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Golden Oldies: Incentive Doubleheader

by Miki Saxon

It’s amazing to me, but looking back over more than a decade of writing I find posts that still impress, with information that is as useful now as when it was written.

Golden Oldies are a collection of what I consider some of the best posts during that time.

Companies constantly talk about what they are doing to incentivize productivity and innovation. Incentives are supposed to help drive performance. Recognition is very important as are financial rewards — as long as they are seen as fair. If not, they act more as disincentives, as seen in the first post.

The second focuses on sales incentives.Maximizing revenue generation, AKA, sales, is a top priority for every business, from micro startups through the Fortune 10. Commissions have always played a significant role incentivizing salespeople  — until they don’t.

Read other Golden Oldies here.

The Reward Should Fit the Act

1095615_success_wayAre you familiar with the saying “let the punishment fit the crime?”

It’s a valid approach, but it’s just as true that the reward should fit the action.

A friend of mine works for a Fortune 1000 company in a tech support role. He’s well respected lead tech in his group.

Last year he developed an idea on his own time and gave it to his company.

As a result, he was flown to annual dinner and presented with an award and a $5000 bonus.

Sound impressive?

His idea will save his company $5 million or more each year.

Still impressed?

My friend isn’t.

He has a friend who is very impressed, but that’s because his company doe nothing; no recognition whatsoever.

My friend feels that a $5K reward for saving the company $5M or more every year, while being better than nothing, is still just short of an insult.

Other than being disappointed what’s the fallout?

He likes his job and his boss, so he’s not planning on leaving, but…

He has another idea that he’s not going to bother developing.

He’s still one of the most productive people they have, but that extra edge is gone.

What do you think his employer should have done?

Join me tomorrow for another look at how, to quote another old saying, companies keep cutting off their noses to spite their faces.

Image credit: dinny

 

Ducks in a Row: Incentive Stupidity Knows No Bounds

http://www.flickr.com/photos/finsec/354260437/Yesterday I told you how a company squashed my friend’s initiative by giving him a bonus that had no relationship to the value he provided them in annual savings.

This reminded me of something that happened back in the early 1980s when sales was truly dependent on the skill, relationships and reputations of salespeople.

Another guy friend, another incredibly stupid company.

In a nutshell,

  • Guy outsold every salesperson both internally and at the competition. He had years of experience; relationships with customers that didn’t quit and unmatched skill at understanding customers and convincing them that his company (whichever it was) had the best solution available.
  • One day guy was called into the CFOs office and told that his commission was being capped.
  • He was on track to earn more than the president and that was unacceptable; he asked if they were sure that was the only solution and told yes.
  • Guy proceeded to write a resignation letter on a sheet of paper he borrowed from the CFO.
  • He left the offices without speaking to anyone.
  • By the time he reached home there were three name-your-own-terms offers from competitors on his voicemail.
  • He started with his new company the next day.

Over the years I’ve found that actions like these usually come from the company’s bean counters. (In this instance, ‘bean counters’ is definitely a derogatory term.)

Apparently, some bean counters involved never learned to do the math.

In both cases the actual cost was zero, since they were funded from direct actions well beyond anything expected of the employees involved.

The lesson here is that you never cap a commission and the reward for saving $5 million annually should be at least 1% of one year ($50,000) as opposed to .001% ($5,000).

I realize it’s difficult for some financial types, executives and managers to understand, but that is why bonuses and commissions are called incentives—not disincentives.

Image credit: Finsec

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