John Styring, MD of Igloo Books, discusses how to create a viable financial incentive package for SMEs that reaps rewards for staff and employers alike.
There’s no denying it – money is a key motivator. So it should come as no surprise that, although by no means the only way of keeping a company motivated and happy, financial incentives can be a great way to boost morale and productivity in the office. The problem remains though, that financial incentive schemes can be problematic to get just right, especially for SMEs. The offer has to be right, the pay-out has to be right, and the matrix between the profit and the incentive has to be right too. It’s certainly tricky.
As an employer, the motivation to set up a scheme is twofold: it’s an opportunity to reward excellent results, and an opportunity to encourage staff to push for even better results in the future. When we makes a profit, we want to share that with all staff who have contributed to that success. But you have to be realistic about the potential outlay.
For a financial incentive scheme to work it needs to be fair and simple. Complexity is fraught with negativity – the scheme becomes uninspiring, remote and unlikely to succeed. Moreover, a complex scheme is also a palaver to administrate. The whole scheme then becomes a headache for everyone involved – and no-one enjoys the benefits. It’s my firm belief that a bad incentive scheme is more of a turn-off for employees than no scheme whatsoever.
So how do businesses go about setting up a scheme that is easy to understand, easy to administrate, and provides some instant and well-earned gratification to those that have worked for it?
Do your sums
The first job is to look at the figures. Before you promise anything, before you even mention the possibility of one to staff, sit down with your finance team and thoroughly assess your options. By taking the time to really mine into the financial health of the business, you can ensure in your own mind that the scheme could work, and present the idea to the managerial team as a solid proposition. By asking managers to feed back on a proposed workable scheme, you can create a sounding board which feeds back realistic queries and irons out kinks prior to rolling out the scheme at a company-wide level.
One of the joys of working in an SME is the sheer versatility and agility of the company. Fast growing and evolving, it’s an exciting and potential-laden environment. When it comes to creating a financial incentive scheme though, the very things that have allowed for your success are those which make creating such a scheme difficult: forecasting future targets can be challenging when the business is growing all the time. For a scheme to work it needs to be robust…and faultless. The nitty-gritty details must be absolutely correct and expected levels of profit must be spot on.
We try to achieve this by setting achievable targets, keeping our financial predictions sound, and ensuring that any offers of reward are solely based on unequivocal numbers. We spend a lot of time polishing and fine-tuning our forecasts and targets. It’s an essential process because setting targets too high can result in demoralising a work force, whilst figures which are too easily attainable likewise prevent the initiative really feeling like a reward for success, which can lead to a working culture of laziness and complacency.
Turning a miss into a hit
With a scheme in place, when targets are achieved there is an immense feeling of shared camaraderie and pride. What’s more telling for an employer, in terms of the scheme’s success, is the feeling in the office when a target is missed. Inevitably there will come a time when the target hasn’t been met, and how a company deals with a perceived failure is really important. Carity and communication are important: an increase of 10 percent rather than an increase of the 20 percent required to receive a bonus, for example, can still be a success. Success is just not linked to a monetary bonus. We operate a group target scheme for employees – everyone works together towards one goal, and (hopefully!) receives the same cheque at the end of it. We believe this method of incentive infuses staff with a community ethos and helps them pull together and push forward should they not make the target for one quarter.
Straight talking is best
Communication dictates so much of the success of an SME – and financial incentive schemes are no different. You must introduce a scheme succinctly and with clarity, and this should set the tone and style of all your later conversation and activity on the topic. By setting a quarterly target which is attainable, and avoiding the pitfalls of extensive complexity of unwelcomed complacency, your scheme can drive productivity and reward success, at the same time as making a positive impact on the ethos of team spirit in the company. I’m delighted for my team when they achieve and deeply proud of their commitment to success, and whilst I must admit that writing out a hundred cheques does give me a bit of arm ache, I wouldn’t have it any other way!