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Dear Commercial Acuman...

Dear Commercial Acuman...
I want to motivate my staff by paying them more but margins are thin - what do you suggest?

Money is something of a blunt tool when motivating staff; it has its place, of course, but is far from your only option.

Firstly, people need to be paid fairly and remuneration needs to be awarded meritocratically. This means that you have regular performance assessments that cover your staff's strengths as well as areas for development.

These in turn need to be informed by your corporate objectives - most of these will be self-evident, such as retaining clients, producing good work and managing accounts profitably, but there remains a benefit in formalizing, agreeing and communicating these.

The nightmare scenario from an FD's perspective is the manager who buys their team's loyalty through constant pay rises and promotions - this does huge amounts of damage to a business.

For a start, it is inflationary - the business pays more for the same skills. Worse, once accustomed to regular pay rises, staff begin to feel entitled to them; it becomes almost Pavlovian due to an idiosyncracy of human behaviour. The more often and easily we receive something, the less we are grateful and the more we feel entitled to it.

This is the same reason why we hate cheap things, as The Book of Life argues (http://www.thebookoflife.org/why-we-hate-cheap-things/). Easy pay rises are cheap for the receiver yet expensive for the provider if they are not accompanied by a more-than-equivalent step-up in performance.

This thinking affects not just the person who receives the payrise; the more we see others receiving payrises, the more we feel left out if we do not receive one. This phenomenon, called “relative deprivation” is cited by Malcolm Gladwell in David and Goliath: staff in the Military Police had a far more positive view of their organisation than those in the Air Corps, despite the Air Corps having a much higher rate of promotions.

As Gladwell explains the Military Policemen compared themselves to other Military Policemen; if you got a promotion, it was such a rare event that you were very happy. By contrast, the achievement of those in the Air Corps in getting a promotion was less conspicuous than in the Military Police.

The ideal situation for a business is where pay rises are cheap for the provider (small, irregular, self-funded by performance improvements) and valuable to the receiver (not expected as an entitlement and highly appreciated).

Machiavelli noted much the same thing when he advised leaders to get all the bad news out at once, but to drip-feed good news.

Additional downsides from not making advancement in pay and responsibility sufficiently based on improved performance are:

-          staff are not made aware of their areas for development so do not work on the necessary skills

-          they risk being overpromoted, becoming lazy and reluctant to learn the new skills they need to operate at a higher level.

If these staff then become managers or even directors, their capacity to do damage is even greater since it is not only their own work that may be substandard, they are also in a position to hire substandard people and manage them badly. This leads to higher churn, lower performance and general disenfranchisement.

If the business allows this to continue, even in just an isolated area, others will start to notice and resentment builds up. Why doesn't management deal with the weak performer, people will wonder. At this point, the good ones will start to leave and the weaker ones will know they don't need to try too hard.

An underachiever is like a resource black hole; they suck in other people’s time and efforts to compensate for their own lack of ability. Those working for them do not do their best work and their managers have to check in on them more regularly because they are less reliable.

The opposite is the overachiever who frees up their manager, challenges peers to raise their game and gets the best out of everyone who works for them.

These are two extremes - the Golden Eggs and those Off-The-Boil; in any normal organisation, the middle 80% or so of people are Good Eggs, solid performers who need only a light touch to keep them doing well.

The Top 10% can be classed as Golden Eggs, the absolute stars of the organisation who are key to its success and who need to be prioritised for retention.

The Lowest 10% are the Bad Eggs; they can be either Off-The-Boil and need the help, support or just a firm prod to get their career mojo back, or they can be Rotten Eggs who need to leave the organisation for everyone’s good.

Better management of staff performance can lead to significant marginal gains, i.e. if you break down everything that goes into managing staff and improve it by even a modest amount, you will get a significant increase when you put it all back together. This in turn will lead to better agency performance and the ability to reward and incentivise top performers.

Top FD tips

-          ensure career advancement is meritocratic

-          ensure the success measures for career advancement align with your corporate objectives

-          ensure you have a really good view of who your best, middle and weakest performers are

-          career advancement should become a self-funding exercise for the business

-          the better you manage and develop your staff, the less churn you are likely to experience 

Last updated 24/09/2015

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