Bonuses (or Incentive Pay) – Are they a motivator or a demotivator?
Seth Godin, author of Permission Marketing: Turning Strangers Into Friends, and Friends Into Customers, believes that monetary bonuses are demotivators. He says in his blog, “Money, it's been shown time and time again, is a demotivator. Once people have joined your team [and are receiving a competitive wage], incremental money--bonuses and the like--usually demotivate people. They demotivate because sooner or later, people feel as though they're being treated unfairly.
“One guy gets a $10 bonus. The person sitting next to him seethes for weeks, while the bonusee forgets it soon enough. A sales rep gets into a fight about a commission... and remembers it long after the moment is gone.”
Other business experts, such as Jack Stack, author of The Great Game of Business believe that incentive pay improves motivation, slows turnover, increases productivity, and creates an ownership mentality.
A writer on www.MoreBusiness.com writes, “Extending bonuses creates two winners: the employee who receives the compensation and the employer who benefits from the worker's positive performance.” But he goes on to say, "What does an employer accomplish by offering Christmas bonuses, or year end bonuses, or other forms of extra compensation not dependent on the employee's performance? Free-floating bonuses that aren't attached to positive performance can create serious problems for struggling businesses.
“What happens, for example, when business takes a nose-dive and management can no longer afford to offer holiday bonuses? Employees who received those goodies in the past, continue to expect them. And the bigger these bonuses are, the more potentially dangerous they become. I've seen corporations face outright mutiny because they attempted to discontinue their practice of offering hefty end-of-the-year bonuses.”
I’ve interviewed dozens of remodelers who offer incentive pay programs and find that those programs that are successful and reach the goals that Stack believes are possible follow the same basic guidelines.
· Incentive pay or bonuses should not be used to prop up a weak pay structure. Pay your people competitively from the beginning. Look upon incentive pay as the return your employees receive from the extra effort they put in.
· The record keeping on which the incentive pay is based must be 100% accurate and be available for the employee to review regularly.
· The program should reward behavior that supports the overall goals of the company.
· The goals should be attainable with extra effort.
· The company owner must explain again and again that this is a reward for reaching goals above and beyond their basic job responsibilities in order to avoid a feeling of entitlement.
Gregory A. Antonioli, president of Out Of The Woods Construction in Arlington, MA, follows the principles of The Great Game of Business with his incentive pay structure and pays out bonuses quarterly if the gross profit dollar goal is reached. “Everyone shares in the program so everyone works together to reach the goals,” he says. “Now, reaching the GP target is not just up to the production team. If the office staff sees the numbers going down, they’ll do everything they can to turn it around. Everyone is vested in the same incentive.”
A second benefit of the program is “that in this kind of culture, where everyone is working together and everyone is rewarded alike, a lot of people are weeded out of the team. For example, one designer punched out every day at 5:00 on the dot and never put in any extra effort. She didn’t fit with our idea of teamwork and she’s not here anymore.”
Jim Hicks, The Roofing Company, in Hampton, VA has a different structure. “The first step is to have airtight financials. Lack of confidence in the basis for the program could definitely be a demotivator. Secondly, put it in writing and be very specific about the time frame for which the program is active. This helps establish that this is not an entitlement and could protect you from legal risks.”
Jim laughs, “Speaking from many years of pain with programs that didn’t work, I believe that success begins with how you set expectations from the beginning. It took our team about two years to get their heads around how this was going to work and now it works wonderfully.”
Hick’s program revolves around increased GP for each job. “We have a target for each job. Any dollars brought in above that are placed in a pool to be distributed,” he says. “One third of this pool goes back to the company, one third to the office staff, and one third to the field staff.”
Remodelers Advantage Inc., 535 Main Street, Suite 211, Laurel, MD 20707
www.RemodelersAdvantage.com