Incentives: The Good and The Bad

The people in your business (you and your team) are the ONLY ingredient to your success that cannot be copied by your competitors (or at least until human cloning becomes a done thing). Due to this, and simply because finding new staff is a time consuming and painful process, the advantages of incentivising to motivate performance and retain staff is common place in trade businesses.

Most of the trade business owners we speak to use the term “incentives” to describe the financial bonuses they reward their tradies for success in processes such as upselling or reaching targets. What many don’t realise is that “incentives” is an overarching term for countless techniques that businesses, small and large, use to motivate performance and retain staff. These techniques can be divided into two categories – financial incentives and non-financial incentives. Like most aspects of business, incentives have associated risks accompanying their advantages.

Financial Incentives

Bonuses, commissions and pay rises are all common forms of financial incentives used in trade businesses. Financial incentives are awesome because they give staff something to work for, provide instant gratification on accomplishments and can almost immediately spur positive changes in staff performance.

Despite this, the benefits of financial incentives have been matched with criticism. Personally we use financial incentives in our own plumbing business and see huge benefits, but like all business decisions, we must acknowledge the potential downfalls of doing so.

What to consider when implementing financial incentives

Financial incentives can:

  • – Narrow staff focus leading to high performance only in areas that will bring reward and poor performance in areas that aren’t incentivised
  • – De-motivate staff when goals resulting in incentives are marginally missed or when fellow staff are reaching goals and getting incentives whilst others aren’t
  • – Forms a transactional relationship where staff don’t work hard through genuine commitment but instead work for the reward. When a transactional relationship is formed staff will do the bare minimum, they are unlikely to put their hand up for afterhours and they have a high risk of finding work elsewhere since they are only interested in the financial incentives, and any of your competitors can offer that.

Non-financial Incentives

The use of non-financial incentives in trade businesses have two extremes…
Extreme 1: They are simply considered unimportant by trade business owners and ignored
Extreme 2: They are actions that trade business owners will do naturally and relentlessly, most of the time not even realising that they are giving their staff a non-financial incentive.

Non-financial incentives include growth opportunities, recognition, autonomy, flexible work hours and job enlargement (giving a staff member increased responsibilities so that their job is more challenging). Since most of these non-financial incentives have the ability to enhance job satisfaction, they intrinsically (internally) motivate staff to perform and to remain committed to their job and the business they work for. However, as with financial incentives, non-financial incentives have some associated risks.

What to consider when implementing non-financial incentives

Non-financial incentives can be:

  • – Less effective at increasing output, for example increasing the amount of bricks laid in a day because the reward is often seen over time rather than attained immediately like in financial incentives
  • – Often misused by business owners through neglecting to link the non-financial incentives to the goals of the business. All incentives, both financial or non-financial, must further the strategic interests of your business. For example, upskilling a tradie provides them with motivating growth opportunities but also enables you to re-delegate work strategically through your business so you can work less on the tools and more on the business.

So, what’s best? Financial or non-financial incentives?

Answer: Both are best and neither is better than the other…
Use a combination of financial and non-financial incentives in your trade business. This will ensure that you are addressing the various interests of all staff members and balancing out the pros and cons of various incentive methods.

What next?

The next step for you if you want more is to…
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