Incentives and Employee Engagement – Ensuring They Are Assets not Liabilities

The last several months have been very busy. Client work has taken us to Arizona, Idaho, Michigan, Ohio and Pennsylvania. Last fall we began presenting a series of speaking engagements entitled Incentives and Employee Engagement – Ensuring they are Assets not Liabilities. An easier titled may be, “The Good, the Bad and the Ugly”. The response to the subject and materials has been amazing. Particularly to CEO’s and CFO’s who have always questioned the real relationship between incentives/bonuses/variable compensation, employee engagement intiatives and demonstrated incremental gains in financial performance. Below is an outline of the presentation that is available for your senior management team, trade association or professional group.

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Available in one to four hour personal presentations to fit your requirements.

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The Challenge  – 80 percent of incentive plans and employee engagement initiatives fail to achieve initial operating objectives. Many are simply giving money away, with little to show. This session is a product of 25+ years of experience and over 300 manufacturing initiatives. Intended as a direct, targeted, reality-based discussion of what works and what doesn’t in getting your employees fully engaged in driving financial performance – every month.

Incentives and engagement are not about employees being “happy”, rather it’s about their being effective. Achieving specific financial objectives through real time situational awareness, focus, and organizational intensity must be the stated mission.

Risks and Rewards – Identify and define key variables in the employee incentive and engagement process that lead to failure or reduce the organizations opportunity to positively impact operating results. Conversely, illustrate the range of opportunity a well-designed and executed strategy could have on financial performance going forward.

Proven Formula – Understand methods to define and measure employee engagement and organizational productivity within the financial statement. Straightforward, yet robust bonus/incentive compensation formulas linking all employees to financial results, real time. Yielding a 90% + correlation to profitability. Identifying and avoiding incentive, bonus or other plans that do not correlate to profits.

Leadership & Cultural – Illustrate the leadership and culture required to support successful incentive/bonus systems. Dollarize and energize the factory floor. The importance of emotional engagement in stimulating employee performance. Happy isn’t necessarily engaged or productive. Understanding why your unhappiest employee may in fact be your most engaged employee.

Three Critical Components for Success – Understanding the three (3) most critical factors in the successful design and execution of highly effective incentive/bonus/employee engagement strategies. Factors include the financial, operational, and behavioral ingredients required to ensure significant incremental bottom-line improvement and sustainability. Creating “One Team – One Goal”.

Karl F. Muller—President of The Muller Group, Inc., when asked if The Muller Group “specializes” in a particular industry, he say yes… those industries that have employees and financial statements! Although having a heart for manufacturing, they “specialize” in providing tools to drive organizational performance in any industry. It’s all about people and performance. Karl has consulted in the following industries:

Advertising – Aircraft Engine Mfg – Agricultural Products – Architectural Products – Arms Manufacturing – Assembly – Bakery – Battery Mfg – Boat Building – Building Materials – Automotive Supplier – Chain Mfg – Chemical Mfg – Consumer Product Mfg & Dist – Concrete Products – Die Casting – Direct Mail – Distribution – Engineering Svc – Engine Mfg – Fiberglass – Fire Fighting Equip – Fire Protection – Food Products – Food Processing Equip – Foundry – Gift Products – High Tech Mfg – Imaging – Job shops – Leather Products – Machining – Material Handling – Medical Products – Metal Fabrication – Metal Service Center – Metal Slitting – Metal Stamping – Office Products – Oil Refining – Packaging – Paper – Paving – Plastics – Pet Food – Pharmaceutical Mfg – Printing – Publishing – Quarries – Railroad Products – Retail – Rubber – Screw Machine Products – Steel – Steel Fabrication – Steel Service Center – Textiles – Tooling – Wire and Cable – Wood Products – Yacht Repair and Service – and others.

The common denominator among the businesses represented is the unrelenting need to grow sales, maximize productivity, reduce costs and improve profitability. AND most importantly, recognizing that fully engaged employees, at all levels, focusing on specific and aggressive shared business and financial goals are required to optimize success.

Client Demographics

  • 500 + assessments, training, and client projects to date.
  • 50 employees to the Fortune 50.
  • 60% Privately Held, 40% Public.
  • 70% Manufacturing, 25% Service/Distribution, 5% Non-Profit.
  • Non-Union, Union.

 Contact

 Karl F. Muller |  The Muller Group, Inc.

Kmuller@equishare.com |  1-757-566-4485

Equishare.com | Website and Blog

www.linkedin.com/in/karlfmuller

 

 

 

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The Reason For The Season

During this Christmas season we want to thank you, our clients and friends for your trust and your business. We have enjoyed and appreciated working with each of you.

Below is a small gift, a link to one of the greatest Christmas songs ever written. It is a classic melody with new lyrics, by a modern artist…enjoy and contemplate the reason for the season.

http://vimeo.com/81899242

We wish all of you and your loved one’s a wonderful Christmas and all the blessings offered by His birth.

Merry Christmas!

Karl F. Muller, President

The Muller Group, Inc.

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Individual vs Organizational Engagement – 4

 Business is a Team Sport

Engagement is not a yes they are, or no their not issue. There is a continuum of employee  engagement. From absolutely disconnected to incredibly productive and effective.  There is another dimension to the issue that may be even more critical. Are your individual employees engaged organizationally? To put it more clearly, are they a fully functional, effective, and engaged team, that fully cooperates between departments and  pursues company-wide objectives? Or are they stellar individuals, but not particularly concerned with team performance as a whole, let alone corporate results?

How do you create an atmosphere or culture that will cause employees to unite their efforts for benefit of all – including your corporate results? One team, one goal is the objective. I believe there are four fundamentals in creating this environment. When asked what the key to winning in football was, Vince Lombardi, the great coach of the Green Bay Packers responded, “Running, passing, blocking, and tackling. If we do those four things well, we’ll win more then we lose.” Likewise, our Equishare™ System deploys a four-pronged strategy to drive organizational engagement and performance:

Define the essence of performance and profitability. This is not some vision or mission statement that nobody can recite. Rather, we identify the four most critical factors in your business and measure them in dollars. The definition must be clear, concise, powerful, and universally understood. The centerpiece of the Equishare™ System is a unique set of four (4) key relational financial metrics, which offer an extremely high correlation to over-all financial results. Without the complications and misunderstandings associated with the entire financial statement. Running, passing, blocking and tackling.

Measure  and communicate the critical factors that drive winning performance—constantly, visually, and energetically. What is the score? How much time is left? How far to the goal? Are we winning or losing? Employees need to see, feel, and have an emotional reaction to business outcomes. And most importantly, have compensation linked to business outcomes, real time.

Pursue the game plan. You must have a focused, tactical, visible leadership and operating plan and effort to create awareness, identify opportunities, deploy resources, flex the organization, remove barriers, find solutions, and achieve gains. Performance-based compensation is never a substitution for leadership.

Reward all employees, every month “we win”, for superior results. One team, one goal,  one company, one financial statement – everybody wins or everybody loses.

For 30 years, in hundreds of organizations, we have seen seriously engaged and effective individuals and organizations pursue and reach significant new levels of financial performance. Notice on our website – http://www.equishare.com – that the majority of client comments are from CFO’s. Why? Most likely, for the first time they have experienced a performance based compensation strategy that is highly correlative to true incremental gains in company financial results. Not an expense to be borne, rather an incremental gain to be shared.

Some may be asking, why not just do some sort of profit sharing? Here are three of many very good reasons not to share profits. First – NO ONE understands it.  What people don’t understand, they do not trust. Think about it, your financial statement probably requires 200 to 500 line items to explain profit, and 98% of your employees (including many managers) don’t understand it. Many businesses have passed out many dollars and simply angered employees. Not intentionally, but as a product of misunderstanding that “hard work” does not always translate into profit. Second – the majority of profit sharing systems are annual. To far away to drive a behavioral change. NOBODY is working harder in March, because they might get a check next January. When the “result – reward” relationship goes beyond a month you fall way off the behavioral change/engagement curve. Third – the word profit is to big, misunderstood, misinterpreted, macro, etc. Of course we want to be profitable – like a football coach wants to win. But what are the critical components of winning? Of being profitable? What is running, passing, blocking and tackling in your business? Simply saying Profit is the objective is too strategic, not tactical. We want to focus the organization on the four critical factors that drive profit, and share with them the fruits of success.

Having star individuals may be good, but having an effective, focused, results driven team is what it takes to excel in the marketplace and on the financial statement. Having a universal prospective to define, measure, pursue and reward performance will facilitate a culture of organizational engagement.

I will leave you with this play on words. What your employees are paid is interesting… what they cost is critical. What an organization wants, and what the financial statement needs, are the highest paid employees, that cost the business the least amount of money. That is only achievable through a highly engaged organization… not just individuals.

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2014 Results vs Employee Engagement – 3

Engagement is about results, not employee happiness. What will it take to meet or exceed your 2014 business objectives? It will take the optimum utilization of your finite resources – beginning and ending with people. From your VP’s to the hourly work force. One team, one goal, focused on universally understood objectives and sharing in success together. On one hand it is a rather simple premise. On the other it is a challenging organizational culture to create and sustain. However, properly designed and executed, the results can be dramatic.

In all likelihood you already have significant market challenges in 2014. Competition, falling product/service prices, rising costs, health care and the list goes on. What you don’t need is self-created internal challenges manifesting as inter-departmental disconnects, low motivation/productivity, inefficient use of resources, and lack of business-wide focus and intensity. Do your employees know and clearly understand the challenges and opportunities facing you in 2014? Do they care? Do they get the same compensation whether the goals are met or not? Or worse, does your existing performance based compensation have a weak link to your overall business results? 80% of our work over the last 5 years has been replacing existing incentives, bonuses, profit-sharing plans with our Equishare System. Replacing not simply the formula, but more importantly the culture – moving from an atmosphere of disconnected to one of emotionally engaged in clearly defined results.

Many times organizational challenges can be exacerbated by a flawed definition of Employee Engagement.  When you have staff discussions regarding engagement, they should be focused on performance, productivity, success, failure, and monthly results which are clearly identified and measured on the financial statement (as described in the previous post). Clear, focused, tactical and universally understood measures of business results.  Again, from the VP level to the hourly workforce. One team, one goal, no excuses, just results.

After 20 plus years, our mantra of define, measure, pursue and reward organizational results, is as applicable today as ever. Maybe even more so, as corporate culture has in many cases succumbed to the “noise” of our culture at large. To much information, communicated in way that is over-the-top distracting, leading to a disconnect between what senior leaders desire and what employees hear. I was recently in a employee cafeteria with 40 different Excel charts posted on the walls… measuring who knows what. I did not see a single employee look at any of them.

Taking the time to craft a succinct, universally understood definition of monthly business performance that serves as the organization’s end-zone, and rewarding all employees when they get there as a team, will enable you to meet and exceed your 2014 budget.

In the end, you must ask yourself… do your employees at all levels know the high leverage issues driving the 2014 budget objectives? Do they care whether they meet them or not? Are you sure?

If you would like us to assess your 2014 budget to identify the impact of having full and emotional employee engagement, please contact me.

Karl

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The Economics of Employee Engagement – Part 2

Whether or not your employees are truly engaged in the business, the result WILL manifest itself on the financial statement… clearly and quantifiably… good or bad. 

First, a series of questions. What is the impact on your business if your employees are engaged or not? Can you quantify it? Is organizational productivity a valid measure of engagement? If so, can you measure productivity on the financial statement? Serious questions that many times are avoided because the answers appear to be difficult. Let me reduce these questions to their essence.

The measure of engagement is not whether employees are happy, but whether they are productive. If in fact they are more productive, you will sell and produce more goods and services with the same people, or you will produce the same level of goods or services with fewer people. If your organization is more productive, by definition, the result will  require more output and/or fewer people… period. And that measurement of organizational productivity can be measured and tracked on the financial statement. No excuses, no debate, it’s simply the math. If you are not selling/producing more, or have fewer employees, then your financial statement never saw the engagement or the productivity… or the profit. Productive and engaged employees will sell more, produce more, spend less, cost less, and enable the enterprise to be more profitable. Unproductive, disengaged employees cost the business opportunity and money… every day. Regardless – you must be able to measure it to manage it.

In far too many cases, employee engagement survey data is either unrelated or inverse to financial results. If you overlaid your engagement data or ratings for the last 24 months with your financials you may be surprised at the results.

I challenge you to a simple but potentially profound exercise. Whether you have 1 or 100 million in sales, don’t dismiss this as being to simple – too many attach value to the complex at the expense of the obvious! Here it is: graph your monthly net sales dollars for the last twelve months. Then graph your total wage and fringe cost (all hourly and salaried combined), as a percentage of sales. Lastly graph your operating profit as a percentage of sales. In all likelihood you will see significant variation in your payroll to sales ratio and it’s resulting impact on profitability. Specifically, months when your payroll ratio is high, profits are low, and vice versa. As a simple demonstration, imagine (or calculate) if you will, how your financials would improve if your best month(lowest payroll ratio) was achieved 12 months a year. My educated guess is your profits would nearly double. Email me if you would like to discuss this exercise further.

This above demonstration of the impact of a rising or falling payroll ratio is simply an illustration of (1) either more output with the same payroll, or (2) the same output with less payroll. I will be the first to admit that this is an over-simplification, but my intention is to make a simple but extremely significant point. (Please note: we offer a comprehensive assessment utilizing 5 years of financial data and viewed through multiple financial lenses to provide a client with a complete analysis.)

Whether your employees are truly engaged or not, the result WILL manifest itself on the financial statement… clearly and quantifiably. 

Engaging your employees and leading your company to a more profitable outcome requires that you define, measure, pursue and reward specific financial results. Leadership also requires that  you create an atmosphere of organizational emotion, whereby employees share in business success and failure, real time. Every organizational activity, at every level of the business, by every department, and every employee, has an impact on key operating ratios – favorably or unfavorably.  Leadership’s job to identify the objectives, write the game plan, provide the real time score board and reward success.  If you do, you will be amazed at the results. And remember… having some unhappy employees along the way may be your best indicator that people are REALLY engaged.

Bottom line… employee engagement must be measured on the financial statement. As you enter the 2014 budget season, I would encourage you to challenge your paradigm regarding employee engagement and it’s relationship to financial results. You may be leaving a lot on the table. Contact me if we can help.

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Driving The Economics of Employee Engagement – Part 1

The subject of Employee Engagement is getting a lot of press lately. Books, articles, forums – every possible variable in the engagement conundrum are discussed ad infinitum. Walking through Barnes and Noble recently I spied a book that I assumed was going right at the issue. It was entitled “Happy,Happy, Happy”, by Phil Robertson. Then I discovered he was of Duck Dynasty fame and it had nothing to do with employee engagement!!

Really…. so much of what I read on the subject is on the warm and fuzzy side and appears to push the notion that end result of all engagement initiatives should be to insure our employees are “happy”. Of course the authors typically use more sophisticated terms then happy, but you get the point.

Organizational engagement is not about happy – rather it’s about effectiveness, focus, cohesiveness, achieving objectives and tangible/identifiable improvements in financial results. Really. A Marine Corp platoon in Afghanistan is not happy, yet they are very cohesive, effective and engaged. My previous post describes an employee who is highly engaged in the performance of her company AND very unhappy. They are not mutually exclusive. In fact having employees very unhappy may be a strong indicator of their level of true engagement. The most costly and most difficult condition to detect is one of employee indifference. I discuss strategies to deal with that in Part 2.

Many organizations survey their employees to death in an attempt to quantify their level of engagement. Knowing how employees feel is good information. However I believe the best place to measure employee engagement is in the company’s financial statement. If engagement is not resulting in identifiable/quantifiable improvements in overall financial results, then I would question what the objective truly is.

Using football as an analogy, let me put it this way. Yes, it is very important to measure the “statistics” of the game – yards rushing, yards passing, defensive stats, penalty yards, etc. BUT, it is MORE important to measure the score of game. Did we win or lose? Too many businesses are covered up with engagement statistics (and others), but totally lack a scoreboard that shares with employees both the information and rewards of winning the game, real time.  Engagement initiatives must be focused on, and held accountable to improving organizational performance every month.

In part 2 of this series entitled “Driving the Economics of Employee Engagement”, I will discuss creating a leadership environment, and measuring engagement real time on the financial statement. This will be posted in 7 to 10 days.

We also have a powerful, and if I can use the term… engaging… presentation on this subject available for senior staff meetings or public speaking venues for your trade or professional business association. Please contact me for more information.

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Test of Employee Engagement… are they chewing the boss out for a lack of business performance?

And what are YOU going to do about it? That was a questioned posed by an hourly employee to the president of the company regarding productivity. Yes, she was very upset over the lack of company performance. Ever had that happen? Ever had an employee (at any level) show real emotion over the lack of company performance? And have the courage to hold accountable and confront management? If not, I would suggest there is room to improve your level and definition of employee engagement.

About six months prior to that encounter, we had designed and implemented our Equishare System™ into this New England business. A system, where every employee shared in the financial performance of the business, every month.

That day I was sitting in the president’s office when a lady came into the doorway.  It was obvious she had come from the factory floor. Ron (the president) asked if he could help her. She said, “ the guy next to me has been making junk all morning… the supervisor has walked by twice and hasn’t said a word. He is wrecking my bonus and I want to know what you are going to do about it”!  Wow, an employee chewing out the president over lousy performance… that’s novel.  Engaged? I would say so.

This level of engagement was a product of several core fundamentals. Her monthly earnings were significantly impacted by company performance. Beyond that however, the Equishare System™ had been designed in such a way to drive real changes in the way employees think and act. This behavioral change was a product of –

  • A real understanding of the key metrics that drive company wide profit
  • Measured and communicated frequently
  • An operating plan to achieve it
  • Timely – monthly bonus opportunity – long enough to tie to the financials, short enough to keep people engaged
  • Amount of variable pay – enough to affect her standard of living.

The story concludes with this. As it turned out, this employee was a single mom, and $200-300 extra opportunity a month meant the world to her. Nothing was going to stand in her way.

AND, since the system was set up on the factors that truly drive improvement in operating profits –  and a fair sharing of the incremental gain, Ron was committed as well. I hate clichés, but that is a win-win.

This is example of a mindset that transcends hourly, salaried, or senior manager – manufacturing or service. Are your employees at all levels deeply concerned and engaged in the financial performance of the business this month, next month and beyond?

When employees are really engaged, really committed, millions of dollars of improvement and opportunity become a reality. It’s not easy, but clearly worth the effort.

This was an “encore blog”, originally published a year ago (edited today), to reinforce comments and questions I had from my previous posting.

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