Seth Godin, author of Permission Marketing: Turning Strangers Into Friends, and Friends Into Customers, believes that monetary bonuses are demotivators. He says in his blog: “... Once people have joined your team [and are receiving a competitive wage], incremental money — bonuses and the like — usually demotivates people ... because sooner or later, people feel as though they're being treated unfairly. ... One guy gets a $10 bonus. The person sitting next to him seethes for weeks, while the bonusee forgets it soon enough.”

Other business experts, such as Jack Stack, author of The Great Game of Business, believe that incentive pay improves motivation, slows turnover, increases productivity, and creates an ownership mentality.

A writer on MoreBusiness.com says that extending bonuses “creates two winners: the employee who receives the compensation and the employer who benefits from the worker's positive performance.” But, the writer adds, “Free-floating bonuses [not] attached to positive performance can create ... problems ...”

COMMON TRAITS I've interviewed dozens of remodelers who offer incentive-pay programs. Programs that are successful and reach the goals Stack believes are possible follow these guidelines:

  • They shouldn't be used to prop up a weak pay structure. Pay competitively from the beginning. Incentive pay is the return employees receive from their extra effort .
  • Incentive-pay record-keeping must be 100% accurate and available for review.
  • The program should reward behavior that supports the overall goals of the company.
  • The goals set should be attainable with extra effort.
  • To avoid a feeling of entitlement, the company owner must explain again and again that this is a reward for reaching goals above and beyond basic job responsibilities.

Gregory A. Antonioli, president of Out of the Woods Construction, in Arlington, Mass., follows the principles of The Great Game of Business with his incentive-pay structure and pays bonuses quarterly if the gross profit dollar goal is achieved.

“Everyone shares in the program,” he says. “Reaching the gross profit target is not just up to the production team. If the office staff sees the numbers going down, they'll do everything they can to turn it around.”

A second benefit: “In this kind of culture, a lot of people are weeded out,” Antonioli says. “For example, one designer punched out every day at 5:00 and never put in any extra effort. She didn't fit with our idea of teamwork, and she's not here anymore.”

Incentive-pay programs can be a boon to companies that want to retain talented employees for the long term, increase productivity, and create a culture of accountability, responsibility, and enthusiasm. But the key is to plan and develop the program correctly — or you might find that all of your efforts backfire.

— Victoria Downing, Remodelers Advantage, www.remodelersadvantage.com; 301.490.5620.