As a business owner you’ve probably decided on a performance bonus arrangement for some of or all your employees. If so, are some recipients over compensated while others are undercompensated for their respective contributions?
If the performance bonus plan was designed or recommended by your leadership team, it is quite likely they get the lion’s share of it. In some cases that is justifiable, but in most it is not. If the bonus plan is shared equally amongst all employees, including leadership, some recipients could be over overcompensated for their efforts while others under compensated, but the extent of that difference would be much lower than where leadership gets the bulk of it. It is nevertheless still not ideal. If everyone gets the same performance bonus, it removes the incentive for employees to work harder and smarter than their colleagues. The employees may however recognise that if they all work harder and smarter, the company does not need to hire more people – diluting their share of the bonus pool.
If your performance bonus plan results in your leadership team getting the lion’s share of it, you are essentially broadcasting to all employees that you essentially regard them to be machines – they need to turn up, work their allocated hours, meet job specifications and not cause trouble – and don’t see them as having the capacity to make further contributions. That is not a recipe for success. Nor is it one where employees expect a performance bonus just for showing up and doing the jobs for which they are appointed, and nor is it appropriate for your business to pay performance bonuses until you and any other shareholders get a market related return. One approach is to consider performance bonuses (whether based on a proportion of profits or paid ad hoc) to be additional remuneration for outperformance.
Top-tier business schools study the traits of the most successful leaders in history. One such individual was Genghis Kahn, who rose from a very humble and desperate childhood, even having to escape slavery as a young man, to build and rule the largest contiguous empire in history. One of his many admirable leadership traits was his adoption of meritocracy. Before his time, when the nomadic Mongol tribes joined others to defeat a common “enemy”, the plundered spoils of victory went mainly to the tribal chiefs. He changed that. Under him the spoils were shared amongst all warriors and the families of warriors killed in battle, with those who performed more admirably in battle getting more of the spoils. This earned him great respect and loyalty amongst his people, and significant numbers of warriors from other tribes joined him – giving him an all-conquering fighting force. (Paul Cooper’s book ‘The Fall of Civilisations: Stories of Greatness and Decline’ / Episode 19 (Part 1) of his Spotify podcast ‘Fall of Civilisations’)
Providing more merit-based remuneration is only part of what is needed to encourage employee outperformance. Another is to facilitate bottom-up communication.
Top-performing business owners recognise that their employees are the ones at the coalface getting the job done and implementing strategies decreed by leadership. They also know that the employees together know a lot more about the specifics and intricacies of their business operations than they do, and a lot more than their leadership teams do. They know more about the customers and more about the suppliers than do leadership and know more about the suitability of the business’ operating processes than do leadership. As a result, employees are often in a far better position than management to identify problems and opportunities. While leadership invariably focusses on the big issues or big picture, employees have the potential to find many relatively small opportunities, which together can be transformative.
Without bottom-up communication, you and your business could suffer an enormous opportunity cost. Consider, for example, the turnaround of Toyo Kogyo (the manufacturer of Mazda vehicles) in the late ‘70s early ‘80s. Within a couple of years of the Arab oil embargo in the 1970s, it was perilously close to insolvency. It was effectively in administration, with its leading bank having installed 8 of their senior executives. Rather than the top-down communication that had been the case, new management encouraged the employees to tell management how to improve the business. It did not just invite suggestions, it facilitated it by establishing 2,000 or so worker groups of 7 to 8 members, who met 2 or 3 times a month, with the group leaders rotating monthly. In 1979 employees submitted 600,000 suggestions, with about 60% adopted. In 1982, 1.8 million suggestions were submitted, some 65 per employee, with a similar proportion adopted. Let that sink in for a moment.
Image how you and your business could benefit from implementing 40 improvement suggestions per employee per year. Most of those would probably be relatively minor improvements, but together the benefit for you and your business could be enormous. As per the adage – ‘If you look after your pennies, the pounds will look after themselves’. So, it is bewildering that so many business owners and leadership teams ignore that potential, they don’t actively seek input from their underlings and are generally dismissive of any suggestions they make.
Another important component of encouraging employee outperformance is convincing them that the benefits from doing so outweigh the risks they could be exposed to. If employees perceive there to be a risk of losing their jobs, being denied a promotion, marked as a ‘troublemaker’ or that leaderships may be dismissive of their suggestions, they are far more likely to ‘keep their heads down’. Overcoming this perception requires one to eliminate the common ‘them versus us’ mentality between leadership and the workforce, where leadership regard the workforce as their underlings and the workforce don’t trust leadership or their puppets (the HR department). Everyone in the business needs to be regarded as a valuable team member, whose suggestions are welcomed and appreciated.
So, getting your employees and leadership team to be proactive in identifying and recommending improvement opportunities is not just about merit-based remuneration. It may well require a change in management style and a change in the culture of the business.
R&M can help business owners in this regard. Here is a link to a webpage that describes what R&M offers, why, and how it goes about its business – https://www.rogersmorris.com.au/rm-advisory/.