When it comes to motivating employees, money is far more persuasive than just about anything else. An effective incentive program, however, is about more than money.
Sometimes managing the workforce begins with re-defining the business. Such was the case at Creative Memories (St. Cloud, Minn.). Ole Dam, vice president of operations for the company that virtually created the scrapbooking phenomena, says competition drove it to find a better way.
To meet the demands of its customers and direct-sales consultants, and stave off competition, the company instituted an incentive program to reward its manufacturing and distribution center employees. The program is educational and financial. As skills improve, rewards follow.
“Speed to market is critical for us,” explains Dam. “So rather than have distribution employees standing around waiting to fulfill orders, we train and certify employees in all areas of manufacturing, and how to do the pick, pack and ship part of distribution.”
This flexible workforce can jump in where work is needed, either in manufacturing or in distribution. The more certifications an employee acquires, the more money he or she can earn via increases in hourly wages. Dam says the Flex Program that Creative Memories began about two years ago indicates how an incentive program can make a company more competitive.
Good and bad incentives
Bill Tyng, a systems consultant with Forte Industries (Mason, Ohio), has worked in companies with various incentive plans. “The bad plans,” says Tyng, “the kind that don’t work, are usually because the initial expectations of the incentive plan are focused on improving productivity—how to squeeze the maximum production out of the minimum number of people.
“The good [incentive programs] have as their motivation, rewarding good workers and identifying workers who need improvement.” The latter approach, says Tyng, brings several benefits to the company. It helps identify bottlenecks in the manufacturing or distribution process. Incentives also function as a leveling process. People with different work ethics will sort themselves out. Those not inter-ested in earning more money will fall away of their own volition or be fired for lack of performance.
Keep it simple
George Kenney, senior director engineering and distribution for Princess House (Taunton, Mass.), a direct marketer of housewares with 350 employees, agrees that incentive program managers have to juggle a lot of numbers, but a large staff to administer the program is not required. He started his incentive plan in his 210,000 sq.-ft. distribution center in Rural Hall, N.C., nearly 10 years ago.
“We looked to design the incentive program with three goals,” he says. “We wanted to increase productivity, improve the quality of our order picking process and create a safe work environment.”
To achieve those goals Kenney determined how many picks per week were being made and how many would be required to increase overall productivity by 20%. His calculations were based on the company’s annual revenue. The number of picks required to boost revenues became the new benchmark.
If the team exceeds the benchmark rate (on a weekly basis), everyone gets an additional 25-cents per hour for each 500 picks over the benchmark. If they don’t hit the benchmark, they get docked 25-cents per hour. If they hit the mark they make their pay, but nothing additional. And to assure quality in picking, accuracy is also rewarded or deducted on set percentage goals. The third part of the program, safety, is addressed by taking away the incentive if anyone on the team has a lost-time accident during the week.
“We base the program on the week’s activity,” explains Kenney, “so you can have bad as well as good days. And we emphasize teamwork.”
It’s not always about money
JP Magill, vice president, operations for the Achilles Group (Houston), a human resources service provider, says reward programs are really more art than science. “Trying to determine what you want out of a program,” he says, “and what you want from employees via the program, gets complicated.”
Creating an incentive program is simple once managers figure out what the driver for the program should be. “If you’re trying to fill in for your compensation structure with something that has little risk, then it’s about money. If it’s about recognition, then you get into a lot of other things; sometimes simple stuff like saying thanks is what makes people happy,” says Magill.
In Magill’s experience, recognition is important. “In today’s world we’re all going so fast few people think to stop and say ‘thank you’ to an employee for a welldone job.”
Any compensation program has to be monitored or no one will pay attention to it. And if the reward has no meaning, no one will pay attention to it. A program has to be based on real measurements and employees have to understand and trust those measures.
“An incentive program,” says Magill, “has to be intuitive as well as academic. It has to be an open system people can see.”
Managers also have to be careful what they reward. “Never lose sight of the fact that reward drives behavior,” he adds.
Assessing a program’s value
Energy Alloys, a manufacturer of solid bar and tube products in Houston, had a standardized quarterly bonus program. It wanted a better way to reward employees.
“We were looking for something that would give us more immediacy in our rewards program,” says Dave Warren, president. “We wanted recognition of an activity to be immediate.”
The result of Warren’s search is a program called “Energy Bucks.” It’s simple enough. He printed fake money. The money is carried by managers and supervisors. Depending on how important they deem an employee’s activity that goes above and beyond what might be required on a job, the manager instantly rewards the person with a piece of fake currency in either $10, $20 or $50 denominations.
“It’s a quick way to tell an employee, ‘We saw what you did, and appreciate your efforts’,” says Warren.
So what good is fake money? Employees can use it at a company store to buy a variety of merchandise that cannot be purchased anywhere else. “We buy topquality items and have the logo engraved on them,” Warren explains. “So the recognition continues. It’s not just that someone has a golf bag with the logo. Everyone knows there’s only one way to get that bag, so he’s doubly rewarded when it’s seen by co-workers.”
Another facet of the program is communication. On days when the company store is opened, Warren or one of his managers is present. He talks with employees about how they earned their bucks. It opens a direct channel between people on the floor and company managers.
“A problem with many incentive programs,” says Warren, “is they lose their ability to motivate. This program constantly motivates because it’s so closely tied to the activity.”
And another benefit of the plan, says Warren, is that it’s fun. “We work hard and anything we can do to bring a little fun into the workplace is welcome.”
Seven Ways to Motivate Employees
Here are some tips from users and planners of incentive programs on how to do it right:
- Determine what you want to accomplish. Start with the end in mind;
- Reward good workers, identify workers who need improvement;
- Focus the program on process, not a job;
- Establish measures against real-work experience, not imaginary projections;
- Base rewards on team incentive, not the individual;
- Make rewards immediate, close to the activity;
- Make employees part of the decision-making process.
Keeping Lawyers at Bay
Incentive programs can be the source of legal hassle if not administered fairly. Here are some tips from experts on how to avoid potential legal problems:
- Employees should have a written copy of the plan and performance standards for the job;
- Formal job reviews, along with ways to appeal results, must be established;
- All manager and employee decisions should be documented;
- Have more than one person evaluate employees, if possible;
- Any rating of an employee must be made on job-related aspects, personality;
- Thoroughly analyze the job before creating the performance standard. And document the analysis.
These tips won’t stop a grievance. If a union shop is involved, having union representatives onboard early in the process bodes well for the program’s success.