Small Business Services, Los Angeles | Employee Incentive Program Design & Implementation

Small Business Services, Los Angeles | Employee Incentive Program Design & Implementation

Employee Incentive Programs

EMPLOYEE INCENTIVE PLANS WORK

“The main reasons I find companies don’t have Incentive Plans is not that they won’t be helpful or that the owner is averse to paying out incentive. It’s because owners often see Incentive Plans as being complicated and potentially more harmful than good if it's not fair and reward employees according to performance.

For my clients I try to keep the plans simple and teach that it is a “work in process” and will always have minor adjustments over time. But the payoff can be huge. Worrying about a few discontented employees is never a reason to NOT reward your best employees. Why do good employees leave? Because they often don't feel appreciated.

You will always generate a little discontent among certain employees, but come on, those employees are going to complain no matter what.

But with an Incentive Plan done right, you may find some of those complainers joining the team or being told to shut up by the happy employees."

Employees and Owners (managers) often have separate goals. Both want to make money but owners often feel in order to do this, they must reduce costs. Paying people more seems to fly in the face of an owner wanting to make more money. Employees, sensing this, try to make as much money as possible (dragging out jobs for instance) or just landing the sale (in the case of estimators or sales people not measured on profit margins) instead of bidding the job for max profit or finishing the job with as little cost as possible.

A well thought-out Incentive Plan aligns owners’ goals and employees’ goals. If they share in the profit, employees become “stakeholders” of the company. When done correctly, an Incentive Plan will drive profits higher because employees see what's in it for them. I've seen in many cases where the employees self-police non-performing employees because they see the lack of productivity as a drain on their paycheck. I've seen them go home early on slow days. I've never seen that at a company with no incentive plan. If done correctly a good plan becomes a win-win situation for owner and employee alike.

3. The Incentive Plan is built around increasing profit to pay for the plan. There is a baseline profit expected. No payout is made unless we beat the baseline profit goals. The Incentive Plan should not cost an employer money based on current run rates.

4. Must figure out a Measurement System to measure the money made either as a group and preferably by the individual.

5. For hourly employees, must be able to somehow Measure Productivity including accounting for re-work or when individuals COST you money.

7. Combined, the Measurement of Profit and Evaluation will dictate individual payout. Those making you the most profit (usually those with the most responsibility) for the company should make the most incentive money.

9. Progress must be measured and posted so that employees see how they are performing against the plan. This drives them to be more productive thus earning the incentive pay that they are helping achieve.

10. Other things can come into play such as “market conditions” and “overhead cost growth.” But if employees are educated and communicated to about these things, they understand when payouts go up or down. They understand that market conditions and Capital needs (the new truck they’re driving) may reduce profits so that productivity must increase in order receive a payout.

Finally, the plan needs to be easily managed. If it’s too complicated, then managing the plan takes away management time in performing their job. These are the essential elements of Incentive Pay.

(SUCCESS MEANS THE PLAN IS NOT ONLY IMPROVING EMPLOYEE MORALE AND HELPING RETAIN GOOD EMPLOYEES BUT GENERATING ADDITIONAL PROFIT FOR THE COMPANY)

1. The Incentive Payout should be set up to pay out for profits above the average or beyond what we are doing now because of the performance of the employees.

3. There must be a perception by the employees that the plan is fair (the goals must be attainable).

4. The rewards must be meaningfully sufficient to warrant the extra (discretionary) efforts. (Approaching 8 to 12% of their base pay when significant profit growth is achieved).

5. You must communicate how the company is doing against the plan on an ongoing basis so that employees can see progress or know that additional efforts are needed.

6. We must measure results as fairly and as accurately as possible. (This is usually the toughest part).

7. While the payout should be based on team effort, we must give evaluations of individual performance that will impact an individual’s payout and consider extraordinary efforts come payout time.

8. Payouts must be made promptly generally within 30 days of the end of a period. (Always try to have one payout just before Christmas for obvious good will).