Business

Reward results – Matching Incentives to Outcomes

Like all entrepreneurs who pour every last dime into their company, my co-founder, Don, and I got nervous whenever business hit the skids. What made me really nervous early on, though, was when nobody else was nervous. No wonder there’s no urgency, I remember thinking. Everybody else is on a straight salary. They don’t have an incentive to make us more profitable. Yet if revenues dry up, Don and I don’t get paid.

What was wrong with this picture? Seeing the flaw changed everything. A couple of months later, we installed an incentive-based compensation plan. It took a while to coach everybody through it, but we tied a portion of almost every employee’s salary to the individual, team, and organ I national per romance. Suddenly, a gust of wind hit our sails. Slackers were exposed and cut loose. Stars netted big bonuses. Productivity soared.

Yet it wasn’t all about money. “Fat paycheck” barely cracks the top ten in employee motivation surveys. Consistently topping the list are intangibles like “challenging and interesting work,” “involvement in decision making,” “feeling respected and valued,” and “the ability to make a contribution.”

Bonuses are a good way to tie it all together. I’d set a bonus target of around 30 percent above a no administrative employee’s base salary. That meant she’d get paid below market value if she failed to reach any goals, above market value if she achieved half, and significantly more if she hit all of them. The X-factor here is human nature. Motivational motors sputter and stall, so you’ve gotta get inside people’s heads if you hope to match incentives to outcomes.

“Managers who complain about lack of motivation in their workers,” Kerr wrote, “might do well to consider the possibility that the reward systems they have installed are paying off for behavior other than what they are seeking.” A few institutional follies:

■ We hope for teamwork and collaboration, yet reward only individual effort.

■ We hope for innovation and risk-taking, yet reward the errorless status quo.

■ We hope for long-term strategic thinking, yet reward quarterly earnings.

They sound like obvious and curable maladies until you realize how deeply they’re ingrained in the business world. After reading Kerr, whenever I saw something that just didn’t seem right, I asked myself, what behavior are we really rewarding? This led me to create the “farm system” to reward store managers for developing assistant managers.

Last word

One last thought on incentives. Ask yourself, would I work as hard if I didn’t have a piece of the action? Where appropriate, we let key execs invest in the company. The payback was phenomenal. “My commitment and loyalty were heightened when I became a shareholder,” said Jim Pascale, who headed up our franchise operations. Jim’s equity spurred a no-limits attitude. “It made me care about every aspect, not just the division I was running,” Jim said. “I was willing to help everybody and work more cooperatively to do whatever had to be done.”

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button