June 15, 2008
Understand your goals
By Terry Murphy CLP
Manager, human resource development
When you are drafting a chart of incentives, always keep in mind the Golden Rule of Incentive Plans: “Incentive payments are for results achieved and goals accomplished.”
People are paid a salary or wage to do their jobs. Payouts are not automatic. An incentive plan rewards employees for performance above and beyond the norm. It is sharing extra improvement or profit, because of an individual’s personal effort. It is a thank you for being a solid, performing employee.
Think of the key elements of any goal, target or desired result. Goals must be clear, specific and easily understood. There must be no doubt at the end of the incentive period as to what the goal was. And, the goals must be achievable. Goals must not be designed to an unachievable level. They must be measurable. At the end of the day, you either achieved the goal or you didn’t. Goals must also fit the culture of the organization.
Profit or profit improvement is an ideal target area. It is probably the most legitimate form of a payout perspective. It is also the one that generates the most dialogue, the most disagreement and the most danger for misapplication. It can be a real de-motivator, if not well thought through. If you set a profit goal for one or more people, are you prepared to show your company’s financial statements? Ultimately, many owners tell me they do not want to show people their private P/L statements. Some employees will see that a profit was made, then all they can think about are pay raises and the fact that the company is making all this money, etc. Many employees do not understand hidden costs in a business, such as machinery and equipment replacement costs and other future considerations of risks and returns. If you only pay incentives on profit improvement, how can you have this plan without disclosing financial statements?
One way is to report to the employees a percentage change from the last financial period. If the target or goal states that an incentive will be paid out if the company meets or achieves its budget, then reporting that it met budget will achieve the objective of full disclosure without specifically mentioning dollar results. This protects the owner’s financial confidentiality and allows the employee full assurance that the results are accurately reported.
Another way is job costing per project. This allows a specific crew to have an incentive based on its own team’s results. One must make sure the target is clear and that the final comparison is explained to the crew. A plan must be verifiable in order that participants may compare their results to the original plan.
Team incentive plans that involve all employees are good, because they require the group to work together to achieve the objective. However, there are also some negative fallbacks. You will always have some who contribute less and expect the same reward, as those people who may have had more to do with the successful end result. You can’t get away from this. You can expect some dissention in team plans.
Employees must realize that the company’s profit allows them to have a job. No profit, no company; no company, therefore no job. Incentive plans can motivate an organization to improve and sustain profit. Having employees strive for continuous profit improvement is what management is all about. If they achieve it, shouldn’t they share in it? A good incentive plan can go a long way to help profitability.
Terry Murphy can be reached by e-mail at terry@landscapeontario.com.
Manager, human resource development
When you are drafting a chart of incentives, always keep in mind the Golden Rule of Incentive Plans: “Incentive payments are for results achieved and goals accomplished.”People are paid a salary or wage to do their jobs. Payouts are not automatic. An incentive plan rewards employees for performance above and beyond the norm. It is sharing extra improvement or profit, because of an individual’s personal effort. It is a thank you for being a solid, performing employee.
Think of the key elements of any goal, target or desired result. Goals must be clear, specific and easily understood. There must be no doubt at the end of the incentive period as to what the goal was. And, the goals must be achievable. Goals must not be designed to an unachievable level. They must be measurable. At the end of the day, you either achieved the goal or you didn’t. Goals must also fit the culture of the organization.
Profit or profit improvement is an ideal target area. It is probably the most legitimate form of a payout perspective. It is also the one that generates the most dialogue, the most disagreement and the most danger for misapplication. It can be a real de-motivator, if not well thought through. If you set a profit goal for one or more people, are you prepared to show your company’s financial statements? Ultimately, many owners tell me they do not want to show people their private P/L statements. Some employees will see that a profit was made, then all they can think about are pay raises and the fact that the company is making all this money, etc. Many employees do not understand hidden costs in a business, such as machinery and equipment replacement costs and other future considerations of risks and returns. If you only pay incentives on profit improvement, how can you have this plan without disclosing financial statements?
One way is to report to the employees a percentage change from the last financial period. If the target or goal states that an incentive will be paid out if the company meets or achieves its budget, then reporting that it met budget will achieve the objective of full disclosure without specifically mentioning dollar results. This protects the owner’s financial confidentiality and allows the employee full assurance that the results are accurately reported.
Another way is job costing per project. This allows a specific crew to have an incentive based on its own team’s results. One must make sure the target is clear and that the final comparison is explained to the crew. A plan must be verifiable in order that participants may compare their results to the original plan.
Team incentive plans that involve all employees are good, because they require the group to work together to achieve the objective. However, there are also some negative fallbacks. You will always have some who contribute less and expect the same reward, as those people who may have had more to do with the successful end result. You can’t get away from this. You can expect some dissention in team plans.
Employees must realize that the company’s profit allows them to have a job. No profit, no company; no company, therefore no job. Incentive plans can motivate an organization to improve and sustain profit. Having employees strive for continuous profit improvement is what management is all about. If they achieve it, shouldn’t they share in it? A good incentive plan can go a long way to help profitability.
Terry Murphy can be reached by e-mail at terry@landscapeontario.com.