Small Business, Big Lessons® – aligning incentives so they don’t become disincentives

One of the lessons learned early on in owning a small business was the power of incentive. We set up an incentive program for leaders and tried to make it “simple” 2-3 goals. All were very accessible and a “stretch” goal. The idea was to reinforce the regular work (quality and quantity) with simple goals and have a broad goal for what we really wanted to achieve knowing that it would be a little more effort, but also exciting. My personal assumption was that everyone’s work style is similar to mine, don’t leave any incentives on the table. It turned out that 3 out of 4 was enough for many leaders and they didn’t care about the extra money. Too much work!!!

We will examine what went wrong and ways to create incentives and minimize disincentives. Incentives became a disincentive for owners because we were spending money on bonuses and not seeing business results. We will look at the reasons for a good incentive, the expected results and the way to create motivational awards. More details on the three areas:

1) Why – The first step is not to encourage work that is part of the basic business role and expectations. Everything that is part of normal expectations is simply what is required of the job. By adding extra incentives, the expectation is created that extra compensation is now expected for just doing the “day job”. If at any point the quantity is reduced or eliminated, will it create dissatisfaction and lower productivity. If it’s part of the normal expectations of the role and they’re already paid for that work, no extra incentive is needed. If not, go for target results to define “above and beyond” expectations.

2) Target results – In commission roles, it is a little easier to define. The account executive has a quota. If they overdo it, you can give the multiplier more than 100%. Other roles may have more MBO, management by objective, type of measurement. They are set up to target critical expected results. What outcome is required to start your business? Is it more cross-selling activities, better trained staff, employee retention? Are the measurements clear and the results achievable with a certain strain and outside the normal scope of work, if so, go for motivation? If not, think again about “why”.

3) Motivation – Is the incentive or reward equal to the level of effort required to achieve it? Is the reward something that is motivating? Keep in mind that rewards don’t just have to be monetary. It could be free time, a paid long weekend trip, gift cards for a person’s favorite extracurricular activity. In any case, it must make sense to the intended recipient or it will not create the necessary intrinsic motivation.

Think carefully

Are your incentives aligned with stretch tasks or just a participation cup? Are you creating incentives that can be added or removed as needed to get the company the results you need or a permanent right to appear? Incentives can never replace a person who is paid fairly for the work they do. They should not be used as a reward for doing the “day job”. They must be focused on something that is additional work and that is important to the business with an incentive that is motivating and a task that is achievable. Be clear about how long the incentives will be in place, otherwise they will become part of the expected compensation and once seen as a disincentive.

about the author:

Gregory Woloszczuk is an entrepreneur and experienced technical executive helping small business owners grow their income and bottom line. Gregory believes in honest conversation and helping others see things they need to see but may not want to, with a focus on taking responsibility for their own work. He and his wife, Maureen, started GMW Carolina in 2006. does not charge a subscription, and you can directly support our local journalism efforts here. Want more than what you see at Chapelboro? Let us bring you free local news and community information by signing up for our bi-weekly newsletter.

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