Performance Related Pay

[bigbrowntree]

Hello All,

I wanted to pick some other business owners brains on ideas surrounding performance related pay and the incentivisation of staff.

I employ three gentlemen and am considering some sort of schedule whereby as they earn the company more money, so they access more money in return.

I wanted to know if others employ similar schemes successfully - there must be pitfalls to avoid, like a drop in quality of finish in order to knock out more volume etc

Any help, advice, or just sharing of experience would be much appreciated, thanks in advance....

Ben

 

[Retired Climber]

I did that for a while and it was more trouble than it was worth. It leads to a culture of doing things quickly not properly, blaming individual team members for holding up progress if they are concerned about safety, and even leads to team members moaning about early finishes or a bit of paid time off because they want to get their bonus. 

[benedmonds]

I have considered similar and came to the conclusion that quality would drop, its also difficult to administer as our teams don't remain the same all the time. In a similar vain I have thought about bonuses for not breaking things but came to the conclusion stuff less likely to get reported. Often unintended consequences.. 

 

I think the best way would be to offer employees a profit share or something similar, but I have yet to come across a simple method that could be easily applied. Doing it annually is not likely to incentivise staff, monthly would be better but then there would be a lot of work to figure out the numbers and then how do you differentiate between the grafters and the slackers.

[Andy Craig]

You don't really need to make up schemes, if they are working hard and the money is building up a bit tell them that and give them a bonus from time to time

[Retired Climber]

17 minutes ago, Andy Craig said:

You don't really need to make up schemes, if they are working hard and the money is building up a bit tell them that and give them a bonus from time to time

Even that's dodgy because once they start to receive bonuses they get it into their head that they are entitled to it. Then, if things aren't going so well and you don't give a bonus, you end up with staff who are more resentful and demotivated than when you didn't give a bonus at all. 

 

Staff, can't live with em, can't live without em. 

[bigbrowntree]

17 minutes ago, Retired Climber said:

Even that's dodgy because once they start to receive bonuses they get it into their head that they are entitled to it. Then, if things aren't going so well and you don't give a bonus, you end up with staff who are more resentful and demotivated than when you didn't give a bonus at all. 

 

Staff, can't live with em, can't live without em. 

Its tricky, as you have all already outlined there appear to be pitfalls that need to be carefully avoided. I havent got the answer yet but I feel there must be a system that can be introduced to keep them working hard and progressing. 

@benedmonds I wonder if profit share is the way forward? I read an interesting article on John Lewis staff who own shares in the business and get dividends and bonuses, they are invested in the business and benefit directly from consistently good work

[agg221]

I can offer some comments from outside of arb.

 

Firstly, any formal calculation system that defines a number is fraught with difficulties. I work for a large company. We had a 'share in success' scheme which ran for a few years. It took into account a 'balanced scorecard' approach which covered various aspects including safety, productivity, orderbook, profitability etc, setting targets for each at the beginning of the year by giving it a score, added up to a total score. If we beat the score, we got a pre-defined bonus. The problem was, you could beat the score without necessarily achieving the profit to pay for it. The second year we got that right but the problem was, everyone was trying to beat the score by performing well, but then the profit wasn't there (out of their control) to pay for it. I think there were a couple of years where it paid out and then it died - it really didn't inspire anyone.

 

Assuming these are employees, pay rises are good. If you give pay rises to the people you want to keep then they tend to stay. They also find it harder to leave if you get to the point where they are well paid for their level. The point is that they deserve above average pay, because they work above the average, which earns your business above the average. The consequence is that those who are not performing do not get pay rises (or at least much smaller ones). You have to be prepared to justify this - they will always talk. I always find an upfront discussion is best - not just a letter, but one to one as it doesn't need to be embarrassing. 'You are doing well. That has been helping the business to do well so in recognition of your contribution I am pleased to increase your salary by X'. 'You are doing OK, but you need to look at improving A and B. If you do, that will mean you are able to bring more to the company and I will be able to increase your salary accordingly'. If someone is not doing OK, they should be well aware and either improving fast or aware that they are leaving soon.

 

The good thing about salary rises is they are is regular, consistent and makes people feel valued. The bad thing is that you have to be able to sustain the increased salary bill so there may be times when you aren't confident enough of doing that but want to offer a reward for something. An ad-hoc bonus, varied the same as the above and with the same explanation, achieves this. Being completely ad-hoc, they are not expected and therefore people do not resent not getting one at a particular time. They still need to be given with a verbal explanation - just giving people a bit extra in their wages leaves them more likely to be confused and wondering whether they need to return it. Not giving it to someone and explaining why sends a clear message and allows them to decide to improve, decide to keep not getting one, or decide that they are leaving (or you may decide that for them). The thing is, they can be for whatever you want, so long as you are consistent. People calling out safety issues and avoiding an accident; people getting the job done and saving a day, whatever is appropriate and you can link back to why this generated some extra cash which they are sharing in. Cash is always best btw - different people have different circumstances and may not actually appreciate something that you think is generous - the person who doesn't drink won't get much out of a bottle of Scotch; the person who just wants to get home to their wife and kids may not appreciate a meal out with the team etc.

 

One exception to this - up until 2020 my employer gave everyone a Christmas gift. It was a small hamper of nice things to eat/drink. It was a completely mixed assortment and it cost them probably about £20-30/person. Being mixed, it really didn't matter if you didn't drink, or eat certain things - nothing difficult about passing on a few of the items to other people. It was worth a lot more as a gesture than the cost and by going to everyone it sent the message that everyone was still valued.

 

Just a few thoughts.

 

Alec

Edited March 26, 2021 by agg221

[Mick Dempsey]

Won’t work.

What if you’re pricing keen to keep them in work and you’re not making a lot? 
They’ll still want their bonuses.

 

Best to let them off early as a bonus when the jobs finished early.

Edited March 26, 2021 by Mick Dempsey

[bigbrowntree]

@agg221 Alec, Thanks for your thoughts, insightful stuff. I think perhaps having a progression roadmap in place so that personal / professional development goals can be reached and then rewarded might be useful. I know that ad hoc bonuses are really valued too - and arent prone to becoming an expectation. We had a bumper week last week and I gave the lads 50 quid each for a beer, I wasnt prepared for how grateful they were!

[Khriss]

You probaly set the right tone there  @bigbrowntree  genuine gift for good efforts rather than nightmare schedules of bonus n the resultant agro.  K