Optometric Management Tip # 549 - Wednesday, September 12, 2012
Feel-Good Staff Bonus Programs: Do They Work?
I'm always interested in the topic of staff incentive programs. I'm highly skeptical about the effectiveness of these programs, but I'm always hopeful to discover just the right formula that will motivate staff without creating any ill will and dramatically increase sales and profits (or whatever I choose to measure and reward). I experiment with bonus programs in my practice and I study the theory behind employee motivation.
Staff bonus programs are extremely popular in optometric practice and the majority of them are what I call feel-good programs. These programs typically involve setting a goal, such as gross or net practice revenue, generally based on the same time period from the previous year plus some growth amount. If the goal is reached, a monetary reward is paid to all staff members. These programs are popular because they make logical sense at first glance and because optometrists would love to find a fast-track to managing and training employees.
This type of program reduces the risk of upsetting anyone because it uses a total revenue goal rather than individual sales results and because it rewards all employees rather than just those who do the selling. Those same factors, however, make these programs much less effective at achieving the desired performance. In many cases, these programs simply become an entitlement for staff members and they don't really change behavior at all.
Read on to find out why feel-good staff bonus programs don't really work very well.
Degree of correlation
For an incentive to work well there must be a high degree of correlation between the measured outcome and the reward. Using total optical sales or total practice revenue dilutes the incentive for an employee because those metrics correlate very weakly with an individual's sales effort. One person has relatively little control over whole practice revenue. On the other hand, if my pay is based on my own sales receipts, that is something I can control to a great degree. Of course, tracking individual sales may lead to some office conflicts, but if the goal is to increase sales, greater correlation works.
Optometrists often like to include the entire staff in one bonus system, with the argument that everyone is part of the team and the receptionist must schedule appointments in order for the optician to sell eyewear. I get the theory, but the reality is that the receptionist does not directly cause the sale; her involvement is very indirect. It is quite likely that if some staff members try very hard to increase sales and are very good at it, they may resent the weak contribution by some others who still receive the reward. It may be better to set up a different program for front desk staff centered on a different objective, such as recall success.
Ironically, setting up a group bonus program with the hope of keeping all staff members happy can do just the opposite. If the reward is based on a total revenue goal that means employee Mary's compensation is partially based on employee John's effort. Clearly, she has an incentive to watch what he is doing and vice versa. The result of that dynamic will depend on the personalities involved, but my experience is that one staff member telling another what to do causes hard feelings.
If Mary can't actually see and judge John's efforts, John has an incentive to "free ride" on Mary's efforts. Worse, Mary may sense that John is free riding, which will not create the sense of teamwork we are going for. If extra effort is costly to John (and it must be if this sort of incentive scheme makes any sense at all), then John would rather do less of it. If John's compensation is based on total optical sales or total practice revenue, he has a good chance of maintaining constant pay with little effort.
How much money is at stake?
The reason that most of these bonus programs don't usually cause morale problems is that the money at stake is too low to worry about. But that point is another reason why these plans are not that effective! A typical bonus amount is about $100 per employee per month. This may actually be measured and paid on a quarterly basis, which I believe is much better than monthly because it evens out noise the employee can't control and therefore it increases correlation.
If the amount of money at stake is $100 per month and a full time employee works about 160 hours that amounts to about 62 cents per hour. If this staff member is paid a wage of $16 per hour, the bonus is less than 4% of the compensation. If the effort-to-bonus correlation is low, the reward is too small to worry about, especially if the chances are good that the practice will make the goal anyway.
It is very likely that feel-good bonus programs do very little harm or good, but they perpetuate because the practice grows due to other variables that are not even measured.
Employee motivation strategies are complex and it may be better to just hire good people, pay well, recognize good performance with praise and raises, and train them continuously to do a better job. Having an active manager in a supervisory role helps maintain excellent staff performance.
I've been trying a new bonus program in my practice that pays an individual spiff of $10 for each pair of digital free-form progressive lenses sold. The correlation of effort to reward is obviously extremely high! Sales in that category have tripled compared to the same period last year. I have not seen any problems with staff morale; they are excited about the opportunity!
Next week, I'll talk about how to get rid of a bonus program that is not working.
Best wishes for continued success,
Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management