Monday, November 5, 2012

Simple principles of Incentives

Incentives are a key part of the basic scaffolding in our business, 'contingent reward' and providing good leadership in administering the systems is clearly important. Equally important is understanding that you shouldn't use incentives to change behaviour, its consistent and disciplined leadership that does this. You could argue that if 'scaffolding' could be that effective, we wouldn't need leaders! Not many of them anyway. Here are some good notes from Skroo on the subject.

The Basics of effective Incentives or rewards
1.     Reward the right outcomes-The outcomes you and your business wants and needs.
2.     If you are not getting the outcomes your want, look at what you are rewarding. It will be wrong.

Your Strategy on rewards (Incentives)

What Do you reward.                        What not to reward                           What do you reward with
Simple CLEAR Outcomes                     Activity                                               The Right KPI’s
you want and need                               Bureaucracy                                        Money
                                                          Minimising risk                                     Recognition
                                                          More Reporting                                      
                                                          Paralysis by Analysis
                                                          Busyness
                                                          Working long hours

How to reward
1.     Understand clearly and simply what outcomes you need and want in your business.
2.     Measure or KPI those outcomes.
3.     Reward them consistently (monthly) and long term. (year after year)

How not to reward
1.     Don’t incentivise people to change their behaviour.


2.     Use discipline and training to change behaviour-not incentives.
3.     Make sure Head office bureaucracy, staffing growth, analysis paralysis, busywork etc is never rewarded.

Who do you reward
1.     Sales People on the quantity of margin (Commission) in producing profitable sales.
2.     Leadership on producing long term sustainable profitable business.
3.     Support and disciplines (finance, advertising, IT, HR) on being efficient and effective and minimising costs and number of people in Support.

Rewards and incentives overall
The right rewards will get everyone working smarter and harder consistently.
Leadership-profit Growth.
Sales-Consistent Sales Commission and  growth.
Support-Less people, Lower costs (support and business)Less but correct reporting, Full and effective staffing with the right people and right attitude.

The wrong incentives will:-
1.     grow inefficient support
2.     retain wrong leaders
3.     give sales people the wrong idea of what their job is really about.

Wrong incentives include:-
1.     overtime (encourages people to spread work out)
2.     working paid by the hour (work longer not harder or more efficiently)
3.     growing support to do leaders jobs (rather than doing it yourself)
4.     paying  by the task completed rather than the outcome.
5.     Paying people for more reports (rather than them doing with less)
6.     Paying recruiting for more recruits (rather than the right numbers of the right people producing the right outcomes with the right attitude)

The Bottom Line-EVERYONE WORKS SMARTER AND HARDER WHEN THERE ARE SIMPLE AND CLEAR REWARDS TO THEM FOR PRODUCING THE RIGHT OUTCOMES FOR THE BUSINESS.

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