There is no one best way to incentivize employees, say US business professors Michael Mazzeo, Paul Oyer and Scott Schaeffer, authors of “The Roadside MBA.”
But several strategies have proven useful for small- and medium-size businesses.
Link employee incentives to quality performance
Eagle’s Landing Informatics in Johnson City, Tennessee, does medical transcription, paying employees based on both the quantity and quality of their work.
Transcriptionists, who are trained not just by internet programs but by nearby medical schools, are paid per line of transcription typed.
To ensure accuracy as well as speed, the company has a quality-assurance team that holds employees to high standards, with only 20 percent of trainees eventually becoming full-fledged transcriptionists.
Match employee incentives with responsibilities
Klein’s DKI in Couer d’ Alene, Idaho, which works with insurance companies for the restoration of homes damaged in disasters, knows that their marketing manager, for instance, is motivated more through revenues, while their estimators are paid based on commission.
Ensure that performance measures truly work
No one measure fits all. JR’s TBA (Tires, Brakes, Alignments) in Saint Joseph, Missouri, pays their lead mechanic, who is trusted and competent, by the job. However, other mechanics are paid by the hour and monitored (through video) to discourage theft.
In the past, employees were asked to uncover more “wants and needs” when a car comes in. Say, an oil change? Perhaps the brakes need fixing? Or the tires need to be aligned?
At first, employees were trying to pressure customers into spending more than they originally wanted, which owner JR Cheek says eventually became detrimental.
“Sometimes, tying pay to a poor measure of performance is worse than simply relying on hourly pay and direct monitoring. In JR’s case, the incentive led to some of what he wanted—uncovering wants and needs—but too much of what he didn’t want—suggestions for unnecessary repairs.
“Think hard about exactly what actions (positive and negative) will be motivated by the use of a given performance measure. If tying pay to a poor measure yields more cost than benefit, then find another measure, or unlink pay and performance entirely.”
“An incentive pay plan is only as good as the measure used to track performance.”
Incentivize the team rather than just the individual
“Team-based incentives can be effective when you want to motivate cooperative behavior, when it is hard to identify individual contributions, and when the team size is not too big,” says The Roadside MBA.
Plastic Molding Company in Cincinnati, Ohio, gives bonuses to 150 plant workers. They are motivated to reduce cost—molding faster, optimizing materials, saving space—because they get to bring home half of the savings generated. Bonuses are given monthly, with measures graphically displayed out in the open so the entire team can keep track of performance.
Some employees are freeloaders—and this might be practically inevitable in any group, whatever the incentive.
But according to CEO Thom Gerdes, the group plan encourages workers to monitor each other.
“Some people are highly motivated because that’s who they are” and they try to ensure that their coworkers do good as well for everyone’s benefit.
A medium-size retail family business in the Philippines motivates its 30 salespeople both by individual and group incentives. Individuals get commissions based on sales and customer satisfaction, but what most of the team looks forward to is the annual trip abroad.
When agreed-upon team targets are met, everyone gets a trip abroad. The better the performance, the swankier the trip.