Archives for June 2010

Team Bonus Structures

Considering a bonus structure for your team?

Employee bonus structures can be fraught with problems – but for the right person (ie a hungry and motivated high achiever) they can sometimes be an effective way to drive performance. The problems I have seem with bonus structures fall into four main categories:

1. Expectations are unrealistic. Bonus structures should of course reflect payment for a stretch beyond a reasonable expectation – but they should also be realistically achievable, or the result will be a person who doesn’t feel good about their achievement and who will ultimately become demotivated. It’s a delicate balance, and more often than not one of the parties ends up feeling aggrieved.

2. Where employees are rewarded for a particular KPI (for example, say net profit), it can be demotivating for that person if they don’t have control over what drives that KPI (for example – costs incurred in the business). A demotivated team member is certainly not what you’re looking for when setting up a bonus structure!

3. Where employees are rewarded for a specific KPI, they will be motivated to focus on that KPI perhaps at the expense of the big picture. For example profit for a given year may be maximised – but at the expense of marketing efforts in the last quarter. Potential result: A good bonus for the manager – but a problem for the business in the following year.

4. A person may make a great bonus in a particular month or quarter – but achieve below expectation in the month or quarter either side of that. If there is cash at stake, performance can usually be maximised in a given period – perhaps at the expense of the previous or following periods.

Here’s my advice if you are considering bonus schemes for some members of your team:

1. Think carefully about whether a bonus will genuinely motivate this person to up the ante in excess of what you already expect of them.

2. If the answer is yes, think about the drivers of profit in your particular business. Keep it very specific – such as “gross profit on sales made by that manager for the year” or if staff turnover is an issue you wish the manager to focus on, maybe “annual staff turnover under x%” – or perhaps “acquisition of new clients of at least $x per annum” is more appropriate in your case. Consider rewarding on these drivers rather than the likes of “net profit” – which may be a bit of a blunt instrument.

3. Ensure the KPIs are entirely within the manager’s control.

4. Make sure the KPIs you’re paying bonus on are annualised and cumulative so your managers aren’t rewarded for a great result followed by a poor one.

5. Ensure bonuses are conditional on achieving minimum expectations in all other aspects of their job – not just the ones they are rewarded on. Nothing will bug you more than paying a bonus to someone who cherry-picks the areas to put their efforts into depending on the cash bonus it will earn them.

In a nutshell, tread carefully – and remember that typically “you get what you reward”, so be very careful about quantifying what you reward. If you decide to head down this path, be sure to give us a call to help you fine tune your KPIs and incentive structures before you roll them out. Rebecca Brennan is our guru in this area.

Twitter … so what?

What practical use is Twitter?

Are its detractors correct in saying it’s a fad and a completely pointless waste of time? Perhaps. We have been using Twitter at Elevate CA for the past year – but in truth, our presence is mostly about being seen to embrace technology. Of course Twitter does drive plenty of traffic to our web site – in fact it is our single largest referrer. And we have picked up some good work from Twitter – but probably no more than if we had put in the same effort elsewhere.

I’m really not sure where this whole Twitter phenomenon is heading. Will it be past its peak in 12 months and populated only by late adoptors and armies of automated bots? Or will it continue to grow exponentially and become more entrenched as a mainstream communication tool? I can’t even guess the answers – but I do keep half an eye on the Twitter story as it evolves.

Here’s a story which probably adds nothing to the big Twitter question of “So What?” It gives a glimpse of the power of Twitter – but it gives no clues as to how that might be harnessed. I recently discovered TwitterScore >>> which ranks individual Twitter users according to some algorthym. And I soon noticed Lisa Ethridge, an Auckland Design student at Unitec who suddenly came from nowhere to become the 4th ranked Twitter user in New Zealand – with over 20,000 followers.

As an aside (maybe I should say “as a boast”), Elevate CA is ranked by TwitterScore >>> as New Zealand’s number 19 Twitter user with a community of 7,500 followers.

Back to Lisa – so how did she amass 20,000 followers from around the world in a very short time? It turns out the answer was as much a surprise to her as it was to anyone else – as you can see from this interview with Californian internet celebrity Leo Laporte.

Lisa opened her Twitter account in March – and posted her first tweet which went something like “I hate technology”. Fairly benign, but by that time she had just 3 people following her so she wasn’t out to impress.
At the same time, the hosts of popular US show “This Week in Tech” – Leo Laporte and Kevin Rose – decided to conduct a social experiment and encourage their listeners to follow a random Twitter user en masse. Kevin Rose searched on the random phrase “I hate technology” – and came up with Aucklander Lisa Ethridge’s brand new twitter account, which he proceeded to urge his viewers to follow.

Within minutes, Lisa Ethridge had thousands of people following her on Twitter – and had become an instant minor Twiter celebrity. She probably slept through it all initially – blissfully unaware. But as she had her “e-mail notifications” option ticked, Twitter sent her an e-mail every time someone new followed her. Imagine her surprise waking up in the morning to an inbox jammed with thousands more messages than her e-mail account would allow – and many thousands of geeks and tech folk watching her every move on Twitter!

So what? Who cares?

Well I don’t know, but I guess that’s up to Lisa. She now has an opportunity to say something meaningful (no pressure, Lisa) – and to be heard by the community of 20,000 people following her online.

I’ll be keeping an eye on this – as well as those bigger unanswered questions relating to Twitter itself: Like “So what?” and “Who cares?”

Was it debt or equity?

It’s unlikely there would be disagreement about this one, right? If a friend or family member has advanced cash to help your business through expansion or a cash flow glitch, it’s either debt or equity. It will always be obvious which, right?

Well not necessarily.

Here is a scenario that rears its head regularly – particularly in entrepreneurial ventures:

Your venture is in its early stages, and needs cash. You have exhausted your own resources – and the business is not yet an attractive proposition to the bank. Enter what many people call the “Three F’s” – friends, family and fools.

Your Auntie Margaret wants to help you out – and she generously agreed to advance $50,000 to your business. You graciously accept, bank Auntie Margaret’s cheque – and proceed down the rocky road to success.

Time goes on, and a few years later your venture may have been wildly successful – or otherwise.

Here’s what can happen next:

Just after you have successfully sold your business to a large competitor for several million dollars, you get the call from Auntie Margaret saying “Remember back when I invested in half your business? Well when do you think I can expect my share of the sales proceeds?”

Or in an alternative reality …

Just after you have closed the doors and liquidated the company after losing everything and grudgingly accepting that the venture was misguided or “ahead of its time”, you get this call from Auntie Margaret: “Remember back when I lent YOU $50,000? Well it’s gathered quite a bit of interest now – and maybe it’s time you started making me some monthly repayments.”

Either way, there has probably been a serious misunderstanding of the nature of the investment.

Friends and family are a major source of business finance – in fact US Angel Investor Bill Payne reports that in the USA, friends and family of business owners invest around US$60 billion per annum into businesses.

It is likely that a proportionate amount is invested into ventures by friends and family of business owners in New Zealand. And a characteristic of these advances is that they’re often not documented – and often the terms are not even agreed verbally, much less committed to paper.

So my message is this:

Make sure any investment by friends, families or fools is clearly documented – and that all parties are very clear about whether the investment is a debt or equity, as well as the terms of the investment. Is the investment a personal loan from Auntie Margaret to you personally – or is she lending money to the business? Does she expect her investment back if the business fails? Is there any interest payable? When does Auntie Margaret expect to see her money back? Has she invested in shares in the company which will see her rewarded if the business is succesful – but will see her walk away with nothing if it fails?

A one page signed agreement is often all you need to save a lot of anguish later.

Robinson Asphalts

Robinson Asphalts have been a feature of the Northland contracting industry for a long time. This is a genuine family business, with Peter and Joan Robinson establishing the business in 1972, holding the reins for 20 years and then passing the baton in 1992 by selling to the next generation – current owners, Alan and Annie Johnston.

The truth of many family businesses is that the generations following the founders often lack the fire and drive necessary to stay ahead of the pack. Sure, they may survive – but often only on the strength of the legacy left behind by the founding generation.

But that scenario couldn’t be further from the truth for Alan and Annie Johnston at Robinson Asphalts.

Contracting is a tough industry. The overheads are high with the skilled team, vehicles and specialised equipment necessary to do the job – and the tendering process is highly competitive with big players pricing projects to the bone just to keep the business working through lean times.

So what’s the secret to Robinson Asphalt’s continued success through thick and thin?

We reckon it’s all about Alan and Annie staying true to their values. We have all seen company “Value Statements” full of nice words – but in the case of this business, the team lives and breathes their values. What the Robinson Asphalts values boil down to are these:

• Always seeking continuous improvement. One only needs to spend an hour with Alan, Annie, or their key team members to see that four decades on, these guys still truly care about striving for incremental improvement their business. Their success at the Northland Business Excellence Awards in 1999 and again in 2009 confirms this.

• Being positive, loyal and considerate business citizens. You don’t have to look that hard to see the Robinson Asphalt’s brand out in the community – for example as major sponsors of the annual Allen’s Kid’s Triathlon and Northland Rugby.

• Ensuring there is a culture of employee involvement. A great business cannot be built by the owners in isolation from their team – and a big part of Robinson Asphalt’s success is down to the team buying into Alan and Annie’s vision for their business. Responsibility is delegated throughout the team.

• Demonstrating customer focused service. It wouldn’t be possible to survive long in this industry without being focussed on delighting the customer. But a visit to the Robinson Asphalt premises soon shows that this team is dedicated to meeting the needs of its customers.

In the case of Robinson Asphalts, their values statement truly is the cornerstone of their modus operandi – and it shows. And we believe that for Alan, Annie and the team this is the difference between mediocrity and success.

Check out Robinson Asphalts online here >>>

Motivating and rewarding your team

In July and August, the Business Owners Forum will discuss “Techniques and traps in motivating and rewarding your team”. We will be running this topic on 15 July in Whangarei – and again on 19 August in Auckland. On the agenda will be discussion around techniques to motivate and reward your team – and in particular ways to tie remuneration to performance, and some of the traps inherent in doing this. This will be a must attend session for any business owner who is more interested in fostering a high performance team than “managing staff”.

The Whangarei session will be at the Elevate CA offices on 15 July – and the Auckland session will be at a yet-to-be-confirmed venue on 19 August. Both sessions will run from 5:30pm sharp until 7:00pm. Here are the panelists:

David Grindle (Whangarei session only). David is a partner with Webb Ross Lawyers, who were awarded the New Zealand Legal Personnel Employer of Choice at the 2007 Law Awards. Webb Ross takes motivating and rewarding their team very seriously – and David has a wealth of great knowledge in this area gleaned through trial, error – and ultimately success.

Rebecca Brennan (Auckland and Whangarei sessions). Rebecca is a director of Elevate CA Limited – and is an experienced leader and motivator of high performing teams. Rebecca has a lead-from-the-front ethos – and a wealth of great coal-face experience including tips and potential pitfalls in tying remuneration to performance while maintaining a positive and energised culture.

Michael Masterson (Auckland and Whangarei sessions). Although today a director of The Bottom Line Expense Reduction Limited, Michael is a former serial CEO with a talent for building great teams and great cultures as a strategy for achieving competitive advantage in large organisations. Michael has a keep-it-simple ethos, and will share some enlightening and entertaining war stories from his journey.

Jim Huse (Auckland session only). Jim is a Business Psychologist and director of Huse Hill Associates, whose modus operandi is to help connect an organisation’s people to its business plan through a convergence of psychology, technology and business objectives. Sound technical? Well come along to the Auckland session on 19 August and hear Jim’s unique take on this topic.

As always for Business Owners Forum events, this session will be free of charge, free of “sales pitches” – and will be targeted to owners of businesses turning over $1 million or more per annum. And there will be pizza, beer and wine to lubricate quality discussion.

Invites will be circulated to the Business Owners Forum e-mail list in early July. If you’d like to be included on that list, just contact Fraser Hurrell >>>.

And for a sneak preview of the upcoming Business Owners Forum topics right up to February 2011, click here >>>.

Fraser Hurrell is one of three directors of Elevate CA Limited, Chartered Accountants & Business Advisors in Whangarei, New Zealand.