Can Variable Comp Boost Employee Productivity? Find Out.
Take a moment to consider labor costs across your organization. We’ve all heard the aphorism that “employees are your greatest asset,” but we all know that employees are also your greatest cost. The upshot of this is that employee productivity gains can directly result in profit gains for you.
A fascinating article by Harvard Business Review, “The Surprising Economics of a ‘People Business’,” points out that “if employee costs are five times assets… then it takes only a 5% increase in employee productivity or a 5% reduction in employee costs to increase profits by 25% of assets.”
So, can you use variable comp as encouragement to make your employees more productive and drive higher business profits? Let’s talk about that.
How Variable Comp Helps Employee Motivation and Productivity
In an different, highly acclaimed Harvard Business Review article, “Employee Motivation: A Powerful New Model,”psychologists examined the 4 drivers that impact employee motivation. #1 was “the drive to acquire,” and researchers showed that employees are very motivated to acquire a range of common variable pay offerings, including money, travel rewards, and entertainment bonuses.
The article also demonstrated that “when employees report even a slight enhancement of the fulfillment of any of the four drives, their overall motivation shows a corresponding improvement; however, major advances relative to other companies come from the aggregate effect on all four drives.” (emphasis ours)
In other words, your company is likely to increase employee motivation by offering variable compensation programs – but if you want to maximize your gains, you will also want to consider:
- Building team camaraderie and culture
This satisfies “the drive to bond,” and shows the importance of having team-building events. Make these even more impactful by including recognition ceremonies during the team-building events, in which you highlight your most productive salespeople and their corresponding rewards.
Tip: Another great way to share recognition is to set up a regular email that showcases which of your salespeople are doing best on their goals. With the right variable compensation management software solution, you can automate these emails to effortlessly keep your team motivated.
- Offering work that is challenging and fulfilling to employees
This satisfies “the drive to comprehend,” and shows the importance of providing skill-building opportunities for your salespeople. Find out what they’re interested in and help them use their passions to drive their next big project. Perhaps they want to expand into more geographies, or perhaps they want to focus on a new segment. Whatever they want, it’s probably a great opportunity to drive further productivity.
Tip: With flexible variable pay management software like Commission Plan for Microsoft Dynamics GP, you can fold individualized stretch goals into new variable compensation offerings with very little effort.
- Maintaining transparent rewards
This satisfies “the drive to defend,” and shows the impact of transparency and fairness on employee motivation. This drive is what inspires healthy competition quarter after quarter, which is why it’s so important to ensure that your variable pay calculation process is quick and easy, so you can stay up to date. This is also why it’s important to verify that your variable comp programs are equitable. You can use the “printer test” to check.
Tip: Using integrated variable pay management software like Commission Plan can help you make sure that your sales team can easily track their always up-to-date progress toward their individual and team variable pay goals.
Warning: Variable Pay May Hinder Employee Motivation and Productivity in the Long Term
Of course, there’s a catch. It’s that you can’t stick with the same variable pay program long term.
Though many articles online imply that variable payments positively impact motivation long term (here’s one and here’s another), you’ll notice that they don’t cite sources for their implications or that they misquote those sources. It’s a bit strange.
As it turns out, when you track down top sources and quote them accurately, peer-reviewed, published research studies tend to demonstrate inconclusive or very little evidence in support of the idea that variable compensation motivates most people to achieve higher productivity over the long term.
Worse, many studies suggest that variable pay can actually demotivate us as time goes on because they transform our intrinsic motivation into extrinsic motivation, and extrinsic motivation exhibits a weaker correlation with exceptional performance.
Sadly, one study showed that although variable compensation can increase task completion over the short term, it was also associated with the perception that work was more intense. As the researchers behind that study concluded, “performance-related pay may be experienced as a burden that only provides extra pay for workers through an intensification of the work process… [which] raises critical questions regarding the extent to which individual-based incentives can influence employee well-being in a sustainable way.”
In other words, it is extremely important that you frame your variable comp programs as short-term goals, rather than long-term ones.
How to Effortlessly Keep Your Variable Compensation Goals Short Term
The best way to make sure your variable pay goals don’t fall into long-term territory is to change goals frequently. You should aim to have a new goal every month or quarter for each of your employees and teams.
Sound like a lot of administrative work? It doesn’t have to be. In fact, setting up, tracking, calculating, and reporting on variable compensation programs doesn’t have to be difficult at all.
When you use the right variable compensation management solution, such as Commission Plan for Microsoft Dynamics GP, you can automate the process of tracking, calculating, and updating even the most complex variable pay structures. This makes changing your team’s variable compensation goals quick and easy – and highly effective for generating long-term business profits.
Contact Us to Learn More
Since 2002, companies across every sector have relied on EthoTech for the right tool for tracking, calculating, and paying variable compensation. We provide solutions, integration, and support that is focused solely on integrated variable compensation software for Microsoft Dynamics GP. It’s all we do, and we do it better than anyone. Contact EthoTech to learn more.
Read the 1st article in this series:
Crafting Your Variable Pay Program: 5 Tips for Success
Read the 3rd article in this series:
Using Variable Compensation to Improve Employee Happiness