Incentives work – for everyone!

Good workers are hard to find, many CEOs report. Despite an economy that some feel is in recession – don’t you believe that part – unemployment statistics across the country are just shy of levels traditionally thought of by economists as full employment. That means you work harder to hire good people and then you have to keep working to keep them, because someone across town is willing to pay them more than you are to induce them to come to work for them. How do you cope? You can count on the familiarity of your company being an advantage vs. an unknown new situation. Unless your business is a sweat shop that should be a positive. But what about the pay issue?

I strongly believe customized incentive programs are a powerful glue to keep good people fastened to your payroll. Let me give you an example: a long-time client of mine is in a manufacturing business that requires highly skilled workers, and everyone wants them. Because their industry is booming, they were working all the overtime they could get from their people just to keep up with the orders. And they weren’t keeping up well enough, in the eyes of several of their key customers. Enter the simple bonus/profit sharing plan.

We installed a quarterly bonus plan that applied to everyone on the payroll, down to the shipping clerk. It’s funded from a percentage of profits and allocated to each worker based on their evaluated performance. To keep it simple the evaluation is a short check list of critical activities that are deemed directly supportive of timely and accurate delivery of goods to their customers. Every quarter each employee gets an additional amount in their paycheck or, at their option, added to their 401(k) account. A typical bonus can add $2-3 an hour or more to everyone’s paycheck for the entire quarter, all in one chunk of cash. The program has been in place for about 18 months now. The results:

With no major additions to equipment or plant layout changes, the company is now shipping roughly 15% more in sales than they were 2 years ago, with higher quality and better on-time delivery. And overtime has been reduced by 75%! As a result, profit margins have soared and morale has rarely been higher.

Your comments are welcome.

Old Chinese proverb: "Don't let the tail wag the dog"

I got a call from one of my clients today, a company that recently hired on a trial basis a new accountant. While not fully qualified as a staff accountant, the young recruit is bright, reasonably experienced and very motivated to do the job well and give the client what they want. At the same time, he is an aggressive negotiator for himself: more money, better title, sooner rather than later, etc., to the point of sending his boss copies of employment ads that supposedly support his position. Since he is the sole full-time accounting person for the moment, his on-site boss gets nervous that he might leave if he doesn't get his wishes met.

If you've been in the market for good accounting people lately, you already know that they're scarce, and if you got 20 resumes in response to your ad, it is likely that 15 of them are patently underqualified but won't say so and 3 of them are marginal in one or more of your key areas but won't admit it because they're trying to be upwardly mobile. Of the remaining two, one or both of them will find other jobs before you discover how good they are.

"So, what to do?" asked my client.

Many young employees in an effort to take maximum advantage of this seller's market will press like children to get all they can, often not because they believe they deserve it but because they might get it anyway. Remember: "If you don't ask, you don't get." The problem of course is that you, the employer, end up paying more than you should to get less than you should, not a great deal for your bottom line. This is what I told my client:

If he wants to work for you, he will understand sound logic and value-for-value. If he is using your job to accelerate his pay rate for the next job, you need to find it out now. So offer him a modest increase consistent with his stronger-than-expected early performance, and set with him performance goals to be met in the next 90 to 180 days which, if met, will result in a nice additional raise (although not at the level he was lobbying for). Deny his rich title request, but give him the best title you can that is consistent with his job description. Explain why each of these actions is consistent with company policy and his current qualifications, and remind him of the potential that exists for him within the company as it grows.

The salary issue was settled easily as he accepted the increase offered. The rest of the plan is in motion now, and we'll soon see if we have a long-term employee.

This is an example of the kind of guidance I provide to coaching and consulting clients, so that they can become better managers within finance and throughout the company.

Got a story of one that worked for you? Disagree with my approach? Tell us about it...

PEO shopping? Heads up on this pitfall!

I had lunch today with the PEO area rep to whom I had just referred a new client. For those unfamiliar with the term, PEO is Professional Employer Organization, the current term for the practice of employee leasing in which a provider pools the employees of many typically small client organizations to achieve the critical mass needed to command lower insurance rates, better benefits, robust payroll services, and a variety of other HR advantages that small companies can't get by themselves. It's a great idea for small organizations, both for profit and not-for-profit, if it's done right by a reputable provider.

My lunch companion related a story of another PEO, a competitor of course, who got themselves into a servicing dilemma and messed up a bunch of client relationships because of a back office practice you wouldn't normally think to ask about. It went like this:

The company with the employees enters their payroll data via some online data entry form. Pretty common practice with all payroll companies these days. We assume the data gets moved automatically through the payroll process and checks come out the other end reflecting the exact data we entered. Well, maybe not. Turns out one very large PEO has a quirk in their system in which they actually print out the data that their client company has just keyed into the internet, and then they key it a second time into their payroll software! Ouch! Can you just imagine the opportunity for errors in that process? Printing errors, reading errors, keypunch errors, the works.

PEOs are a great idea. I highly recommend the concept. But we always go through a detailed analysis of a company's needs and how a PEO provider plans to service those needs, and we always have at least 3 PEO companies competing for the business to get the best advantages for our clients. Time intensive? Yes. Worth every minute of it in the long run? You bet.

I welcome your stories about PEOs - the good, the bad, and the ugly. Let me know your thoughts so we can all benefit from your experience.

And if you're thinking about the idea but don't know where to start, call me at 888-788-6534.