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INCENTIVE COMPENSATION FOR SMALL BUSINESS
By Orvel Ray Wilson   Printer Friendly Version

Michael LeBeouf, in his book The Greatest Management Principle in the World, contends that "Any behavior which gets rewarded will tend to be repeated." He advocates paying close attention to how employees get rewarded for performing (or not performing) the various aspects of their jobs.

Incentive, or performance based compensation, is nothing new. Commission plans for salespeople are common because their productivity is so easy to document. But small businesses tend to eschew these compensations plans thinking that "we're mom & pop; we're different." In the competitive environment we're faced with today, you have no choice; you must use every management tool available to maximize your marketing firepower.

Guerrillas are not only intolerant of non-performers, but they lavishly reward their stars, setting a higher standard of excellence for the whole organization. The problem is how to reward your people appropriately, particularly if they're not directly responsible for easy-to-measure activities like sales revenue.

Some simple guidelines can put this powerful management tool to work for you. The foundation of an effective performance-based compensation plan is a set of clear and specific goals for your organization as a whole, for each functional department, and for each individual employee. These goals must be objective and quantifiable. For example, "increase inbound inquiry calls by 10% or to 650 per month by the end of the year" or, "Achieve an average rating of 4.5 of 5 on monthly customer satisfaction surveys." Subjective factors, like attitude or good work habits, may be included in review criteria, but if you can't measure it statistically, you can't use it as a standard for performance-based compensation. Then devise methods for gathering data to measure your progress (or lack of it) toward these goals. What you measure is what you get, so inspect what you expect.

The first level of your plan should be directed at the individual, by isolating the particular behaviors that would produce the desired outcome. For example, in a consulting practice, pay a $10 spiff every time an employee asks for and receives a referral from a customer. This behavior, in the long-run, will result in more people becoming familiar with your organization, and more people buying.

The second level of compensation is directed at the group or unit level. Staff in administrative positions can be set up to share a periodic bonus upon completion of particular benchmark objectives, like "reduce the error rate in the shipping department to less than 5% and share a $500 bonus"

The third level of your plan is structured to reward the collective. Set aside a fund to pay an annual bonus to everyone if the business meets it's overall annual goals. In this way, you reward collective effort as well as individual initiative, and foster an environment of cooperation and teamwork. Peer pressure becomes a powerful force in keeping everyone on their toes.

Consider non-monetary rewards as well. Recognize employees publicly at every opportunity for creativity, leadership, or innovation. For many, a certificate, plaque or small trophy is more motivating than cash. Encourage competition for these awards by posting individual and departmental performance statistics where everyone can see them. Heated rivalries often develop over the coveted "employee of the month" parking space. Even seeing the sales "thermometer bar" moving up each week can be a powerful incentive.

And reward mistakes. Create a rotating gag prize for the employee who makes the biggest mess, the most costly mistake, or the dumbest error. This award should be presented in an atmosphere of friendly fun; never to punish or embarrass. Laughing these things off serves two purposes: first it encourages people to take risks by letting them know that it's OK to fail, and second, it allow them to "pay their dues" with co-workers, appease their conscience and get on with their jobs.

Finally, never argue with results. If a team member goes about achieving their objective in an unconventional way, reward them anyway. What works for you may not work for them. Encourage your people to take responsibility for achieving their objectives, reward them progressively, and stand back. They will amaze you!


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