless if the organization is doing well or terrible.
Can you see the problem? There’s a better way.
Consider Smart Incentives
The simple idea is to “share the success” of your organization with employees, proportional to your results. On one extreme, an employee’s compensation could be tied 100% to a pre-determined business result, like profitability, gross margin, sales, productivity, or another success indicator. On the other extreme, an employee’s compensation could be linked 0% to these same business results – which is exactly where most employers operate now!
What if you could find an approach in the middle, where employees could be compensated above average or even generously if organization results were strong and, alternately, receive less or even below-average compensation if, for some reason, the organization’s results were weak? How would this approach affect the results at many organizations? How might capable and highly motivated employees be attracted to an employer that offered this upside? Wouldn’t the best talent want to work in this environment?
Risk on Both Sides
Every incentive plan comes with some risk, such as how to design the plan, the cost, and how incentivized employees will respond if results are bad? Structure and cost are among the easiest risks to minimize.
The best plans are designed for effectiveness (they accomplish desired business objectives) and simplicity (they are easily understood by employees). They also establish sharing formulas and ratios that 1) anticipate outcome scenarios, 2) protect the business, and 3) reward results.
Bad business results are a legitimate risk. No employee wants bad results when they have a significant stake in the outcome. And what if bad results are caused by circumstances beyond employee control, such as the economy, weather, changing market conditions, competition, geo-politics, etc? Certainly, every organization will face challenges. Isn’t it true however, that organizations and employees still control their response? Many external factors, like economic conditions or weather, typically affect everyone in the marketplace, leaving all participants more or less advantaged. With a shared stake in outcomes however, how might employees look ahead more strategically and devote some of their resources to consider, anticipate, and even plan for various adverse (or positive) scenarios?
Could the greater risk to your organization be having no incentive plan at all? If employees believe they have minimal stake in the organization’s top outcomes, how will this negatively affect their behavior? What elements of human nature or other motivators will fill the void? For many employees, their focus on organizational outcomes gets displaced by distractions, boredom, peer pressure, or personal agendas.
Bottom line, do you believe your organization would be better or worse by sharing a significant portion of your upside gains, as well as downside risk, with your employees? If your employees could benefit incrementally from better organizational outcomes, how would your results and recruiting improve?
Consider Incentives by Workgroup
It’s not difficult to design and implement incentives, but important to have a plan. Consider adding incentives one functional team or workgroup at a time. You will have to decide how to categorize your workgroups, but often they can be determined by role or task. For example, some functional teams like sales, manufacturing, customer service, and field crews have similar or related roles and can be easily associated with a workgroup.
Senior leaders of the organization could be considered as another workgroup (this is one of my favorite groups to incentivize first.) In general, I suggest customizing incentives by workgroup as opposed to individually for each person, or all-the-same for the entire organization.
Link Incentives to Workgroup Objectives and Results
Consider the top outcomes or desired results for each workgroup and link incentives to these key indicators. Incentives that “share the success” of the workgroup will motivate the group members to work better as a team and stay focused on results. Talented employees typically respond well to clear objectives and an incentivized stake in workgroup outcomes. Carefully designed incentives provide clarity and challenge participants to achieve goals that produce rewards.
Recruit, Motivate, and Retain Talent with an Incentive Upside
By offering reasonable wages, salaries, benefits and performance incentives, you will differentiate yourself as an employer and offer upside opportunity to employees and talented recruits who are motivated to win for incentives, and for you.
Rob Marchalonis helps employers design and implement smart incentive plans. Rob is the author of IncentShare: Motivate, Recruit, and Get Results with Incentives, now available at Amazon. Connect with him at www.IncentShare.com