Employee incentives...is money the answer?

An International Profit Associates Employment Center Article

Most employers reward employees for completing projects, meeting specific goals or to otherwise show appreciation. It is no surprise that money is the easiest incentive for owners to use. What’s startling is that monetary incentives may not be as effective in motivating workers. In fact, many employees prefer simple perks such as personal time off, gym memberships and gift certificates. Perhaps it’s time to scrap the existing incentive or bonus plan and create one that really motivates employees to stretch further and accomplish defined tasks.

Where’s My Bonus?
Using money as an incentive is attractive for two primary reasons: 1) money is an easy reward and, 2) employers believe their staff is always seeking another higher-paying job. But is additional money what employees really desire? Consistently using monetary incentives actually results in a disincentive over time. In some ways, it becomes like an entitlement. The Christmas bonus is one example. Employees expect this reward and rarely feel they have to do anything special to earn it.

An additional problem occurs when monetary incentives are included with employee paychecks. The drawback here is that since most paychecks are deposited into the household account and not given directly to the employee, the employee doesn't feel like he or she really benefited from the bonus. Instead, reward money becomes just part of the usual pay, which can leave the employee feeling cheated or unappreciated.

Incentives need not necessarily be monetary. In most industries, employees also are motivated by personal time off or specific items of interest. For example, one manager hung a shotgun in the shop and announced that whoever had the greatest improvement in productivity over a specified amount of time would win the shotgun. Overall this shop experienced a 35 percent improvement while the shotgun merely cost $300. Sure, any of the employees could easily purchase this item on their own. Yet, given the chance to win it plus earn the recognition of peers inspired employees to work harder.

Peer recognition is another important consideration when it comes to incentives and motivation. Unfortunately, it is lacking in most businesses today. Many owners are quick to criticize and tell employees what they did wrong. It’s not as common to pat someone on the back and tell them they did a great job, especially in front of other employees. Yet verbal recognition or even a simple plaque does wonders and generates a truly positive response from employees simply because they were recognized for a job well done.

Performance Management
The solution to how and when to reward employees comes from an incentive philosophy based on individual or team performance. This approach empowers employees and enables them to influence their income or other form of job satisfaction by performing job tasks in a more efficient manner.

Incentives can be based on productivity or other company drivers and ratios important to the business. Then, if two employees are hired at the same time to do the same job but one is 50 percent more productive than the other, it’s easy to determine which employee will receive a bigger bonus or incentive. That employee actually influenced his income rather than getting the same pay as the others. This approach is in contrast to the “Christmas bonus” entitlement, where all employees received the same amount, regardless of the amount of effort they contributed to the success of the project.

Another example of an earned incentive is when employees complete a job or task in less than the allotted hours. For example, if the bid for a particular job was for fifty hours and the job was completed in forty hours, there are ten remaining hours of “profit.” Share this with the employees.

Let the foreman or crew leader decide how to divvy up the crew¹s distribution based on each employee¹s contribution towards completing the job. Also, include the inside staff when they support the team effort. They are responsible for tasks such as preparing the billing correctly to collect the accounts receivables so all staff can get paid. Devise incentives that relate to their jobs as well.

An electrical company decided to implement an incentive to enable employees to have more input into the amount of money they could earn. This company used two-person teams consisting of a journeyman and a helper to complete jobs. In the past, each employee was paid hourly. It was known that the helpers were fun to have around even if they didn’t usually work very hard. Then the company then changed the system so that the journeyman was paid per job. In this way, the journeyman could influence his pay by how fast the job was completed. Since they could make more by doing more jobs per day, suddenly, half of they journeymen began complaining their helpers were not very capable and couldn¹t get their work completed fast enough. It didn’t take them long to figure out that they could earn more money with a more skilled helper.

The Nature of Goals
For incentives to be successful, the outcomes must be measurable using ratios that work for each particular employer and industry. One owner may use the number of feet of pipe that is laid, while another may use the average billing rate per hour. Additionally, the employer and employee need to agree on the goal. It should not be set too high or be too unrealistic; otherwise, employees will never even try to achieve it. Likewise, the goal cannot be set too low because then it’s too easy and not meaningful.

Instead, set a “Stretch Goal” where employees need to work to reach it – it’s not unreasonable but it will take some effort to get there. Provide feedback to the employees to keep them motivated as they progress toward earning the goal. A good plan should be easy to understand, implement, follow and measure for both the employees and employer. In other words, the goal should have measurable results that positively influence the bottom line in a timely manner.

Incentive Plan Benefits
A well-crafted incentive plan provides multiple benefits to a work place more so than ever achieved by the annual “Christmas bonus.” Some of these benefits include:

Improved employee morale Reduced turnover Enhanced productivity Better customer loyalty Cultivation of a team atmosphere Employee ownership of jobs/projects Greater sense of responsibility to work productively and proficiently

Additionally, incentives can be used for other areas of the workplace such as increasing attendance, promoting safety and raising quality. From the employer’s perspective, if a performance-oriented monetary incentive plan is in place, it represents the best check an employer can write. This check is issued because of the achievement of a specified goal attained above a predetermined amount. This target is the minimum of what the owned and the employee wanted to reach –above and beyond is gravy. This amount is shared with those employees who participated in reaching this goal, making it a rewarding check to write.

The Changing Face of Compensation
The need for incentives has changed over the last decade. The workplace has become more competitive, and employees expect more. With increasing expectations coupled with the emergence of a new generation in the workforce, the work ethic is changing - a fact that owners cannot ignore.

More than ever before, there are increasing numbers of employees who believe incentives should really be entitlements, given to them like the traditional Christmas bonuses. In reality, employers do not and should not be expected to pay employees for the job they are already getting paid to do. Incentives such as paid days off and peer recognition contribute to motivating employees to take pride in their work and in their company.

Monetary and other incentives tied to productivity allow employees to influence their own income and/or job satisfaction without really costing the owner anything additional. Sometimes the little difference makes all the difference in creating an incentive plan that benefits both the employees and the employers instead of one that drains the company’s resources.