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Every small business wants motivated employees. They are more efficient and produce better results. Using monetary and other rewards to improve motivation is a simple idea, but doing it fairly and effectively can be challenging.
The majority of small businesses "distribute payments to whoever is the golden child of the week," says Daniel P. Moynihan, a principal and senior consultant at Compensation Resources in Upper Saddle River, N.J.
How can you create a compensation program that motivates employees, results in a more productive staff, and is administered fairly and effectively? The secret, it seems, lies in the details. Here are four steps to follow.
1. Establish an action plan.
While the goals that you want to achieve may vary from one project or staffer to another, the process that you follow can be duplicated each time. Andrew Birol, president of Birol Growth Consulting in Cleveland, breaks the process down into the two most important details of any compensation plan: (1) You must always reward top performance and must be as clear as possible to your staff on just what you consider top performance. (2) You must have a plan and culture that motivates less-than-top performers to strive to do better. Communication is the key ingredient for the entire program. Harvey Wigder, principal of Fulcrum Resource Group in Newton, Mass., points out that much of the program's success will hinge on people getting a clear and consistent message and understanding the objectives. "Obviously, everybody likes it if the company is successful and there are plenty of profits that they can give out," Wigder says. "[But] at least if people are communicated to and if they understand the ground rules, they know that if things don't work they're not going to get incentives."
2. Be creative in determining rewards.
Before you launch the plan, decide the reward. If you've relied on bonuses or profit sharing in the past — and they work for you — then, by all means, continue to use them. However, Moynihan suggests keeping a notebook on your employees to distribute these cash rewards fairly. Here you can keep notes on their performance, both good and bad, throughout the year. That way, you can reward people for longer-term performance rather than skipping them because of a mistake they made last week. If cash flow is a problem — as it is with many small businesses — look to other ways to offer rewards. In fact, some human resource experts believe that non-cash rewards can have a greater impact for the employees. "All of the great behaviorists have said that you have to go out of your way to recognize and just give praise. That doesn't cost you anything to give praise. But if you do go out of your way to give a non-cash reward along with that praise — that's just gold," says Brent Longnecker, president of Longnecker & Associates in Houston. In his own business, Longnecker has found that offering flexible working hours and the occasional Friday afternoon off have proven to be great rewards. With the extra time, employees can take care of errands and enjoy a full weekend. On Monday, they return relaxed and ready to work. Regardless of the reward you choose to give, both Longnecker and Moynihan point out that they must be random and occasional. Once you start handing out gift certificates on a weekly basis, they become an expectation rather than a reward.
3. Give employee rewards your personal touch.
Part of the recognition factor in rewarding employees is your involvement. If you want to send your employees out for lunch, then make the arrangements yourself. "One of the coolest things that I've seen done is where owners or executives of a company actually take on a job that they would normally have their subordinates doing," Birol says. "If you're having a luncheon, have the executives cook the food. Show by activity that you really are all on the same team." It's also important when dealing with non-cash rewards that you tailor them to the individual as much as possible. For example, offering a movie buff an afternoon at the golf course might not have the impact you were hoping for. "If you customize something to people's preferences, you'll usually get 8 to 14 times the value of what you paid," Longnecker says. He also points out that if the reward comes from you, their boss, it will mean that much more to your employees, even more than if you had handed them a bonus in their paychecks.
4. Group rewards may be appropriate, but don't undermine individual initiative.
One final issue is deciding the scope of your compensation plan. In a bid to be fair and to keep the program simple, it may seem logical to offer group rewards and to leave individual rewards for things such as base pay. However, that can emphasize group achievement at the expense of individual initiative. With that in mind, Birol says that a plan should ideally operate on two levels, covering both individuals as well as the group as a whole. "You make one-third based on the individual's tangible performance, and the remaining two-thirds based on the group accomplishing and achieving whatever it was charged with doing," Birol says. "From there, you have everyone rank their peers."