Creative Compensation and Incentive Plans are Important for Productivity and Profits

Roberta LewissmartPRENEUR Blog Series

Money Does Not Equal Motivation

I learned early in my retail sales management career that money and other motivational incentives do not motivate all people the same.  In fact, what motivates one person does not necessarily motivate the next.  The reason for creating incentive plans and bonuses is to raise productivity, shorten downtime, increase billable hours, increase profits, and stimulate a somewhat content, loyal and happy staff. 

How you measure and report numbers/dollars is critically important. In general, your staff either somewhat trusts you or does not at all – when it comes to pay.  If their bonus/incentive plan is the result of performance measurements, you must get your reporting, updates, and communications in top form.  I always said, don’t mess with people’s pay unless you know it will work for their advantage, and that you can prove it in advance.  With new incentive plans, whatever you may come up with, you should create a proforma report showing 1) the starting point, where they are today.  2) projections to the new plan (the upside) and 3) the end, where they will be when the targets are met, and finally 4) the baseline guarantees they will not go below #1, the starting point compensation.  Try it, test it, and modify as needed. 

Different Plans For Different Roles

Create incentive plans for every lead position, installers, service technicians, programmers, project managers and sales. Any role that creates revenue for your business. Time is money, lost time isn’t billable, and reduces jobs and bottom-line business profitability.  Make time accountable and reward the leaders for their performance.  

For our retail and department managers, we paid them an annual salary, sales commissions (the same as a salesperson), monthly bonus (growth target achievement) and a bottom-line bonus.  The bottom-line bonus was paid 60% quarterly, and settlement at the year-end close.  It is important for leadership in any business to understand the costs in operations, payroll, overhead as insurance, rent/utilities/vehicles and more.  It is beneficial to motivate and reward them for maintaining profitability while not compromising the business.  What I mean by compromises is that if they get too focused on saving money, they can make bad decisions, like lowering inventory too much, which affects sales.  Cutting payroll so much that customers start having poor service and experiences in your business.  It is a delicate balance that you must guide, monitor, and help them learn. 

Our business was a specialty retailer that focused on custom home installation at the early days of CI.  We ran CI out of each store location and had a separate department location for high-end AV residential business.  One of our largest and most challenging CI projects in the late 90’s, was featured in AV Interiors Magazine with a 17-page spread on the billionaire Tilman Fertitta’s home, the owner of Landry’s Restaurant Group, and now owner of the Houston Rockets basketball team.  Forbes calls him the “World’s Richest Restaurateur”. We learned a lot on this project.  Our CI business was the DNA for our entire company and culture. The business was successful and came with a lot of opportunities for losing money in CI, and how to do things better and more profitable over the years.  

We worked diligently to make money with our installation, labor, and delivery/set-up.  When you have installers and technicians on an hourly or monthly salary, there is no incentive for them to stay at a job for an hour or two to complete the job, as to returning the next day. The clock strikes five and they are in the truck headed home. So, we created a commission compensation plan for our lead technicians/programmers and installers to encourage them to finish projects without looking at the closing hours and ultimately making our projects more profitable. 

It takes a lot of time developing and managing unique incentive plans and communicate progress in real time.  

Build Business Partners

Sharing profits with those individual managers fairly and equally takes staff from viewing their roles as managers to true business partners.  It is impossible to scale a business from a one or two facility operation to a multi-city/state business without properly developing and incentivizing your key management and staff. CI businesses are successful because of “people” selling, installing, building relations and properly servicing clientele.  Make sure those key staff are properly compensated, incentivized, and recognized without their need to ask. You’ll be glad you did.  

About the Author

Roberta Lewis

Roberta Lewis is an industry veteran with over four decades of successful consumer electronics retailing, internet marketing, and manufacturing experience. Roberta Lewis and Associates was founded in 2005 to support the broad range of consumer electronics businesses including manufacturers, retailers, custom installation businesses, and group associations with marketing, advertising, public and consumer relations, product/brand awareness, and strategic sales management.