Beyond Cash Compensation - Motivation and Morale on a Tight Budget
One approach some Transportation & Logistics companies took for dealing with the recession was to eliminate incentives or cash compensation and revert to a 100% salary approach, which gave them the ability to manage a fixed cost of compensation and deal with productivity and staffing from a purely 1:1 perspective (if the person wasn't generating enough to justify their salary, they didn't tend to stay around very long). This is not a position that can be (or should be) maintained for long in this industry as there is too much bottom line impact that the truck finders, brokers, customer service reps, account managers, and sales reps have on the business.
Incentive compensation should be used as a strategic lever to drive the results the business needs and to reward those who are performing at the top of their game, which will in turn make the company an attractive place to work for other top performers.
Revisiting Variable Pay Options
Many companies are looking to revamp their compensation approach by adding variable pay back into the mix, but they are leery about the "negatives" they've seen in the past when there was too much emphasis on individual incentives and not enough emphasis on team work, accuracy and follow-up, and good-old customer service. Similarly, the smart managers recognize that their staff may have been bounced from one extreme to another too much lately, and that a full swing back to a highly variable program would be too much for them to take. Further, a 100% variable plan might preclude some good hires as many who are in the market are leery of accepting any position without a salary, given what appears to be the new norm in terms of high market volatility. There are also budget issues to consider, as it may not be practical or possible to just "add-on" incentive compensation on top of current salary levels, but then this new, exciting and supposedly motivational incentive program starts with the opening salvo that salaries are being cut. This conversion is not impossible, and I help clients through this quite often, but it IS very hard to build excitement from this starting point.
Alternative Variable Pay Options
The next question is: How can you get the motivation and morale you need to drive performance and reduce that complacency that seems to have crept in over the last year or so, without breaking your budget or forcing through deep salary cuts to provide room for a highly variable pay program?
The answer may lie in the balanced use of contests (SPIFFs) and recognition programs, along-side a more modest, team and goal-oriented incentive pay program. It's a recommended best practice for any company, no matter where they are in moving toward or away from a more variable compensation program, to use contests and recognition programs to supplement performance and drive behavior, and for companies that are trying to re-introduce incentives this can be a safe and highly cost effective way to begin.
Many sales organizations use a President's Club or something similar to recognize those that are consistently performing at a high level. There is usually some immediate reward, such as an all-expenses-paid trip for the employee and his/her spouse, but there can also be an on-going reward that encourages continued performance at this level. One of my clients outside of this industry has a tiered commission program, whereby the rate starts out at a lower level and moves up with production (this is not an uncommon program for this industry, either, as that is how you will gain leverage). As a reward for making President's Club one year, all members start their next year's incentive program on the second tier, which creates a powerful motivation to stay in the club the following year as their overall compensation will be impacted if they don't make it. England makes the use of their game room during work hours as one of their membership privileges (and it has a glass wall that looks into the brokerage floor which makes it motivational for those who would also like to be able to use the facilities). A standard practice at many other companies is to designate a preferred parking spot for the top producer.
These programs are not without their challenges and risks, however. Some companies can become "SPIFF happy," and end up paying more money out on SPIFFs than on the regular incentive program. This can quickly make your CFO very unhappy as your cost of compensation will likely skyrocket beyond justified levels. (By the way, legend has it that SPIFF stands for Special Performance Incentive For the Field, but I don't think anyone really knows for sure what it stands for.) One client came to us because their incentive plan was so terribly broken that no more than 30% of the employees on the plan were earning any incentive under what was a highly variable program (you want 90% of your employees to get something, and 50-60% to earn target payouts or better). To solve the problem, the Sales Director had instituted monthly and quarterly SPIFFs that were filling in the gaps and ensuring the employees were able to pay their bills and continue working for the company. Obviously this is not a good use of SPIFFs and instead we needed to fix the broken compensation plan (in this case the problem was productivity expectations that were totally unrealistic given market conditions).
Another problem can arise when the recognition program rewards for a result that is counter to the incentive program. A very large furniture manufacturer had a President's Club that depended upon revenue produced. Their incentive program was margin based. I don't need to explain to anyone in the Logistics world why THIS was a problem! Their existing incentive program was so weak, and their President's Club so culturally important within the organization, that no one paid much attention to margin at all. This is a good cautionary tale as to the potential power of a recognition program...they work, but they can sometimes work counter to the good of the organization if not managed properly.
The bottom line is to take a thoughtful and holistic approach to all parts of your compensation program: salary, incentive compensation (and the proper ratio between those two), contests (SPIFFs), and recognition programs. You don't need to overdo the contests and recognition programs to get results, but their consistent and balanced use can increase staff motivation and enable you to focus on the most immediate business needs, while you make more gradual adjustments to your salary and incentive compensation program.
This excerpt was originally published in the November 2010 issue of The Logistics Journal when Beth was an owner of The Cygnal Group.