Many of my clients have reported significantly improved business results this year compared to the past few years. The common threads seem to be near record revenue, with profits are still below expectations. Their employees are working harder, and producing great results while dealing with uncertainty and tough challenges. They see the revenue growth but not the profit problem. So the question arises, how can I keep them motivated? The answer: the traditional holiday bonus, again?
This tradition of holiday or yearend bonuses began around the dawn of the 20th century as cash became a replacement for the agricultural gifts of food. According to the Princeton sociologist Viviana A. Zelizer in the Huffington Post, Woolworth’s first Christmas cash bonus to employees in 1899 ($5 for each year of service, with a limit of $25) was meant to match competitors’ higher wages and avoid a strike. In 1902, J. P. Morgan & Company apparently broke the record by giving each of their employees a full-year’s salary as a Christmas present.
Over time, such gestures of appreciation began to be expected by employees who even committed the money before opening the envelope. Many of you probably watched the National Lampoon classic Christmas Vacation this season and cringed when Clark Griswold opens the long awaited bonus envelope and discovers it contained a membership in the Jelly-Of the Month Club. Since Clark had already spent on a swimming pool deposit he felt compelled to kidnap his boss to extort the bonus he “deserved” as he had for the past 17 years.
To break the entitlement mentality, business owners should consider replacing the discretionary bonus with well crafted, tested and communicated incentive programs. The difference is simple. A bonus is a grant of money that employees are grateful for, but really have no idea why they got the amount they did or what to do to get it again. The only frame of is whether the amount is larger or smaller than last year. This perspective feeds the entitlement mentality and increases the pressure on the decision maker.
In contrast, incentives are tied to measurable or observable performance results. The amount of the incentive is directly derived from results in a predetermined manner. The employee knows what they delivered, and therefore how much incentive they will receive, good or bad.
Certain key principles of incentive design must be followed:
Measures drive improved business results
Formulas are pre or back tested to ensure a positive ROI
Payments reward both what and how results are achieved
Goals are understandable and achievable
Performance is within the employees “line-of-sight” or control
Awards are included in a total compensation strategy
Start now, early in the year announce the change from bonuses to performance based incentives. Involve key employees in the design and communication process. Make sure you are targeting what you desire to see happen. Watch for behavioral changes both positive and negative.
Properly designed and communicated incentive plans drive behavior. They can be truly, as Eddie told Clark, the gift that keeps on giving throughout the entire year. So break the entitlement mentality and avoid being kidnapped.
Russell Lookadoo is the HR Guy for small businesses. His firm, HRchitecture, specializes in helping business leaders accomplish their goals by effectively using their teams. Russell brings over three decades of experience designing Human Resources solutions that achieve business strategies in varied organizations ranging from a small manufacturer to the nation’s second largest bank. Russell holds the Senior Professional in Human Resources designation from the Society of Human Resources Management and earned the Certified Compensation Professional designation from World at Work. Russell attended the University of North Carolina on the prestigious Morehead-Cain Scholarship and graduated with a Bachelor’s in Industrial Relations. Visit his website at www.theHRGuy.biz