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Sunday, 7 June 2015

Looking to Improve the Preference of Your People? Throw Out Financial Incentives!

I feel a rant coming on.

In the last couple of weeks the broadcast media has been awash with stories of Executive's being paid average bonuses, over and above salaries, of £8,000+ irrespective of whether they have performed or not.

This bit of information caused vast amounts of righteous anger among journalists at the thought of poor performers being so remunerated.

However, the sound bite made me realise that there were more questions than answers so that it would have some meaning.

First of all, which companies gad been surveyed (almost certainly FTSE listed and probably banks)?

Secondly precisely how had they measured performance?  What was the break level between good and poor performance?

Nobody in the media even questioned the methodology and took the information at its face value which is, of course, at least suspect and at worst, rubbish.

It was a complete mishmash of inaccurate percentages, averages that mean nothing and conclusions that were specious.

However it did cause me to think about the whole contentious subject of bonuses, commission, incentives and the like.

When considering whether to use financial pressure to improve performance in a business it us valid to asked whether it is as a reward or a bribe and, more to the pint, what success can we anticipate?

At this stage it is a good idea to take a look at a video by Dan Pink (You Tube "RSA animation Dan Pink") in which he explains the research that has discovered some sobering thoughts about incentives.

In short if a task is absolutely routine and mechanical then payment by results works. However if there is even a modicum of intellectual input, then not only do they not work, they actually contribute to reduced performance.

Tell this to any sales manager with a commission incentivised sales force and he will have to go and lie down in a darkened room.

Bonuses are even more contentious. More often than not they are discretionary which means that nobody believes the basis on which they have been calculated. The dreaded word "favouritism" can be heard in the land.

Even worse, if they are distributed across the board irrespective of status or performance then they simply become an addition to the salary. Then what happens if there is a bad year and the bonus reduces or eve disappears?

I had an experience where one of my Vistage CEO Group members had put in a rather complicated sales commission scheme. The idea was designed to "ensure" that the sales people sold products right across the range instead of concentrating on one or two that were easier to sell.

He saw the Dan Pink video, was harangued by the group and returned to base to drop the scheme which was greeted with relief by the sales force.

The best sales force I know which included the venerable Phil Copp, the sage of Wythenshawe, was 120 string and UK national.

There was no commission, no incentives, no bonuses but the sales personnel were treated like grown-ups and given every encouragement to succeed. Salaries were probably a little higher than the market rate and that was that.

The fact is that financial incentives generally cause more problems that they solve.  People react positively to being treated positively, to encouragement, to recognition of them and their performance, to achievement and above all to a sense of purpose.

It is a matter of culture. If we treat our people as being coin-operated then that is what we will get with a transient workforce that will move for more money

On the other hand if we treat people with a concern for them and their place in the business, then we can expect a far more positive result and a more stable workforce.

Rant over, I feel better now!

Author of "Leading to Success" on Amazon Kindle
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