QUESTION: When the budget is too tight to offer a pay rise, how can an SME proprietor motivate staff and heighten productivity?

POSTED: September 18, 2009 BY: CATEGORY:

Daniele Lima

Managing Director, Road Scholars Training and Strategic Consultancy

With the failure rate of SMEs climbing 38 percent between March 2008 and March 2009, it is very likely to be the standard, rather than the exception, that many small businesses cannot afford to monetarily reward key, high-potential employees.

In this situation the proprietor still needs to offer value and answer the question of ‘what’s in it for me?’, albeit, more creatively.

One effective option is to develop a series of rolling incentives that act to achieve both key objectives: motivation and retention of key staff.

These types of incentives work around setting KPIs that are challenging yet achievable and, if achieved, ensure that the business is in a stronger position (for example, sales targets).

What is different about these incentives is that they kick in after two or three years of service with the firm.  For example, any representative who achieves their budget for three consecutive years earns an additional lump sum of $50,000 over and above their salary and normal incentives.

Large firms and multinationals use this strategy to great effect and it must be remembered that the key is to structure the incentives in a way, that when any individual qualifies for this type of reward, the firm has more than made up for the incremental spend on bonuses.  This represents a meaningful and sustainable differentiator for your firm.  The upside is employees forgo a pay rise now, for the opportunity to earn greater rewards down the track.  Rewards that you will be in a better position to pay.  Simply put, it’s a win/win situation.

Megan Tough

Director, Complete Potential

A 1946 study showed that when asked what they most wanted from their work, employees answered “full appreciation for work done”.  When their managers were asked what they thought employees most wanted, they responded “good wages and security”.

Managers and business owners wrongly believe that the main reason people go to work is money.  It’s certainly one of the reasons, but for most people, it’s not the biggest driver.

In this economic environment, it’s time to implement the most effective, but underrated strategy for improving productivity and performance – recognition.

In the past, service awards based on tenure were the primary form of recognition.  These days recognition is based more on performance-related criteria.  I recommend people think through the approach that will best work in their business, and use a combination of day-to-day recognition, informal recognition and formal recognition.  Day-to-day recognition may take the form of awards, celebrations, thank you notes and written and verbal praise.

Informal recognition is the singling out of individuals or teams for progressing toward milestones, achieving goals or completing projects.  The employer should provide a small indication of appreciation such as morning tea or dinner to celebrate achievements or effort.

Formal recognition involves creating a structured program with defined criteria linked to company values and goals, a nomination and selection process and an awards ceremony where employees receive public recognition.

Recognition increases employee satisfaction, performance, teamwork and productivity.  It reduces turnover, absenteeism, stress and accidents on the job.  And it’s low cost.

So what are you waiting for?

Kim Mei-Li Dennis

Chairman, SME Boardroom

There are many options an SME proprietor can use to motivate staff and heighten productivity.  These include offering equity or rewards based on performance, giving staff opportunities to ‘own’ a revenue generating project and simply showing appreciation.

Key staff can be offered equity (shares) in the business based on meeting or exceeding targets relating to revenue, profit and generating new business, over a particular period of time.  This encourages ongoing performance, loyalty and accountability.

Bonuses and profit share can be offered to staff based on revenue or profit generated by staff members individually or as part of a team.  Non-financial rewards such as a day off, a weekend away or winning a prize can be offered to staff based on meeting or exceeding targets relating to revenue, profit and generating new business.

Staff can be encouraged to innovate new products, services, businesses or strategies that will generate revenue.  This makes staff feel more involved and an integral part of the business.  If the staff member responsible for the new concept is then given ownership of its implementation, that staff member will have a personal vested interest to ensure it is a success.

Appreciation of a staff member’s contribution to the business can be shown by complimenting a job well done, saying thank you, buying a personalised gift or giving an early mark.

These strategies encourage a focus on generating revenue, business growth and performance.  To be effective, the benefits to the business of staff ‘performing’ must be greater than the costs of providing equity or rewards, investing in new concepts and providing gestures of appreciation.

Jo Macdermott

Director, Next Marketing

Research has shown that money is not the most important factor when it comes to employee engagement, motivation and productivity.  There are many factors involved in creating a great team environment.  Having worked as an employee and now running my own business, in my experience, the best techniques don’t actually cost much at all.  Here are my top three tips.

First, recognise good performance.  People respond well when they are genuinely thanked for doing a good job.  If there are special circumstances where a team member has gone above and beyond for a particular project, for example, a small gift or voucher may be in order.  Purchase something that is relevant to their circumstances.  As the saying goes, ‘it’s the thought that counts’.

Second, leverage other conditions in your employment contracts.  As an SME operator, you have the flexibility to offer working conditions that suit both your team members and the business’s individual circumstances.  We are all motivated by different things, so be as specific as you can when working on these.  I recently hired a graphic designer whose work motivation is to be able to do a great job around her kids and family commitments.  I am more than happy to offer adaptable working conditions as long as the job gets done and the clients are kept happy.  Again, the main motivator isn’t money.

Finally, work at building team morale.  It is not surprising that a workplace with a high morale also produces a high performing and productive team.  I recommend activities such as morning teas, low cost lunches at a local café or a barbecue once a month as good yet inexpensive ways to build team morale.

Howard Tinker

Director and Senior Coach, Restaurant Marketing Systems

Staff are the core of your business.  Once you realise the long-term value of your customers, and that you make most of your profits through repeat business, you can begin to make marketing and incentive decisions based on how many repeat visits your staff generate.  As an example, if you know that most of your regular clients visit your restaurant once a month you can create a strategy that encourages them to come in a second time within 15 days, effectively doubling sales.  This could be to redeem a prize on their next visit, to attend a special event, to use a voucher for a specific purpose or to receive a bonus.

With your staff’s names printed on the marketing piece that generates the repeat visit, you can track which of your staff are promoting your repeat business sales.  You can then pay incentives to the most effective staff members from the increased revenue they have generated.

One of the biggest costs for a restaurateur is food.  Unless this is managed this figure will blow out largely due to poor purchasing choices and wastage.  Getting this wrong can literally mean the difference between making a profit and going out of business.

My clients often delegate responsibility for this important task, yet manage it and incentivise the appropriate staff member for doing the task well.  The business owner and staff member agree the amount to be spent on food as a percentage of sales per month.  Then if the staff member maintains high quality standards and comes in under budget by an agreed amount they will receive a bonus for that month.  The owner wins in many ways: they reduce costs, they delegate the task and they have a staff member who is solution focused and rewarded for cost cutting.

Publication: Marketing Magazine

Issue: 81

Month: September 2009

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#Jo Macdermott - turning good businesses into great businesses is all in a day’s work for marketing consultant, Jo Macdermott. Jo leads Next Marketing, a multiple award winning business, which she has grown from scratch. Jo is commercial, empathetic and always has her eye on the end game.