Motivating Your Team with Pay-for-Performance
I'm not sure if it's society, work/life balance, millennial mentality, or people that are just really bad at math, but why is it becoming more and more difficult to find employees that will buy into a pay-for-performance model? Last year I went to a conference hosted by Brett DiNovi who is very passionate about this model and uses it in his own company Brett Dinovi & Associates. I admired his premise and the fact that his turnover was less than 1%. At that time I was already implementing a P4P model, however he sparked some ideas in me to improve my level of incentivizing.
It may have been Mr. DiNovi, but heck, I've read so many books in a year it could have been Patrick Lencioni, author of the Ideal Team Player, who knows. Regardless, someone mentioned something about a question they ask all applicants for positions in their company. I've used it ever since.
"If I were to give you two options which one would you choose?"
Option 1: You can earn a low but steady salary, independent of your effort, performance, etc.
Option 2: You have the potential of a much higher salary, possibly even double or more than Option 2, but your salary is directly related to your job performance.
"Which one would you choose?"
In my three years of conducting interviews, I've never considered hiring someone who chose Option 1. Why? Where's their Hunger? Their drive? How do you motivate someone that can't motivate themselves? In the world of private practice, I've decided that this is not something that I want to spend my time doing. I can and do motivate in other ways, but motivating an "unHungry" person is like trying to squeeze blood out of a turnip.
Personally, I believe in paying an employee a fair rate based on the role of the position but giving them something to work for well beyond their hourly salary. You see, for someone who is confident and works hard, why would they want to be capped? That cuts off creativity and the desire to continue learning and growing. Putting someone who is "unHungry" in this role, also, will not work. They will become stagnant, bored and probably out job hunting after they've called in sick.
What problems will you run into with this model?
I can assure you, there will be problems. Here are the most common ones I've seen.
1. The bonus structure may need to change. As your company grows, changes, or reconfigures, there will likely need to be changed in this structure to accommodate your needs. Sometimes this does not go over well, especially for those folks that are resistant to change. Going into this model, you need to have an exit strategy. Make the program simple and easy to understand, however, make no promise that this is a neverending thing.
2. People start to expect it. Bonuses are supposed to be "extra" or "in addition to". Where things can go wrong is when an employee gets a bonus, then begins to expect it. In turn, this reduces their effort to actually earn it. Ultimately, without the same quality of work being done to generate the bonus, there will be a time when said employee does not earn the bonus. What happens? They get mad! Plan on having very clear conversations with your employees so that they are aware of the expectation in order to receive the bonus. Not that this will totally eliminate this problem, but it will at least open the door for communication.
3. People are not always good at math. For the sake of simple numbers, let's say that you pay an employee $10.00 per hour. Based on their productivity and the company's success, they could earn a profit-sharing bonus bi-weekly. Let's imagined this pre-determined amount is 1/2% of the Top Line Revenue (money coming in before overhead) that they will receive. Your company brings in $50,000 every two weeks. Based off of that amount, this employee could earn $250 that pay period. That's 25 hours of FREE money! They didn't even have to work more hours to earn it. That's over 1/2 a week FREE! Yet some people would rather have an extra 50 cents on the hour than the potential to make an extra $250 a pay period. It's an extra $3.13 PER HOUR!
My goal of implementing a Pay-4-Performance model is multi-fold.
I think people should work hard (or at least smart) for their compensation. I don't run a warm-body organization and I don't want that attitude reflected internally or to the communities we serve. I expect people to contribute to their team and provide support in times of need. The P4P mentality fosters that ideology.
It keeps your overhead lower and allows you to reward based on your pre-determined profit account (referencing the book, Profit First). There's no worse feeling that paying someone a premium hourly rate, only to find out they were online shopping, snooping Facebook, and starting their own business on YOUR time. The P4P model allows you to positively reinforce when good work is being done instead of forcing you to detect the shenanigans.
It helps employees have a "product" mentality. Sometimes people get stuck in the 9 to 5 routine and find their work monotonous. What employees sometimes don't understand is that their body sitting in the chair costs the company money. The company is making a decision to pay the employee to PRODUCE and outcome. That outcome generates revenue which allows the company to function. Employees need to see the value in the work they are producing and understand that it is directly tied to a monetary outcome for both them and the company.
When you started your business you probably had some concept that there would be a bootstrapping period, but as your infrastructure was built and your systems and processes became stronger, you would earn more money as the company became more profitable? Right? It's the same concept with P4P. When your employees have a vested interest in the success of your company, there starts to be a mental shift to a more productive mentality.
I think what you'll find if you choose to implement the Pay for Performance model is that a percentage of your staff will not like it. You might get some resignations and that's okay. When you start to bring on like-minded employees into your company the mental shift can be dynamic and your company will thank you!
Questions about Pay for Performance? Post them in the comments below!