Our Pay Performance Journey
It started with a simple but profound comment I heard in 2010 at a business seminar. “If you are paying your people by the hour, then you are paying them to just show up.” I had never really thought of it that way before, but it was true. The way I was paying our team members did not line up with our core beliefs, and did not encourage a culture of productivity. I wasn’t sure how to change that, but I was determined that I would.
Fast forward six months, and I found myself laid up on the couch for six weeks due to ankle surgery. Much of that down time I used to do research and learn everything I could about pay for performance (P4P) and how it worked. Out of everything I read, the most influential was “The Great Game of Business” by Jack Stack. Two critical implementations resulted from reading that book. The first was taking our existing quarterly bonus program, tweak it a bit, and tie it to some specific metrics. Previously, I would just look at “how we did” last quarter, and pay some bonuses based upon that. Way too subjective and abstract. The second critical implementation that resulted from the book was Open Book Management (OBM). Stack was adamant in his book that bonuses should be tied to some form of company profitability or economic driver. And he was just as adamant that if you are going to pay bonuses based upon profitability, then the process has to be transparent. If you tie a significant portion of employee pay to profitability, then you need to be transparent about the financials, so folks don’t start thinking you are holding out on them. Which is where OBM comes in. OBM simply means that your team members view the same operating statements that you do every month. And when I asked myself the question “Why not show the financials?” I could not come up with a single good reason not to. So, we did, and still do.
In the beginning, we tied the bonus to two metrics: net profit, and technician efficiency. Technician efficiency was simply the number of hours the techs billed out divided by the number of hours they got paid for. Everyone was excited and motivated, and we hit maximum bonus territory within the first two quarters. We were in a team meeting, going over the operating statement, and when the team realized we had hit the top tier, guys came up out of their seats and were yelling and giving high fives. At a P and L meeting! I knew then that we had stumbled upon something big. Forget the fact that we had hit our top net profit goal. It was the intangibles that had me excited. Never in my 20 years of business experience had I seen that kind of excitement at work. We had turned this thing into a game, and we were winning. And winning is just flat out fun.
Excitement and fun were not the only intangibles we experienced. Everybody in the organization began connecting dots and realizing how what they did out in the field affected the bottom line. And the bottom line affected how much they and their teammates made. But probably the biggest benefit of all is that OBM and an aggressive bonus program began to build a culture of trust. The barrier that usually separates the front line warriors from management simply does not exist in our organization. Team members believe that we have nothing to hide, and that we enjoy sharing the fruits of victory.
Fast forward to today, and our journey continues. We have managers whose pay is tied to the portion of the operating statement they have the most control over. And in July, we instituted a new bonus program for technicians. It is based on the amount of gross profit each individual technician generates each month. There is a minimum threshold that must be met, and then beyond that the technician gets a % of every gross profit dollar he generates. Technicians are asking management for help in finding ways to be more efficient and generate more gross profit. Callbacks have all but disappeared.
A well-crafted P4P program is a win-win for everybody. It acts like an organizational MRI. It forces you to track the things that count, and then forces you to fix the things that aren’t right. For example, if your estimator is quoting jobs too low, the installation tech is the first to know, because it affects his pay. And he will go to the estimator himself and make sure it gets fixed. As owners, we complain about how hard it is to find good help, and even harder to get them to be engaged and take ownership. But have we given them the tools that encourage them to act like owners? Or are we just paying them to show up?
- Our Pay Performance Journey - November 25, 2014
Posted In: ACCA Now, Management
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