Provide the Incentive
Well-designed incentive plans lead to maximum performance
By Mary Jane E. Wells
Besides being profitable, another universal objective of ownership is to have happy, motivated employees delivering outstanding service to their customers. Employee job satisfaction is based on the entire work package—the scope of responsibility, professional growth, comfort and sense of belonging, opportunity, challenge, compensation and benefits and how well these needs and wants are met while at work.
In the past, the theory was that high satisfaction and compensation means high performance. This may not be the case today. There are so many other elements involved which cause high performance. The best incentive plans in the world can be unsuccessful if the foundation is weak. The key is to focus on the whole picture. Let’s start with job satisfaction.
How to get there
Take care of the employees, and they will take care of the customers. One critical part of having satisfied, loyal employees is to create an employee-centered work environment. The formula is very simple and versatile. Its key components generate positive results regardless of demographics, geography or market conditions. Although some of these elements may already be in place in your organization, the key is to drive all of them frequently and consistently to maximize performance.
Development. Build confidence, motivation and growth through learning. There is nothing more meaningful for your employees than taking the time to develop and expand their horizons.
Compensation. Reward performance and establish an incentive plan that is generous to those who perform at optimal levels. Make it consistent, simple, measurable and fair. The reality is that your highest-paid employees are your best value. Avoid rewarding negative behaviors or mediocre performance unless you want more of it.
Communication. Solicit action by sharing the “why” behind the “what” and “how.” Keep people involved and communicate people’s value to the company.
Opportunities. Success brings opportunities. Show people how to get there. Communicate success paths and the importance of performing today for opportunities in the future.
Support. Take responsibility. Face challenges, help with solutions, listen, encourage and believe in every employee.
Recognition. Practice positive praising. The impact on your team is huge. Recognition can be verbal or written, formal or informal.
Input. Keep people involved. There will be more ownership, and the team will be more likely to support the decision and carry out an action.
Respect and trust. Be consistent to your word. Be honest, straightforward and deliver on all promises and commitments. Practice it to expect it.
Once the right environment is in place, how do you keep your people motivated and focused to drive results? What we ask of employees in terms of delivering superior service and sales is not hard to do. What is hard is to get them to do is to take ownership and to do this consistently. Ownership is the single most effective strategy of getting something done.
Expectation. Provide training to help employees reach their potential. Educate them on the standard/goal of performance in their position. Measure this performance against the best practice standard that has been identified.
Motivation. Accountability, ego and incentive—these three things motivate most people. Some are motivated by all three, but at different levels. With accountability, there is reward for great performance and consequences for not performing at an expected level. With ego, you must recognize achievements so the individual can flourish and thrive. Incentive—for some, cash is the best form of motivation. Make sure you implement the best strategy for all. Give people tools that address all three of these elements and get the best out of your team.
A job that is rewarded fairly combined with service that is recognized by the employer and/or customer can be a constant motivational factor to an employee. Incentive plans that focus on driving company objectives while meeting the wants and needs of the employees are the key.
Who should have an incentive plan? In addition to management, the people within the organization who impact the customers overall experience should have incentive plans tied to performance. Here are some areas within the operation to consider:
- All front line employees with customer contact
- Sales and marketing
- Training and development
- Service agents/greeters
An effective planThe right plan must be:
Measurable. A continuous gauge enables employees to track performance and measure success. A plan with specific elements gives employees a road map to follow where expectations can be set.
Attainable. Once a road map has been defined, tiers can be set. The tiers should be able to be reached by top performers. Each tier should be set as a motivator to reach the next level of performance.
Controllable. The incentive plan should be based on elements completely within the employee’s control.
Simple. Individuals must understand the plan in order to be motivated by it.
Time-bound. Payouts should be within a relatively short time frame so the employees can continue to concentrate on their progression. The recommended time frame for a customer service representative is monthly.
Flexible. What might be the perfect plan now may not be in 12 months. You need to monitor the plan’s effectiveness and have the flexibility to change or modify the plan when the situation changes. Beware of changing the plan too often—let the employees know how often you plan to modify the plan so they can expect the change and trust the plans.
Generous. Focus on the difference in revenue generated by a high performer compared to a low performer. Weigh what you keep compared to what is expended in incentive payout.
Incentive plans should be based on rewarding desirable employee behaviors. Most often, the company’s key performance indicators for success are: increasing incremental yield; increasing incremental revenue; controlling labor costs; maintaining excellent customer service and driving profit.
Incremental revenue and yield (sales average). The word yield means to produce a return. In farming terms, a crop yield is generated once the land has been prepared, and the crop has been planted, watered, fertilized, and weeded. The quality of the harvest, or yield, at the end of the growing cycle is largely determined by how diligent the farmer was in following a proven success system. Neglect of this system would negatively impact production, and the same holds true for sales yield. A well-thought-out incentive program cultivates employee sales motivation and focus, driving performance even in the operator’s absence. Keeping people motivated consistently without having to micromanage them is a key benefit of having an appropriate yield-based incentive. It allows the average operator to maximize service and sales performance while they focus on other key areas of the business. The challenge is to create a fair performance-based program that is a win-win for the employee and employer.
Unlike base wash/detail pricing for lowered services, increased sales revenue does not require additional, heavy acquisition (marketing) and overhead (facility and labor) expenses. It simply maximizes the profit opportunity of your existing business. In fact, many operators believe net profit on increased sales ranges from 80 to 100 percent.
Incremental revenue includes the total of all up-sells to more profitable mechanized washes, express detail services, full detail services, a la carte services and retail items. The formula used to calculate incremental yield is: total revenue of all incremental products divided by total number of wash/detail tickets from all non-express transactions.
Setting progressive tiers for payout is recommended. This drives performance and urges people to reach the next level. Here is a sample set of revenue tiers with corresponding payout levels. Payout levels are based on incremental revenue generated by the individual performer. When setting tiers, remember to keep them attainable. There should be the possibility of reaching all payout levels.
Setting tiers is an exercise that should take into consideration your business mix, history, seasonality, base wage, tips, volume, and sales opportunity. Another critical exercise is to determine the optimum sales potential that your location should achieve.
For example, if a service advisor generates $21,000 in incremental revenue on 2,200 washes, the yield would be $9.55. The corresponding payout tier is 4 percent or $840 in incentive bonus. When determining what tiers are appropriate, one should consider current levels of performance, historical yield trends, volume, seasonality, which products are available to sell, and so forth.
Due to the innate volume volatility of the average carwash business, all operators agree controlling labor costs is paramount. An owner/manager should determine how money is saved with each point decrease in labor percentage. For example, if the location generated $150,000 in June, and the manager was able to save 2 percent in labor costs without jeopardizing customer service, the operation saved $3,000 right to the bottom line. As such, the operator may want to consider sharing portion of the found revenue with those responsible for creating the “found money.”
Since customer service is an integral part of any business, it is a great element to add into the incentive program. It ensures people are maximizing on all opportunities while improving overall service to the customer.
The primary methodology used to pay in the area of customer service is percentage of complaints with bonuses and penalties. This can also be augmented with a cash bonus for complimentary letters. For instance if your location goal is below a .03 percent level of complaints you could pay a 5 to 10 percent bonus on top of their incremental bonus for achieving zero complaints for the month. Conversely, it is important to have something in place to penalize the service advisor who receives above a set standard for complaints (which could be zero in many instances). This penalty could be on a per-complaint basis or a percentage reduction in the incremental commission similar to the bonus for zero complaints mentioned above. Verify laws in your state to insure deductions like this can be legally taken from commissions earned.
When contemplating introduction of a customer service incentive, consider what your average customer spends per visit, multiplied by the number of times they visit annually, multiplied by how many years you plan to stay in business. As you can see, each customer has tremendous worth. Once you add in their potential referrals, it is easy to justify a small amount of money to ensure they are treated with utmost respect and courtesy at every level in the organization.
Presenting the plan
Once the plan is developed, successful communication and implementation of the plan should follow soon after. Hold an employee or staff meeting to discuss the plan and gain insight. Upon completion of the plan, set up employee conference calls on your launch date to review the plan to check for understanding.
Use of posters or recognition boards at each location in all work areas is a good way to keep the program top of mind. These tools should be regularly updated so the targets are viewed as something ongoing and consistent.
Tying your employees’ compensation to the results they produce will help them focus on the company’s bottom line and improve motivation. Incentive plans are more effective when implemented as part of a comprehensive management and training program. Combined, the impact on your business can be tremendous—improved morale, productivity, growth, service, job satisfaction and lower turnover.
Mary Jane E. Wells is the director of the Khoury Group in Orlando, Fla. She can be emailed at email@example.com.