Incentivising staff is often confused with the idea that business owners need to offer key staff extra income opportunities to drive motivation and productivity. Instead, I’d like you to think about it another way. The purpose of incentivising staff is to proactively influence behaviours that increase performance.
But, of course, you need to identify which behaviours you are seeking before you deploy an incentive. These should be aligned to the most pressing stakeholder priorities
Typically, incentives are biased towards sales results or departmental targets. These, in isolation do not neccessarily have a material impact for a business that is either striving for survival or seeking to improve performance.
In an earlier article, we have already talked about how imporant it was for SME owners to effectively manage cash, margin and overheads. As such, it is prudent for all business owners, including SMEs, to align incentives for key staff to be measured and rewarded on those areas.
The best incentives are those which encourage the employee to operate and think like a stakeholder. However, just asking employees to operate and think like stakeholders is not usually sufficient to get them to do so on their own accord. Indeed, why should they?
How to incentivise your staff effectively
Creating incentives which simultaneously benefit the stakeholder and the individual is the ideal situation.
In most cases, employees will respond well not just to improve their own earnings. They will also relish the opportunity to develop their own business understanding. Particularly if they are being incentivised against metrics with which they have not previously been involved.
For example, why not reward sales staff on the collection of cash? After all, sales staff often have the best relationship with the customer and may be able to facilitate quicker payment. If you read one of my earlier articles regarding cash, you will remember that I have advocated the concept of…
For those management teams that are more advanced in their thinking, it is beneficial to link their incentives to the net asset value on the balance sheet. This requires an all-encompassing focus on operating profit, cash received, inventory, as well as minimising liabilities. This is perhaps the ultimate way of connecting management teams to the stakeholder interests. It can also be broken down to only focus on the elements which are most important for the business at any particular time.
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