Be an Ethical Entrepreneur, Marketer, and Business Builder

How to Implement a Compensation Plan Based on Productivity AND Customer Satisfaction

It’s the holy grail of service-based small businesses. But it’s never quite that simple, is it?

If you pay for productivity or performance, customer service suffers because everyone just tries to fix as many widgets as fast as possible to make more money… Or pay based on customer satisfaction and now it takes your technicians 3x as long as normal so they can “take care of the customer.” Plus it adds a whole new dimension of work for your payroll department.

Upset Customer

Not the happy customer we're looking for...

However, what if you COULD do both?

And without adding a mountain of paperwork to your payroll department each payday…

Here’s my experience with companies paying their team based on productivity and customer happiness

In 2006 I had cable internet installed at my home in Pennsylvania and had a few issues along the way. And true to the stereotype for that industry, service was less than stellar. Around that time I had a good friend who worked for them and confirmed for me that they paid a straight hourly wage. A very high hourly wage in fact. However, for some reason, paying more than the average hourly wage didn’t translate directly to better employees or better customer service.

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Employee Performance reviews should be like a GOOD wedding anniversary

If you’ve ever been responsible for giving a performance review, my title doesn’t sound anything like what you picture or what you’ve ever done, right? After all, performance reviews are how we determine pay raises and you can’t exactly throw a celebration if their performance just isn’t up to par… Correct. However a performance review isn’t just about how well they’re doing… It’s about how well you, the manager or leader, is doing…

This is one of my longest, yet most powerful blogs so read all of it and offer your comments whether you agree or not. 🙂

Let’s start at the beginning. What are the goals of a performance review in most instances:

  1. Assess Performance
  2. Implement Raises according to number 1.
  3. Set goals for next year.

If those are your only goals, you may be missing the most important part… The primary goal of a performance review should be to determine if you’re getting the absolute best out of your team member and if not, what can be done to do so. That doesn’t mean you should ignore a performance assessment…

Before we get to the performance assessment, it’ crucial you, the leader, understand that according to First, Break All the Rules: What the World’s Greatest Managers Do Differently by Marcus Buckingham, the number one factor that affects employee satisfaction and performance is their relationship with their immediate supervisor. That’s significant enough that it needs to be repeated. The only way you will ever get the best from a team member is if they have a strong relationship with you, their boss. That’s number one. Keep that in mind when we review everything else in this blog. Your ability to foster a strong relationship is the key to this puzzle… Is your performance review designed with that in mind??? We’ll get back to that in a bit…

Let’s start with the performance assessment by considering how we measure success in school. Like it or not, all of your employees went to school at some point and were graded according to his or her performance with either letter grades or percentage grades. That’s how we teach our children to know if they are doing well or not… In sports we learn that points, wins, and stats for your position are the proof of doing well. And then we move into the “real world” and people like Michael Masterson suggest your top 7 people in a Stage 1 organization should have a job description of “taking care of customers”. Or something equally vague but in theory “empowering”. Even if you do have a job description, it’s loaded with vague descriptions like, “dress professionally”, “interact positively with coworkers”, “present our products in a positive manner”. So we teach our children (and every one of your employees were once grade school children) to grade and measure performance down to fraction of percentage results on tests and in youth sports and then we put them in the work force and tell them to do a good job. So you have 2 options… First, you can attempt to reform the schooling system to implement more fuzzy methods of measuring performance… OR, Secondly, you can develop more concrete ways of assessing performance with actual numbers and grades. Why do you need to do this? Because according to Buckingham, under-performing and unhappy employees are partially that way because, “they don’t know what’s expected of them at work.” In other words, when they leave work for the day, they have only a vague idea of whether they did a “good job” or not. “Well, I didn’t wreck my truck and the boss didn’t yell at me so I must be doing a good job.” In some form or another, that’s how the majority of the workers in America assess their days.

This blog doesn’t have the time to address how to develop these performance benchmarks and report cards since its focus is performance reviews, however I’ve discussed it a bit before in a previous blog.

So now that you have the Key Performance Indicators, this portion of the performance review becomes almost moot. Why? Well do you remember in school when you got your report card at the end of the quarter or semester? Were the results a surprise to you? Sure you might wonder if you were going to get an A or B since you were on the border, but you knew you weren’t getting an F. Well the same becomes true at work. When you go down the list during your annual review the results are mostly expected and so aren’t a negative even if they are negative. Moreover, if they’re failing in every important category then shame on you because you should have done them a favor and gotten rid of them a long time ago. If they’re failing in some areas but doing very well in others that gives you a great opportunity to be positive about their strengths and then positively ask (don’t tell) how they can do better in the other areas.  Or you can always readjust their job description so they’re only doing the things they are really good at and drop out the things they are struggling with. Review my blog on hiring based on the job description you write after the interview for more details.

Now it’s time to determine raises. Well do you think it’s going to be easier to create an incentive-based pay system AND accurately determine fair and reasonable raises if everything is outlined on a report card? Yes. So implementing raises also becomes a non-issue. This is almost too easy isn’t it?

The most important part, however, is getting the best out of your team member. I also mentioned that very long, detailed, and exhaustive studies show that the number one contributor to that is the team member’s relationship with their direct supervisor…  Which means, to get the most out of your performance review you need to know how your relationship stands AND you need to strengthen it! Are you starting to see how making it like a good wedding anniversary, in other words, an exciting celebration of a great relationship, is crucial. How do you improve this relationship?

  1. Focus on positive and not negative. Look, if this is an annual review and you’re bringing up a screw-up from 8 months ago, you just aren’t getting the point. When someone screws up, you address it IMMEDIATELY along with a way to prevent it from happening again and you forget it (of course you can keep it in their company file in case the relationship ends up in divorce later). Think of it this way, is your anniversary dinner going to be a lot of fun when you sit down and your spouse brings up all of your screw-ups from the last year? Of course not! So why would you do that in a review where you’re main goal is to build a relationship???
  2. Have quarterly performance reviews. Do you honestly think you can build a relationship with an annual assessment? That’s just silly so stop it.
  3. Use the 12 questions from First, Break All The Rules. You may be afraid once you read them because they have nothing to do with the employees performance… They have to do with how well YOU are doing at providing them with an environment in which they can excel. Hopefully by now you understand that that is exactly what we want.
  4. Call it a Quarterly Chat so people don’t fear it and actual look forward to receiving 20-30 minutes of undivided attention from their boss.

Think of this from a different angle… Think for a second about your favorite 3 teachers from grade school. Do you have a good mental image? Are you smiling just thinking about them? Great! Now tell me, what grade did they give you in the second quarter when you had them? Uh…. You don’t remember? Well they were your favorite teacher why wouldn’t you recall how well they taught you? Because that wasn’t how they built the relationship with you! Teachers build relationships with students in many ways, but grading is not one of them. We understood as children that the grading was a necessary evil however it wasn’t what made us love or hate a teacher (usually). Right now I can think of teachers I liked who didn’t necessarily give me the best grades and ones I hated and had no respect for who gave me straight A’s. Why? Because I EARNED my grades based on my own effort however my relationship with my teacher was something she EARNED with me separately. Granted, if she was a terrible teacher and never actually taught me anything useful, that might taint the relationship. Think that might be true of your direct-reports as well?

That’s the context in which you need to consider your performance reviews. Assessments and raises should be tied to such clear definitions of performance that it’s obvious before you ever have your review what the results will be and those results will have no affect on your relationship. That’s not entirely true… Your team member will respect and appreciate you more for your direct, simple honesty.

Let’s say you’re on the other side of the coin and you’re the employee who is stressed because your review is coming up and you have no idea what to expect or if they’re going to bring up screw-ups from your past year one-by-one. Before you start looking for another job here are a few things you can do:

  1. Buy your boss a copy of First, Break All the Rules and tell them you read the book and thought they’d really enjoy it. If you think your boss is going take it as a personal insult as if you were saying, “You don’t know how to do your job so you need this”, it may be time to look for a new boss. Simply say you read it, were super impressed, and know they’re always looking for great new ideas so thought they might enjoy it.
  2. They will have some sort of checklist or score sheet or something to review you “objectively” with. Ask for a copy. Look, if you don’t know how you’re being graded, how can you do your best to get good grades? And that’s exactly what you should say to your boss if they ask why you want a copy.
  3. Review your job description and make sure you can highlight how you’re doing really well on each point (with specific stories to illustrate if time permits) and point out that you did make a few mistakes, but you aren’t making the same mistakes twice. You’re making new mistakes and the company mission, culture, or you job description (hopefully) indicates that you’re supposed to be innovative and even take a few risks and try new ideas. In other words, turn your negatives into positives.
  4. Ask to have reviews quarterly so you know where you’re standing throughout the year and can work to get better without having to wait till the end of the year when your raise is on the line.

The bottom line is this, you want to do a great job and you may need some help from your boss to determine exactly how to do that. That should be the focus of your review particularly if you feel you’re being unfairly reviewed and held back from raises. If none of those suggestions make any difference, it may be time to look for a new job because you obviously don’t have a strong relationship with your boss.

So whether you are the reviewer or reviewee (yep, just made that word up), you need to focus on ways to improve your relationship and the system your company uses for evaluations.

To your performance-reviewing success, Bryan

P.S. I’m aware this is a rather unique idea… If you don’t like it (or absolutely love it) leave me a comment to tell me why.

The 4 things that DRAMATICALLY improve teamwork…

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This evening my sister was working on a speech for a college class where she wanted to teach people how to improve teamwork in a business. Wow, a summary of how to improve teamwork in any business in only 5 minutes??? We’re going to have to narrow that down. So we decided on improving the productivity of a team that already exists. In other words, we’re not hiring new people, expanding a business, or firing unproductive people. So we talked it through for a few minutes and here are 5-minute’s worth of suggestions to having the best team around. 😉

  1. The most important factor in determining an employee’s satisfaction is his relationship with his direct manager. That’s more important than salary, benefits, flex time, over time, company picnics and the like. We’re talking about his direct superior and not the CEO, CFO, or departmental VP. If his manager does not have solid rapport with him, he will not be happy. This is extremely important because almost every other tip, suggestion, or improvement MUST take this first factor into account. Don’t forget it!
  2. One of the most common complaints you’ll hear from employees, if you bother to ask them, is, “I don’t know what I’m supposed to do.” Sure, she knows her title is “receptionist” or “salesperson” or “plumber”, but what does that mean she has to do every hour of every day. As her direct manager you need to define that. The best way to figure this out is to provide enough detail, goals, benchmarks, and Key Performance Indicators so that every single day your team member can easily answer whether they had a good and productive day. They should then be able to list exactly what they accomplished that made it successful and productive.
  3. Tie compensation to the Key Performance Indicators (KPI’s). The number of businesses that do this HAS to be less than 1 in 10,000. Out of several hundred businesses I’ve worked with in some capacity only 1 comes to mind that does this extremely well with a few others doing this moderately well. Most don’t do this at all. If you determine someone needs to get 8 “jobs”, “services”, “deliveries”, or “sales” done every day but you pay them by the hour, what’s his incentive to do more than 4 or more than 8 once they get those target 8 done? As a general rule, salespeople are the only ones who have jobs strictly based on commissions. Why? If an engineer designs a brake system that doesn’t work, why should he get paid the same as an engineer who designs one that is flawless? A friend who is an engineer for Penn DOT told me he was welcomed to his engineering job with “Congratulations! You have a job for life. No matter how bad you screw up you basically can’t get fired.” You think that government agency is attracting “go-getters”? Even if it did, as I respect my friend’s engineering skill, how long do you think it will be before those employees are taught to accept less than the best in their own work? Figure out a way to provide an incentive for EVERY single person on your team even if its just tied to the overall company revenue targets. Software companies often do this by providing stock to employees. Public companies do it by offering 401k plans with discounts on the company stock. Depending on the size of the company, it can be very difficult for someone to gauge the effectiveness of his work when his only non-salaried incentive is the stock price.
  4. Provide quarterly reviews with every team member. So you’ve defined for everyone on the team what makes up a productive day and you even related incentives to that productivity, now you need to review those with them at least every 90 days. Many sales managers and sales teams do this on a weekly basis. Again, why are salespeople given such strong incentives to produce and few others are? My recommendation is to get your hands on “First, Break All The Rules” by Marcus Buckingham IMMEDIATELY and use the 12 questions he’s developed from information gathered from over 80,000 managers over 20 years for your reviews. These reviews need to achieve a few key objectives:
    1. Determine the team member’s progress on meeting the goals from last session
    2. Determine whether you as a manager can do more to help them achieve those goals
    3. Set new goals for the next 90 days

    This is not a complaint session where you attack the individual and highlight all that they’ve done wrong. Numerous tests and studies have proven that mice and men both respond much better to positive affirmation than to critical attacks. Don’t say things like “Look, Bob, you did this wrong. It’s spelled out in detail in the manual so you don’t have any excuses.” You’ve immediately put Bob on the defensive, probably upset him, and didn’t score too many rapport-building points with him. Instead try, “Hey Bob I have a few copies of your TPS reports here. How can we work together to make these even better this time? Was the manual clear or should we improve it?” Now, if that team member thinks you’re a chump, then the second wording may only get you slightly farther which is why having a strong relationship and solid rapport with your team members (reference #1) is so important.

So there’s the 5 minute performance review for your team. The next step is reviewing your company Vision, Mission, and Culture to help fill in all the blanks that are not spelled out in the company manual or in the KPI’s.

To your success, Bryan