The world of business has changed since the global recession started in 2008. Prior to the recession, it was OK to increase salaries annually and pay your staff for showing up to work and sitting around looking busy. Don’t feel bad if you were doing this. It was common practice in both public and private sector organisations to reward this way.
Since the recession, we’ve all heard how businesses have reacted to the increasingly challenging market. Salaries have been frozen, redundancies made, budgets have been cut to detrimental levels in most cases, bonuses have been withdrawn and most organisations have restructured their business to make them leaner and more agile. This approach was unavoidable in most businesses – It was either this or complete annihilation!
The recession has been a serious learning curve for all of us. One of the lessons learnt from the recession that I want to pass on to SME owners today is that it is NOT OK, to simply reward people with a salary regardless of performance. This approach simply rewards mediocrity!
The default reward system for most businesses is to reward increased performance with bonuses whereas poorly performing staff is still entitled to his/her usual salary. This is counter productive! It sends out the message that it is OK to cruise along and do the barest minimum. It makes no sense to keep paying people irrespective of their performance, particularly as a small or medium sized firm that is already struggling to survive in the current economic climate. In my experience as an ex-employee of a large multi-national professional service firm, everything you did contributed towards your pay scale at the end of the year. I mean everything! You will be graded against your peers and you couldn’t afford to slack if the entire grade was already performing at an exceptionally high level! Slack and you will feel the pinch in your salary at the end of the year for an entire year! This sent out a message that poor performance was just not acceptable. Employees in professional service firms are known to constantly work past their contracted hours! That is why these firms have survived the recession and will continue to do so because of the agility of their staff reward systems. Some of you reading this may not agree with this approach particularly because of the obscene bankers bonuses publicised in the papers. Of course those are extremes. I do not condone those.
However, as a business owner, you should be rewarding your staff for performing at their best ALL the time, not some of the time. They should understand that it is the only way to ensure their job security. Every staff member should be on some form of performance related pay. Your receptionist should clearly understand the contribution he/she is making to the organisation and how their behaviour impacts profits in the organisation.
Your sales teams, (every small business owner should be aiming to have an inhouse one if you haven’t already) should be on a 100% performance related salary if possible. This kind of reward system attracts your ideal sales team. People who believe in your product/service and can see the potential in such an arrangement and are willing to work hard to reap the rewards.
Don’t reward people regardless of their performance! You are just short changing yourself by doing that. Paying people based on performance is an absolute MUST for SMEs that don’t just want to survive but thrive. I’m not saying that you should cheat your people out of their much deserved wages. No! That’s not what I’m saying. I’m saying that you need to reward hard work but also find a way of correcting poor performance. Preferrably through where it hurts the most – the pay check! This approach is guaranteed to weed out the free loaders and will leave your business operating optimally with just the right kind of people.
The benefits of this approach are more profits, increased productivity because the team is more focused and reduced staff cost overheads.
Take a look at your business. How can you tweak your current pay system so that it is performance based. Remember you are paying a price for the under-performers in your business. Your business and future will be better off without people like that.
Here at AWOVI Consulting Ltd our sole mission is to help businesses increase their revenues, cash-flow and profits to ensure their long term success. Our consulting services, which was the staple of the largest companies, is now being offered exclusively to small and medium-sized businesses through our propreitory Made for Profit System TM. Why not give us a call to see how we can help you increase your performance. Whats there to lose?
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