ATTRACT MOTIVATE AND RETAIN

The most important asset of any business is its people.  The management and motivation of staff is one of the biggest challenges a manager or employer will face in the course of business.  To be able to attract, motivate and retain top personnel is the single advantage which will provide a single competitive advantage against your competitors.

The cost of attracting an employee is estimated to cost at least two and a half (2 ½) times the employee’s wages cost.  The intellectual cost of having to have an employee resign and then re-recruit cannot be costed.

1. Why Employee Incentives?

Benefits

The primary objective of an Employee Incentive Plan (EIP) is to align the objectives of employees to that of their employer.

The implementation of an EIP will assist in:

ATTRACTING

MOTIVATING

RETAINING

an organisation’s most important asset – its people.

Finding quality staff is emerging as the major problem for small to medium size businesses for the first time in more than a decade as a result of an economy that is close to peaking.

Employees, once provided with the opportunity to participate in an EIP, will develop a “sense of ownership” – they become empowered to think like owners.

Without doubt this is the most exciting application of the EIP:

Increased Productivity;

Sales Increase;

Profits Increase; and

Employees enjoy their work, feel proud and deservedly share in its rewards – in one form or another.

Positive attitudes flourish as negative influences are demolished by the employees themselves.  Employees think and act like owners rather than employees in a master-servant role.

Capital Retention

Business enterprises over their lifetime experience varying requirements of capital.  Capital may be raised from External Investors or Lenders.  However, it is preferable that it be raised from internally generated profits.

The ability to align the employees’ financial objectives with that of their employers and at the same time provide additional capital, provides a Competitive Business Edge.

Capital retention is particularly important in periods of prosperity to be put aside as “reserves” for the inevitable difficult times in the future.

Wealth Creation

Increased profits and increased rewards for employees assist in the wealth creation process.  It is particularly attractive for individuals who have the ability to save over and above their lifestyle requirements.

Asset Protection

In the event of an employer or a participating employee experiencing financial difficulties to the extent the bonus funds are not invested with the employer, these assets are protected from liquidation and bankruptcy trustees.

Staff Turnover

A 1993 Small Business Administration study (conducted in the USA) of 1980s data found that companies with under 100 employees suffered 15.2% annual turnover, compared with 9% for larger firms.  Consultants say that, given the trend in corporate cost cutting, the numbers are likely to be higher today.

A company of 1,000 hardly misses a beat when someone walks out the door, but a resignation or two at a 10-person firm can carve out a big enough hole to crimp business and dramatically choke profits.  “If you lose two or three key employees, a good part of your business will go with them.”

Indeed, companies lose about two months of employee time for every termination because of training time, lost productivity, and other factors.  According to Marie R. Dufresne, Senior Vice-President at Hay Group Inc., a management consulting firm, “people don’t realise the cost of turnover”.  “It’s a serious hit”.

(Note: TMP Worldwide study showed 2½ times).

Employees – Stakeholders

Transformation of employees as stakeholders to be a major asset requires the establishment of a set of organisational values which reflect the value the organisation places on its workforce and then the effective communication of these values to all employees.  Remuneration planning is one of the most efficient means of communicating these values to employees and a most effective way of obtaining their acceptance of these values.  The aim of this communication is to encourage the employee to maximise his or her value to the organisation, and correspondingly, enables the employee to be remunerated according to this increased value of the organisation.  It can be achieved as follows:

• Agreeing on a realistic target which provides a real incentive for the employee to achieve that target;
• Enabling the employee to share directly in the benefits generated for the organisation; and
• Allows remuneration to be taken in a form which enables the employee to more easily satisfy one’s financial needs, and to achieve one’s financial and lifestyle objectives earlier.

Remuneration planning communicates organisational values to employees in strong and often unintentional ways.  They can reinforce existing set behaviour or stimulate the development of different ones.  A well-planned remuneration program can successfully link organisational values with employee values, thereby bonding the employee to the organisation.  The highly competitive environment into the 21st century will demand more than ever the use of remuneration as a strategic organisational tool, central to the achievement of organisational goals such as improving productivity, increasing profitability, improving shareholder value and building employee commitment.  The emphasis of the next decade will be on customised, organisation-specific, remuneration programs that build support for changing and evolving business strategies on the one hand, and on the other, strategies which are sensitive to each employee’s unique needs and objectives.

Remuneration planning is really concerned with retaining valued employees and deriving income by remunerating employees in such a way that motivates and encourages them to achieve their goals as well as those of the organisation to recognise their role as stakeholders.  At the same time, they can be provided with an environment that provides the security of protection from many of the financial risks and hardships inherent in one’s lifestyle.

Effective remuneration planning is therefore not just about paying employees but is also concerned about rewarding employees.  Rewards can be classified into three distinct types; base remuneration, short-term and long-term incentives.

Short-term variable remuneration is over and above short-term bonus base remuneration.  Its purpose is to provide specific incentives to influence behaviour to achieve certain specific organisational requirements, for example, divisional profit improvement, increased sales or other specific empirical or judgmental objectives. 

Long-term bonus provides an employee with a vested interest in increasing the value of an organisation by rewarding performance with a stake in the organisation.  This is often achieved by using an employee share plan or employee replicator share plan.  The key objective of equity reward is to focus an employee’s attention on the organisation owners (shareholders) objectives, which are maximising the value of the organisation, rather than focusing attention on the short-term or annual returns of the organisation.

Leslie Baker, the chairman of Wachovia Corporation, the fourth-biggest US bank, writing in Harvard Business Review, January 2003.

“Most people think motivating people is about pushing others to do what you want them to do, but I’ve found that the secret to motivating others has really been to adhere to simple values, things like honesty, fairness and generosity. 

One of my biggest challenges was motivating myself to go into business in the first place.  I started out in life thinking I was going to be a poet.  I studied English in college but found myself in Vietnam.  By the time I got out of the Marine Corps, the only things I knew how to do were write poetry and conduct night combat patrols.  I decided that to make a living I’d have to go to business school.  At the time – this was 35 years ago – my wife and I disapproved of what we saw as the power and greed that often attend big business.  When I took my first job as a management trainee, we agreed that if either of us felt that business was compromising our values, we’d leave it behind.  So I went to work in a commercial bank.  All these years later, I’m delighted to say I was never once asked to compromise my own standards or values.  That’s how I stay motivated, and that’s how I strive to motivate others.”

Source: Australian Financial Review
“Notebook – How to motivate people” – By Leslie Barker
Thursday, 23 January 2003

“Small business has identified recruiting top talent as the most important strategy to promote growth.  The latest TEC index for March to May [2003] found that 48 per cent of 231 companies gave this top priority.”

Source: Australian Financial Review
“Talent tops for growth”
Tuesday, 24 June 2003