This is an Entrepreneur.com article written by Matt Garrett
Unfortunately, some of my worst decisions involved hiring the wrong employees. That said, some of my luckiest decisions, have been hiring the right employees. A bad employee will set you back months, if not years, and a good employee will pay for themselves tenfold.
So the real question becomes: How do you get the best performance out of good employees? Some would argue you just hire the right people and get out of their way, but I would submit that’s not enough.
Employees, even the brightest ones, need to be set up for success. That requires putting goals, systems and processes in place for them. My experience also tells me that people react well to incentives and no employee, regardless of their talent and drive, will succeed in a poorly architected or maintained business.
All of this boils down to the fundamental principle of ensuring that business goals are aligned with employee performance standards. Doing so can quickly turn average employees into good ones and good employees into great ones. It’s something I’ve been working on at my own firm as we grow and these rules are transferrable to other companies.
So with that, I offer you my four rules for aligning individual employee goals with that of your business:
1. Use a business model that outlines company profit by employee. Here’s what I mean: At my company, TGG Accounting, we sell accounting services through trained professionals who control their schedules, billable hours and the quality of service. We control their base salary costs. Understanding this, I set minimum standards for quality and performance that lead to a minimum 45 percent gross profit. I control the fixed costs, and I keep them below 35 percent. Therefore, my firm is set to make 10 percent or ten cents of every dollar my accountants bill.
Here is our business model:
$1 of revenue – $.55 of accountant costs to deliver our services – $.35 of overhead costs to support our accountants = $.10 of profit per employee.
2. Set appropriate standards of behavior. This is important because certain standards may not be applicable for specific employees. In my case, I only want to judge my team members based on things they can control. For TGG Accounting, that means judging how well our accountants control their schedules and the quality of the work. Those are the two standards on which they are judged. To that end, I cannot gauge my accountants’ profitability based on overhead costs or new sales.
3. Tie performance standards to compensation. My accountants make a base salary that is barely enough to pay for their living expenses. They receive monthly performance bonuses for hitting minimum gross profit and quality standards. This bonus is strictly designed to reward excellent behavior. Then, my accountants receive something we call “The Big Bonus” for excellent client results. Each of these bonuses is designed to reward behavior that is within their control and directly in-line with the best interests of our clients and our business.
4. Track and publish results. I view each employee is a profitable unit. However, the entire organization must function together to hit our goals. By tracking the results of performance closely and publishing them publicly, positive peer pressure emerges and peak performance is reached.
At this point, you may be thinking, “That works great for a service business, but my business is different.” While each company is different, all organizations need employees to support their company’s overarching strategic goals. There is always a way to provide the right business architecture and incentives to your employees.
Regardless of industry, all companies are basically going after the same thing: Provide something that someone needs at a profit. You need your employees to be aimed at the same thing.
This article originally ran on Entrepreneur.com on 09/09/2013: Read more: http://www.entrepreneur.com/article/228242 For more Entrepreneur.com articles written by Matt Garrett, visit this link: http://www.entrepreneur.com/author/matt-garrett