ON CONSULTING assignments, here are some questions I frequently ask the employees I interview:

•    How does your boss measure you?
•    When the end of the year rolls around, how do you know if you have done a good job over the previous 12 months?
•    If you wanted to receive a raise double the amount that you typically receive, what do you believe you would have to do to qualify?

Only on rare occasions are employees (except for salesmen) able to answer these questions, as many owners and managers are still prone to give their people discretionary raises and, in many cases, discretionary year-end bonuses.

Experience has taught me that adults perform best when they know specifically what performance they must achieve to qualify for a specific dollar amount of year-end bonus incentive payment.

In high school and college, students earn grades depending on how well they score on quizzes during the grading period. They know that if they get all the answers right all year, the odds are excellent that they will earn an A grade.

In baseball, most players are paid a salary, but most are also paid a specific incentive payment based on how they perform against measurable objectives, such as stolen bases, homeruns, batting average and runs scored.

Of course, assigning someone a measurable goal is no guarantee that they will achieve the goal, but at least they know what they have to do to earn “x” reward.

In business, just like in life, performance rewards improve the odds that people will go the extra mile to earn the prize.

The name they give this motivation is called “winning”.

This is why they install scoreboards in sports arenas. How effective do you believe a basketball team would be if there was no scoreboard and the players couldn’t see whether they were winning or losing?

The reward doesn’t necessarily have to be monetary. It could also be recognition at an awards dinner, or a meal for two at a fine restaurant, a weekend getaway at an upscale hotel or even trip to a nice resort.

Rewards, awards and incentive payments are terrific ways to motivate employees to stretch and put more energy and effort into their work.

Incentives also aid in making work more fun. Some owners will rebut:
“Yeah, but that’s what we’re paying them a salary for.”

Yes, that’s true. But would such naysayers want to work for a company that paid them a salary and kept them in the dark as to how they are measured or how their bonus is calculated?

Discretionary bonuses would be like the tournament committee at the US Open deciding how much to pay the golfers after play had stopped and the tournament was over.

Based on what I see in the marketplace, the companies that get the most mileage out of their incentive plans are the ones that make it clear how their incentive plans are designed and what level of performance is required to achieve a specified reward.

Article by Bill Lee, a consultant who works with managers who want to put more money on the bottom line. He is also the author of “Gross Margin: 26 Factors Affecting Your Bottom Line”. For more information, visit blee@mygrossmargin.com
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