Article


Better Recruiting with Smart Incentives
The secret? Increase the upside.
By Rob Marchalonis
Date Published: 9/1/2017

 

Need talent? Are you among the majority of employers today who desperately need talent to compete and prosper? With national unemployment well under 5%, and critical staffing shortages in select professions, it’s not surprising to see billboards in many cities advertising for skilled workers. For example, recent data shared by the American Association of Colleges of Nursing shows a growing shortage of registered nurses. With almost 40% of RNs over age 50, the problem has been compounding as more of their ranks retire while an increasing number of baby boomer and older patients require care. In construction, a 2016 National Association of Home Builders report indicated that 56% of their members declared a shortage of labor, compared to just 21% in 2012. Not surprisingly, the response by most builders has been delayed projects, increased wages, and increased home prices for customers. What’s your plan to fill open positions and field a winning team? How will you rise above others to recruit, hire, train, motivate, and retain talent? 

Are you feeling compensation pressure? As the supply-vs-demand curve for labor strains employers, many will believe they have few options but to raise hourly wages, salaries, or benefits. The dilemma with each of these however, is that they come with enormous cost and risk. Here’s why. In a traditional workplace, wages, salaries, and benefits are almost always disconnected from actual business results—sales, margins, net profitability, or productivity for example. What this means is, the standard employer-to-employee agreement looks like, “If the doors of the business are open, as an employee you can expect to receive the same compensation and benefits.” Barring bankruptcy or layoff, most employees feel little or no change in their paycheck regardless if the organization is doing well or terrible. Can you see the problem? There’s a better way.

Consider smart incentives. The simple idea with smart incentives is to develop a plan to “share the success” of your organization, in a way that’s proportional to the results of the enterprise. On one extreme of this approach, an employee’s compensation could be tied 100% to a pre-determined business result, like profitability, gross margin, sales, productivity, or another key result indicator. On the other extreme, an employee’s compensation could be linked 0% to these same business results, which is exactly where most employers operate now! What if you could find a place somewhere in the middle, where employees could be compensated above average or even generously if organization results were strong and, alternately, receive less or even below-average compensation if, for some reason, the organization’s results were weak? How would this approach affect the results at many organizations? How might capable and highly motivated employees be attracted to an employer that offered this upside? Where would the best talent want to work?

Risk on both sides. Every incentive plan comes with some risk. Some obvious concerns are structure, cost, and how will incentivized employees respond if results are bad? Structure and cost are among the easiest risks to minimize. The best plans are designed for effectiveness (they reinforce the achievement of desired business outcomes) and simplicity (they are easily understood by employees). They also establish sharing formulas and ratios that anticipate outcome scenarios, protect the business, and reward results. Bad business results are a legitimate risk. No employee wants bad results when they have a significant stake in the outcome. And what if bad results appear to be caused by circumstances beyond employee control, such as the weather, economy, changing market conditions, competition, geo-politics, etc? Certainly, every organization will face challenges. Isn’t it true however, that organizations and employees still control their response? Many external factors, like economic conditions or weather, typically affect everyone in the marketplace, leaving all participants similarly more or less advantaged compared to others. With a shared stake in outcomes, how might employees look ahead more strategically and devote some of their resources to consider, anticipate, and even plan for various adverse (or positive) scenarios? 

Could the risk of having no incentive plan be even greater to your organization? If employees believe they have minimal stake in the organization’s top outcomes, how will this affect their behavior? What other motivators, or elements of human nature, will tend to fill this void? For many, diligent effort toward organizational outcomes will be replaced by distractions, boredom, peer pressure, and personal agendas.

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