Do performance incentives work?
By Nik Askaroff
How to incentivise and reward staff is a question that challenges every business. Is ‘cash king’ or are there other methods that can work better? How long do you keep an incentive in place or how hard are you when employees’ performance fails to hit the target by only a small margin or for reasons beyond their control, e.g. supplier failure?
In 30 years of running businesses from the very small to a listed company, I can say that each scheme has to be designed and managed with the trade sector, the business model and, most importantly, the people in mind.
In the ‘90s we had a computer hardware company selling PCs business-to-business. We had weekly (cases of champagne, hotel stays, concert tickets, TVs) , monthly (weekends in Europe, racing days, sports cars for the weekend) and quarterly (holidays in West Indies, villa rentals, Savile Row suit vouchers) performance plans in place on top of aggressive commission rewards which saw the top salesman earning over £100k p.a. Of all of these, the most popular was the ‘Golden Cup’. This allowed the weekly winner to present the Gold Cup to anybody in the business for them to make their tea or coffee! The MD banned it after three months because he was fed up spending his whole time in the canteen!
In today’s economic climate, plans have to be even more carefully thought out and you need to think of more than just the ‘glory boys and girls’ in the sales team. Incentives can be effective at all levels as a performance enhancer or motivator, but there has to be clear cause and effect, e.g. I packed one more item so I was paid one more pound. We reduced debtor days by 10% and we earned a night out at a restaurant. Individuals have to be clear as to what they have to do to earn the reward. Then, the question is whether this is paid in cash or ‘prize’. For many, where commission is part of their on-target earnings, cash is paramount and ‘prizes’ should be used to highlight promotions, wake the team up and inject a bit of fun into work.
There is no doubt that if staff aren’t earning enough to satisfy their basic needs, then no amount of prizes will help and it may actually be a demotivator and work against the business.
In the current difficult climate, I would argue that performance-related incentive plans are more important than ever. We can’t afford a pay rise, but if you do more, sell more or reduce costs, then we can all share the benefit!
In a tough market place, as we all work harder to earn the same or less, reducing costs can be far easier to achieve and even more effective on the P&L. Incentives will certainly focus your staff’s mind on this and there is nothing better than the smile on a person’s face when they are thanked and receive that little extra, whether it’s cash or a foreign trip!
One last point is to ensure that you think of the effect of the reward on other staff. Sales people flying off to Dubai when back-office staff have not had a pay rise for some time can really hurt the business. The best schemes are either totally confidential or totally transparent, i.e. everybody knows about them and understands them. Often, Sales Directors are good at fighting for rewards for their team without thinking of the effect this has on the rest of the business. As the boss that’s your job and if it’s not working, change it.
Carefully planned and managed performance incentive schemes will, in 90% of cases, significantly help your business. Why not give it a try?