In this issue: The Importance of Incentives

by Bill Dann, Professional Growth Systems

I realize last month I promised a newsletter on how to use your strategic plan as a tool to improve performance. However, a recent vacation to Europe afforded me the chance to experience management practices in other countries and examine their impact upon results. While those experiences and thoughts are still swimming fresh in my head, I wanted to capture them for you in this month’s edition. Next month I will return to our look at performance via the strategic plan.

As for my trip overseas, the area of management practices that particularly interested me was that of incentives. By “incentives” I am encompassing everything from the broadest scale of incentives as opportunities to advance and succeed down to the more common incentives of tips or compensation for work well done. Let me explain.

American “exceptionalism”

America still stands alone as the land of opportunity. I saw this while traveling overseas 40 years ago and witnessed it again on this trip. The Obama story, Facebook story, Microsoft story and so many others are only possible here. Good ideas and hard work are rewarded with success in ways that no other nation can match. Even in family-owned businesses in this country, competence ultimately rules as the level of competition in our marketplace quickly weeds out those not performing well.

The absence of ceilings

A late night discussion with a bartender in Paris brought home the fact that America also stands apart as a land of unlimited possibilities. The young man who waited on me was bright, personable, spoke at least two languages well and had completed a university degree in the hospitality business. I asked him if his dream was to someday own his own hotel, a likely ambition for a graduate of an American program. He almost laughed at the suggestion, indicating this was not possible. Rather, he saw himself continuing in his current role or maybe becoming a manager.

I thought about how much potential contribution to national wealth development was being lost because the way the system was structured compelled this young man to see a limit on the goals he could set for himself.

Forty years ago I saw the same phenomena when befriending a number of associates in an insurance company who marveled that in the U.S. a successful insurance agent could ultimately own their own agency.

Incentives on an individual level

Much of our trip was spent in Italy, with the rest on an Italian cruise ship that was managed using the Italian system. It is customary there that restaurants and bars automatically charge you 12% for a service charge, the equivalent of our tipping system. It was apparent that providing an additional tip (which the guidebooks say is not expected) was quite rare. The impact of this system showed in the service levels we received.

Most of the crew on the ship was from Indonesia or countries other than Italy. In many instances, good service was simply part of the international crewmembers' culture, and their service was high. In other cases, crewmembers had just arrived from other cruise lines where tipping was a customary part of their system, and they were still operating as if that incentive was in place. But for those who had been crewmembers on our ship for some time, the absence of an incentive often resulted in sub-standard service.

One crewmember we befriended had recently joined the crew from another cruise line. His home country was Honduras. He would implore his fellow workers to provide a higher level of service, saying to them that such a level of service is what the customer expected and that unless provided, the customer would be displeased. He was rather astounded that they did not respond to what he had to say. The lack of incentive had impacted their motivation for exceptional service.

Incentives within your organization

Hopefully, I have made the point that incentives are important. To that end, I have three thoughts for you to ponder regarding incentives in your own organization:

1. Are you measuring what you wish to reward? What you measure is what is given attention. If service is your priority, do you have a way to measure the level of satisfaction of your customers by individual employee so that you can reward good performance? It was interesting that although the post-voyage evaluation instrument the cruise line employed was very extensive, there appeared to be no way for them to use it to reward good performance by outstanding individual crew members.
2. Are you sharing your success with the employees who made success possible? I like a profit sharing system because it allows you to increase and decrease what is shared with employees based on how well the organization does in any given period. Further, profit sharing based on a % of salary does not identify and reward perceived superstars in the system (this tends to breed ill will and negative competition among employees), but rather shares the profits or success based on a percentage of each employee’s salary. Thus, the relative contribution of any employee is determined by the relative salary. If the salary system is equitable, then the reward system is as well. Which brings us to point three.
3. Is your salary structure equitable? I add this as it is my personal view that the salaries currently being paid to CEO's in many organizations, relative to what is being paid to employees, are obscenely high. Such a differential undercuts the incentive system as it is perceived as unfair from the get go.

Philosophy

In summary, part of what has and will continue to make America a dominant country economically is that we:

1. have no arbitrary ceiling on how much success any individual can achieve. The sky is the limit. This fuels hard work, innovation and risk taking; three hallmarks of our success.

2. capital in this country flows to good ideas and to talent, not just to heirs or the old guard. This keeps competition keen and all our companies and their leaders on edge because of the high level of competitiveness in all sectors of our economy.
3. individual performance is identified and rewarded to a greater degree in our system than in many foreign management systems.

What are your thoughts? Could you be doing more with your incentive system to realize greater performance and growth? We would enjoy joining in conversation with you on this topic. Contact us

— Bill