 Motivating
People: Money Not Peanuts
Subject: Gain
Sharing Programs, Salary Bands, Pay for Performance, Incentives, Sales,
Motivator
Many experts who’ve probably
never had any revenue incentives thrown their way argue that people cannot be
motivated by money. Every time I hear this I cringe in fear that someone
actually believes that money is not a serious element in the motivational
equation.
The use of money as motivator
has to be qualified before anyone can pass judgment on whether or not it is a
motivator. Because money, inappropriately applied to productive work, becomes a
de-motivator for achieving excellence. But when money is linked to performance,
a positive reinforcing cycle kicks in. Positive reinforcement serves to
reproduce, if not amplify, the desired affect that one seeks. Money must to be
linked to performance if it is to be used as an incentive.
Secondly, being penalized for
performance is a bad way to motivate people to excel. For example, a
progressive tax system, which taxes people more the more they make is an example
of negative reinforcement. When someone takes from you the more you make, why
work harder or smarter? When more taxes are taken out, the person sees no value
in increasing their performance so they either try to maintain a given level or
it drops below the desired level only to be raised back to the minimum or
maximum that needs to be maintained.
When companies put together
incentive programs that fail, they’ve usually failed because the wrong element
of the individual was animated and motivated to work harder. For example, many
companies use workgroup programs as a way of incentive a group as opposed to an
individual. This is fine, but realize that the group is still as strong as its
weakest link. A group is penalized for one person’s inability to perform to
expected levels. This in turn dis-incentive the rest of the group to outperform
their previous performance. In many case the rest of the group conforms to an
average level of performance with little or no hope of ever reaching the highest
incentive levels.
A third issue with motivating
people with incentives is a term called Line-of-sight. When wireless companies
are building towers for their transmitters, they need a line-of-sight to the
other towers in case you roam or move over to some other location.
Line-of-sight is important with regard to incentives because if a person CAN see
the cause-benefit or cost-benefit for himself, like a positive reinforcement
cycle, they will repeat their behavior.
Employees at a low level of a
billion dollar company have a hard time seeing the line-of-sight. In other
words, they can’t see how their job, their small job that they do everyday,
impacts the overall direction of the company. So when the company reports
earnings or losses, the employee still doesn’t or can’t interpret or translate
what that means for him personally. Distance between his work and the results
are out of his line-of-sight. Companies that can find ways to show employees
how they do impact the bottom-line are far more likely to get better results
motivating employees then those companies who just spew things like, “We need to
be more cost effective, We need to streamline our process, We need to
re-engineer our this, Or we have to restructure that to get more value, we need
more vertical integration or we need more horizontal integration, we need to
improve our scheduling, we need to identify bottlenecks and eliminate them and
on and on.
Now, tell an employee that his
work, if he could improve it 10% will bring 20% or X millions of dollar to the
bottom line that will translate into X thousands of dollars for him or her and
now you are talking their language.
Let’s talk salary bands
versus commission versus gain-sharing programs.
Salary band ranges of
salary for given pay grade levels. Typically every year, an employee review is
done and a percentage increase (typically 2%-5%) is given to an employee. The
problem with salary bands is that the employee comes to expect some type of
increase. When someone ‘expects’ to get something, the motivational factor of
what he’s getting is lost. Many managers give a standard 3%, unless you’ve done
something heroic and even then you may only get 5%. Employees know this and see
year-end salary increase as an entitlement so the motivational impact is gone.
In this case I would agree that money doesn’t motivate becomes it has been
democratized (i.e., everyone gets them so why should I bust my hind side?).
Employers than move to a more
global incentive approach by instituting a Gain-sharing program where
once a certain revenue number is achieved, anything above that is split between
the company and the employees. For example, Lets say a company with 100 people
decides it will split revenues with the employees 50/50 after the company has a
target revenue goal of $5 million. If the company finishes at $6 million the
company must split, or share the gain, of $1 million ($6M - $5M) with its
employees. The company keeps $500K (50/50 split) and distributes the remaining
$500K to its employees (i.e., $500K/100 employees = $5,000/employee). This is
great. But, what if some employees feel that others in the company didn’t
produce as much as they did? What if the Pareto Principle is true (i.e., that
20% of the people do 80% of the work)? And come next year, if the Gain-sharing
revenue number is higher, the payout per employee will be lower. A Gain-sharing
program does not give employees line-of-sight and, from a performance
perspective, they are not recognized as individuals and are clumped together
with performers and non-performers alike. This type of incentive is
democratized much like a salary-band, with one glaring difference, it is not
guaranteed.
Commission for
individual performance is the both individualized and has clear line-of-sight
aspect of motivating employees. Sales people best exemplify commissioned based
motivation. Sales people in general are paid low or no base salary and must
perform in order to earn commission. They take the majority of the risk while
the company only pays out for tangible and measurable results. One of the
gravest mistakes I’ve seen in commission-based incentive for salespeople is the
‘capping’ (i.e., setting limits or conditions) of those commission. For example,
let say George will get 5% of everything he sells. In George’s mind he just
wants to sell as much as he can to earn as much as he can. But what happens to
George’s enthusiasm when the manager informs him that once he gets to a certain
level, he will only be earning half or 2.5% of the commissions? Right, his
enthusiasm wanes. And what does George do, he slow down once he knows he’s
approaching his maximum and begin to take it easy. In economics it is term the
point of diminishing returns. Whereby, beyond a certain point you are not
getting as much value as you are putting in to justify you working so hard. So
George rushes to get to the maximum and when he nears it he begins to slow his
sales process and pushes out the sales to the next year when the quota is reset
to zero and he can begin to sell earning 5%, not the 2.5%. At the end of the
year, George can measure his revenue contribution to the company’s overall
revenue. In other words, he has a clear line-of-sight of how his performance
has benefited the company.
Incentive Programs
|
Program |
Line-Of-Site |
Individualized Incentives |
|
Salary Band |
No |
No |
|
Gain-Sharing |
Some |
Some |
|
Commission-Based |
Yes |
Yes |
Michael LeBoeuf wrote, when
you “Pay for performance, you get performers; pay peanuts and you get monkeys.”
Incentive programs determine the vitality and aggressiveness of your employees.
Please forward this
article; share it with a friend who may need a few words of inspiration.
Victor Gonzalez, a top motivational speaker and author of “The LOGIC of Success”. For more info go
to:
www.thelogicofsuccess.com or by email
victor@thelogicofsuccess.com
Success Happens for a Reason
Copyright © 2004 by Victor
Gonzalez All rights reserved. This article MAY be reproduced in any
form or by any means, electronic or mechanical, including photocopying, as long
as the author’s name, website and email address are included as part of the
article’s body. All inquiries, including information on electronic licensing,
should be directed to Victor Gonzalez, victor@thelogicofsuccess.com.
www.thelogicofsuccess.com
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