Situation: A CEO is concerned that there is insufficient fairness and accountability within her company. One manager is paid hourly and the CEO is thinking about shifting this person to salary plus bonus both to put them on par with other mangers and to create more accountability. How do you create accountability?
Advice from the CEOs:
What exactly are you trying to achieve? An operations manager is paid competitively at hourly rates, even compared to salaried employees. The issue is that this person has no responsibility for results as they relate to the P&L. Given this, the group consensus is that it is better to have this person on an incentive program that ties compensation to the performance results that you want.
One objective is that you want this employee to contribute more to planning, strategy or the company’s attempts to develop solutions to the challenges that they face. Have you spoken to the employee about your expectations? Does the employee realize that you want or value their input? Direct communication with the employee is important.
While the employee understands his responsibilities in the operations area, be sure that he is aware that he is also important to the profitability of the company, and managing operational expenses which are contributors to that profitability. Depending upon the individual’s background, he may need training about the links between expenses and the P&L.
Given these factors consider the following options:
Adjust the employee’s compensation by switching from hourly to salary. Make the base livable, but not comfortable, and tie the bonus (which will make the total compensation package comfortable) to the profitability of the business. This will have an immediate effect.
Clearly explain to the employee that you value his creativity and input. Give this person the freedom to contribute and make it clear that his contribution is expected. Early on encourage this and acknowledge contributions in meetings.
You may want to make this person a part owner of the business. This will have a long-term effect.
Situation: A company has a significant monthly payroll, and business is growing. Accounts payable collections are 90-120 days. Their challenge is to finance the gap. They have tried, but can’t get their bank to provide financing. An SBA loan will help. How do you manage cash flow gaps?
Advice from the CEOs:
Look for private non-bank financing.
Your AR is safe, low risk, and from reputable companies.
Non-bank financing offers better rates than banks, with access to cash from the lender on reasonable notice.
Investigate Lendingclub.com. They offer business loans up to $300K at 5.9%. Lendingclub.com operates by spreading the risk over thousands of investors.
Talk to lots of banks – not just those with whom who’ve worked in the past. Given your cash flow needs and good credit history, if you offer to shift all of your business to another bank you may get a more positive response. Once you have talked to other banks, let your current bank know your plans. They may become more responsive.
Change your service policy so that you give your best service to customers who pay you fastest. Once the purchasers at companies with whom you work learn about this, they will pressure their AP people to speed their payments to you.
Put more focus more on services which pay up front.
Going forward switch as much business as possible to ACH payments.
Offer customers early pay discounts – 1% net 10 or ½ of the Lendingclub.com rate to your biggest clients.
Befriend lower level employees in client companies. Particularly those with whom you have regular business contact.
They can tell you how to get to the top of the AP pile.
Let them teach you their company’s practices.
Plan finances going forward so that you can finance the gap yourself.
Situation: A company’s staff is highly paid. Historically, annual raises have been 4-5%; however some individuals are above industry salary ranges. The CEO doesn’t want to lose key individuals who would be expensive to replace. The company is planning salary increases for the end of this year. If the level is lower than historic averages they are concerned about the impact. Are planning for salary increases this year? How will you communicate your decision to employees?
Advice from the CEOs:
What’s the problem? Even in an improving economy your employees are lucky to be making what they do! On top of this, you need to consider profitability compared to last year as well as historic levels. Selectively share financial data with your employees as well as financial realities – your and their top priority are to keep the company healthy.
Gather data on salary ranges for roles in your industry. Good sources are Salary.com for national data (it may be dated) or Assets Unlimited’s Silicon Valley Survey for up-to-date salary information by industry and position. This will help you to prepare for conversations with employees who are currently paid above the range for their positions.
If you have employees above the range and do not want to give them raises, give them bonuses or spot bonuses for work well done.
Formalize your bonus system – base bonuses on performance metrics. Consider tying bonuses to net margin performance for the company or for departments that can impact new margin.
Whatever you decide, make announcements about salary levels a positive event.
Situation: A family-owned business has a family member on hourly pay who puts in excessive overtime. The cost of overtime significantly cuts into company profits. The CEO wants to cut back these overtime hours and get the employee to work more efficiently. At the same time, she feels that maintaining peace within the extended family is important. How do you cut excessive overtime for a single employee?
Advice from the CEOs:
Situations like this within a family business are delicate because of relationships beyond the work place. Treat this individual respectfully, but make it clear that you have to act in the best interests of the company and all employees.
Develop a job description with this employee that will help to get their overtime under control.
Communicate to the employee: “I don’t want to take advantage of you by requiring this much overtime.”
Let the individual know that you are looking for additional talent and want to more tightly define the roles.
Develop a company policy on overtime that limits the amount of overtime that any one individual can accrue. If anyone starts to approach this limit, then have a process in place that shifts additional overtime to others.
This is a serious problem for the company. It calls for company transformation. Enlist the employee as a champion for the cause of transforming the company. Keep this a positive vision.
If the individual is not a keeper: start controlling hours, but don’t give a raise. Let them leave on their own time.
If the individual is a keeper: give them raise, while cutting overtime hours.
Situation: A company pays employees based on skill level. Raises are given as an employee learns additional skills. In some cases, when they give an employee a raise, productivity drops. The company has tried other approaches including bonus systems and profit sharing but did not find these effective. How do you effectively motivate hourly employees?
Advice from the CEOs:
Before trying a new motivation scheme, find out what matters to your employees. It may not be either bonuses or profit sharing.
Develop and send out a questionnaire listing different factors – revenue sharing, bonuses, creativity, doing quality work – ask what matters to you? Get their feedback.
People work for respect – many studies have shown that as long as the payment offered is fair, salary is secondary.
Hire an advocate for your employees – a part-time HR person. An important role for this individual will be to determine what motivates employees, what they want from their jobs, and how improvements in both processes and the working environment can boost productivity.
What is the real issue: employee motivation, employee productivity or cost reduction?
If material waste is more expensive that labor – create metrics and rewards to reduce waste.
At companies that use the Toyota Production System employees receive points for process improvements. At the end of the year they receive a cash payout based on the points earned during the year.
Employees are rewarded publicly. The incentives are cash, recognition and respect. These companies find that recognition and respect trumps cash.
Depending upon your cost structure, it may be more productive to focus on scrap reduction. Bring in someone with experience who can find the sources of scrap. The effort will pay for itself rapidly.
During the hiring process, require educational attainment as evidence of the individual’s commitment.
Look for skills experience – machinist, etc. Match skills and experience to your needs. This will lead to faster learning curves and will help to reduce waste.
Situation: A company has hired interns in the past and wants to upgrade their intern program to attract more interns from top schools. How do you attract interns from top schools?
Advice from the CEOs:
Top schools want to build lasting relationships with the companies to whom they send interns. In addition, the ability of top schools to attract top students increasingly relies on the placement rate of the school, so this can be a win-win proposition for both company and school. Take the time to cultivate this relationship and let the school’s representatives know your intentions. Get to know the top professors in programs from which you wish to recruit interns.
Provide a high quality internship experience. Treat interns as though they were normal employees during internships. Give them a job, objectives and tell them that you will evaluate you as though they were FTEs. They will feel more like members of the team and will have a higher quality internship experience. They will likely tell their placement office and other students about their experience. Interns should understand that if all goes well, the company MAY have a job for them; no job is guaranteed.
If you want more applicants from top schools then view your internship program as an investment. Look at it as a recruiting tool, not as an expense.
Pay for interns may not be same as FTEs – frequently interns are paid less, and don’t get the same benefits as FTEs. Before you make an offer or hire, call the school from which the potential intern comes and check out the candidate’s representations as to expected salary, etc.
Hire more than one intern and compare their performance against each other.
The CEO of a technology company has hired many engineer interns. Many of these were subsequently hired as employees. Overall their success has been good, but not fantastic. Similar to a new employee, it takes time for an intern to get up to speed.
Situation: A company is about to launch a Beta version of their web-based software. The CEO strives for perfection. What is sufficient for launch, and can the company tolerate imperfections in Beta version? When is “good enough” enough?
Advice from the CEOs:
Many successful software companies – think Microsoft – have realized that finishing the last 10-20% of a new release can be as expensive and time consuming as the first 80-90%. The challenges are often greater and it’s difficult to prioritize the final pieces. So they release when the software is 80-90% complete, prioritize the final pieces based on user feedback, and focus on quick response to user feedback.
You really have no idea how users will experience a new web-based program until you hear it from them. They will tell you what does and does not need to be fixed. They may even be able to help you fix it! Craig’s list stinks from a pure GUI perspective, but is highly popular and successful.
Get the Beta program out ASAP. What you perceive as imperfections may not appear as problems to young Beta users, and may in a way add a quirky appeal to the user experience.
Find a customer or group of customers who will pay for the program. Only this proves its actual worth. There can be conditions for a Beta release and discounts, but if nobody is willing to pay, where is the value?
Consider releasing your Beta version in a college campus environment and invite both participation and feedback. College students are very web-savvy, more tolerant of Beta programs, and crave the opportunity to contribute.
As an additional bonus, when you are ready to launch, college students are great at helping you generate buzz and early adoption because they talk to so many of their friends from both college and high school.
Situation: A company is the leader in an expanding market. To sustain growth, they must transform how their people operate so that they better address and serve the needs of their target customers. How do you transform company culture?
Advice from Joe Payne:
We have a saying at Eloqua: Culture eats strategy for breakfast. More important than this year’s product strategy is the culture you build that let’s employees make decisions on the fly because they know “that’s how we do things at Eloqua.”
Look at how you pay and reward your people. We all receive bonuses on the same team metrics: company sales, profitability, and customer satisfaction. If the team wins, we all win.
We are not a democracy, but everyone has a voice. Although we make decisions as a business, we avoid top-down management. We push as much authority and accountability as far down the organization chart as we can. You can only do this well with a strong culture.
We adopted a mantra to guide our way, “Get it done – Do it right”, and a set of metrics to make it part of our culture.
We created a two-by-two grid, with “Get it Done” on the Y-axis and “Do it Right” on the X-axis on which all employees, including the Executive Team, are plotted. If rated in the top right quadrant, that employee is doing well. If someone finds himself or herself plotted in the Upper Left quadrant (getting it done, but not doing it right), that person has one quarter to improve. Lower Right people get two months. Lower lefters are out that day.
We can measure “getting it done” using standard quantitative metrics, but “doing it right” is more qualitative. We ask questions like, “Is the person a positive source of energy for the team? Does she go above and beyond for other staff and for customers?” We provide examples to help evaluators plot individual performance.
Once we instituted this matrix, one of our top selling sales reps was evaluated as being in the top left quadrant. When he only paid lip-service to changing and didn’t correct this behavior after a quarter, we let him go, numbers and all. This decision was both a major “wow” and a major win for the company.