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May 2002

Would you share the wealth with those who were required to help you create it? Of course you would.

Printing company owners willing to invest in realistic incentives that reward achievements accomplished by managers and employees reap the proceeds. The key to success is to: 1.) set realistic goals and timeframes; 2.) hold managers accountable for performance; 3.) communicate measurement and reward methodology—then step back and let them perform. Always be sure to reward positive results when goals are achieved, but never give a reward when goals have not been accomplished. If goals are met, the cash will be there to pay bonuses.

First, set the directive and goals. Then set the incentive structure to achieve them. The goal-setting process clarifies direction and eliminates confusion, unclear motives and misguided efforts. When you use independent resources to guide the process, they often add credibility and subjectivity.

When workers can see dollar signs and that goals are clearly stated, their mindset changes and they become more creative. Include as many employees as possible as part of an incentive-based structure. Incentive Compensation (IC) should reward performance and teamwork, which produces results.

The ultimate goal of the motivational plan is to improve the equity value of the company. Share profits in proportion to the risks being taken. Owners accept risk when entrusting operations to the capability, judgment and decision-making of the people who work for them.

When an employee's income is based purely on performance, as it is in sales, the risk-to-reward scenario is much greater than for a salaried employee. An individual working under an agreement or union contract governing work behavior and performance, by comparison, will receive less of a bonus for achieving his or her goals. If they want the rewards, they should share the risk.

Develop an incentive pool based on the amount of Gross Margin (G/Mgn) and distribute bonuses to the team based on a weighted average. When the company does well, G/Mgn improves, thereby increasing the size of the bonus pool, and IC is greater. Tie the incentive at budget to a percent of salary to help the weighing average calculation. Managers will have to control several components to achieve results without losing sight of the end goal.

Pay management incentive compensation based 50 percent upon which the employee is directly responsible, 30 percent on how their performance impacts other key departments (i.e.. how sales can improve production throughput) and 20 percent on their ability to improve equity value or other elements within their control. The intent is to measure performance and, as importantly, cooperation between departments and personnel.


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