Does incentivisation work?

The IoD Berkshire branch had an interesting discussion on this topic recently.  Here's my take on the subject:

The underlying assumption is that rewarding employees for achievement (usually financially) will encourage them to work harder and achieve more in pursuit of those rewards.  This view is not borne out by academic research but in practice bonus schemes are widely used.  A carefully-designed bonus scheme when implemented on top of good management practices in a well-run business is a useful management tool – but it is not a substitute for these things.

How to design an incentivisation scheme

-          Incentivisation schemes can be implemented at individual, team or organisation level or use a combination of these

-          Ensure that the rewards incentivise the behaviour you want, are tied to outcomes the employees can affect and match the motivations of the employees concerned (which may not be financial).  For some staff it will not be possible to link performance directly to financial outcomes (for example a customer support desk)

-           Understand that as circumstances change every incentivisation scheme will have unexpected and often unwanted side-effects

-          Check that you can afford all possible outcomes

-          The maximum bonus should be enough to recognise over-performance but restricted in terms of total earnings - a maximum of 50% of basic salary, usually far less

-          Tie individual bonuses to overall company performance ie an overall profitability hurdle must be achieved before individual departmental performance related pay kicks in.  The downside of this is the fact that good performers might not get what they deserve but at least it avoids the situation where you can’t afford to pay

-          Bonus payments must be self-funding within the bonusable period; that is; they must be more than covered by the improved profit delivered by the over-achievement which triggers the bonus payment

-          Make sure that base and bonus targets match the business plan and budget

-          Link bonus payments to profit not turnover – and cap them

-          Bonus payments should be at the absolute discretion of management

-          You might want to add other desirable outcomes to the scheme. For instance, you could make “100% of department having a job description and appraisal” or “Complete project X” bonus targets

General

-          The overall bonus scheme rules should be published and each individual should have a written copy of their own targets and rewards, signed by them and their manager

-          Bonus targets should be agreed as part of the business planning cycle and before the start of the year concerned

-          Performance against targets should be reviewed as part of the appraisal and performance management process immediately after year-end

-          If in doubt, keep it simple

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Can your SME develop a brand?

What is a brand?

-          It is the shared reaction that it evokes in the people that matter to your business – customers, prospects, employees, suppliers

o   It is what they say about you when you aren’t there

o   It is the way they have come to expect you to behave

o   It is their assessment of your values and beliefs

o   It is the feelings they associate with their interaction with you

o   It is the stories they tell about you

-          It is the things you do to support the reaction

o   The kind of people you employ and the way they behave

o   The kind of customers you target and why

o   The values and beliefs that you run your company by

o   The processes you use and how well they deliver the kind of product or service your brand promises

o   Your style – of communications, dress, language and premises

-          It is the collection of artefacts that represent your business and trigger the reaction

o   Logos

o   Website

o   Company or product names

What are the benefits of having a brand?

-          You will be at the top of their list (or the front of their mind) when a prospect thinks about buying what you sell

-          It reduces perceived risk in the mind of the prospect – “No-one ever got fired for buying from IBM.”

-          It multiplies your marketing  – people find it easier to relate, and relate to, stories about feelings and a strong brand is shorthand for shared feelings about a company

-          It makes you more referable if you have a widely-accepted positive reputation – there is less risk in recommending you

How can an SME develop a brand?

-          As with all marketing, a brand is only of any use if you know what your target market and value proposition are

-          You cannot buy a brand – you have to live it and demonstrate it first so that your customers and employees develop the brand through what they say and do

-          It’s about coherence and congruence – be clear on who you serve, why and how; be clear about the values and beliefs that are important to you, your staff and your customers

-          Make sure that this comes through in everything you say and do, from marketing to invoicing, from the website to the way customer services answer the phone

-          Ask the people who matter (employees, customers, prospects, suppliers) why they chose you and what they think about your company.  This is your brand.