Employee Incentive Planning – retention is the big issue and lots of traps

“Employees behave based on the way that you pay them “

Businesses have been paying employees for many hundreds of years and the basic structure hasn’t changed throughout that time – a simple exchange of time for income – but that really doesn’t cut it anymore.

A tight labour market, highly competitive “poaching” for good employees and shrinking margins have led employers to look for better ways. Building incentives into remuneration has also been around for a while but it’s changing rapidly and moving away from top-up payments to other means of incentivising employees.

Employees want more than just a salary

Recent studies show that employees are now looking for far more than just the job with the highest salary.

Studies conducted by East Carolina University show that opportunities for workplace training and career development were at least as important as salary for more than 50% of employees. In other studies, employee turnover or churn was based on 5 key factors.

1. Lack of growth or progression
2. Being overworked
3. Lack of feedback and recognition
4. Micro-management
5. Incompatible team members

Another key factor is Inertia. Employees tend to remain with their employer until some force causes them to leave. The causes are also typically not financial – poor supervisor/manager, lack of opportunity for promotion, little or no training and development, poor working environment, mismatch with company/owner values, lack of workplace flexibility (a massive impact during COVID-19) and simple boredom/ complacency – lack of challenge.

Importantly, income, bonuses, incentives are not mentioned often in these studies – BUT they are vital. Let’s look at the different types of remuneration models and how they can be utilised to attract, retain and motivate key people within the business.

Our Ladder to Equity model shows the gradual progression of incentive plans – from income – salary and wages or hourly rate, thru incentives – commission and bonuses, to profit share models and then thru the finals stages to equity using Employee Share Ownership Plans and finally to control – management succession.

When remuneration models do not match business outcomes

This model also highlights some significant traps – when remuneration models do not match business outcomes and encourage the wrong types of behaviour:

• Income only models – hourly rates, fixed salary etc nearly always lead to a “paid for turning up” culture – we have all heard an employee say something like I am not paid to think just to be here from 9 – 5.

• We have all worked with the commission-based salesperson who is rewarded based on sales targets – they typically leave a trail of destruction behind with poor paperwork and even worse, purposely delay sales from this month until next month (when they will reach the target) or discount to achieve the revenue target – whilst destroying our gross margin.

• In the same way individual sales targets lead to internal competition (between salespeople working for the same business) and lack of teamwork.

Moving further up the ladder to profit share and equity-based can reduce these issues – but as established earlier – it’s not all about the financials.

New remuneration models are out there

Many of our clients are looking for new models and structures to better reward employees – we have clients and partners who are improving the model in their own way:

• Collins SBA in Hobart, Tasmania with a five-hour workday.

• Salary packaging to maximise tax benefits and increase take-home pay without costing the company more.

• Using a hybrid remote working model as a long term competitive advantage.

• Introducing a monthly well-being “me” day.

At Succession Plus, we have introduced a performance coach, think Wendy from Billions (sorry Scott)  to help our key people maximise both their performance and their opportunities for growth and progression.

The more you can do to address some of the key challenges, both financial and non-financial will increase the likelihood of attracting and retaining key people to your business and guiding their behaviour by the way you reward them.