Stephen Cowburn | UK Business Advisors

In my experience of working with MDs of their own companies over the last 14 years it doesn’t take very long before they start talking about why they set up their business, what is important to them in running the business and keeping it solvent/profitable, the differences that exist between them and other Directors and shareholders or conversations that start about a manager who just doesn’t get it.

There are many insightful stories and anecdotes. Passions and frustrations run high in equal measure.

So in a very conversational way, the values of the MD become very clear i.e. what really matters to them. With a bit of gentle probing, it doesn’t take a lot to get an MD to define the behaviours that enable success in their business. ‘If only people did this, we would be even more productive.’

When the MD set up the business, working with a small team, direction, focus, consistent behaviour was all a lot easier because everyone could see what was happening, everyone was involved in decisions and incompatibility was pretty self-evident to the MD such that things could be sorted out quickly following the unwritten rules of the game.

As a company grows, perhaps there are more Directors/shareholders, or managers hired to do more specific roles and lead teams. Different pressures, perspectives and personalities can play havoc with individuals pulling together. ‘So long as l do my job and make money my boss/the boss should be happy.’

It is particularly at this stage that clear values and behaviours can help the MD align people around what the key success factors are for the business, and how people need to behave in order to deliver success.

Cynics say that values are typically motherhood and apple pie statements. Out of context they might be. They can however be grounded by clarifying the behaviours required to deliver success.

Clarification is only the start point. Behaviours then need to be operationalised into recruitment, performance management, promotion and reward processes and training decisions. 1-1 conversations and meetings need to reflect these behaviours. People need to be able to call out breaches in desired behaviours without fear of recrimination.

So to values-led MD owners, if you want a conversation on how to align people around the company’s values and how clearly defined behaviours can boost growth in your business, then contact stephen.cowburn@lgbusinessadvisors.co.uk

This is one of the areas we cover in our TwentyTwenty Insight business review process, where we provide a snapshot of the health of your business with suggestions on what you might do next in terms of growing your business. If this is of interest then again please contact stephen.cowburn@lgbusinessadvisors.co.uk

In the last newsletter we talked about what to do about awarding a Xmas bonus. [If you missed it click here to find it] Now we talk about putting a bonus scheme into place for 2019.

If your financial year-end is say March, the next few months could be a good time to develop and trial a scheme before launching it in April.

What should l incentivise people on?

The profitability of the business is a simple way to measure business success. If there is a large minority of support staff then you might also consider cost-savings/efficiency savings as being the other side of the profit coin.

You might be tempted by the achievement of individual objectives. Our general experience in the SME space is that staff appraisals don’t happen consistently enough so we wouldn’t recommend a performance pay system based on the achievement of individual objectives, as MDs usually haven’t the infrastructure in place to make this watertight.

What do l need to do first?

You will presumably have a business plan and a budget. Interrogating the likelihood of achieving a sufficient profit to be able to afford a profit-based bonus is the first step. If your assessment is that the profit figure is going to be insufficient consider the criteria for your top people as a pre-cursor to offering a wider profit-sharing scheme.

You need good data so you need accurate monthly management accounts to monitor profitability and to be able to communicate progress easily, to your management team and then staff, post launch.

You may have bespoke software if you run a sales based, or project-based, organisation enabling quick assessment of profitability if looking to incentivise individuals.

If you don’t have either of these, this is the immediate focus. Inaccurate data is guaranteed to lead to issues later on – employees will think one thing, you as MD will think something else and trust and credibility will dissipate in the event of misunderstandings or disputes.

Anything else pre-launch?

Test the model you are proposing. Does the maths work? Are there any unintended consequences? Are there grey areas? (if so tighten the scheme up). Will it clearly drive the behaviour you are looking for? Test it with other Directors or advisors to ensure the outcomes you seek and that the wording is clear with no ambiguity.

Plan the communication – what are the goals? What are the rules going to be? (For example, is there to be a hurdle rate before any bonus is paid out? What are you going to offer joiners or leavers within the period of the bonus scheme?)

Use worked examples so people can see what needs to happen to qualify for a bonus and how the scheme is going to work in real life.

Rather than say there will be a predetermined formula for distributing a fixed percentage of profits, we would suggest an approach where there is a company profit threshold below which no profits will be distributed and that there will be maximum limits set on the proportion of profits that will be distributed (say 5%) and/or the percentage of salary that will be distributed as a profit share (say 10%).

Having launched, what do l do then?

Regularly communicate performance at monthly management meetings and provide a general status update (verbally) to all staff on company performance ideally quarterly. The purpose here is three-fold:

To manage expectations if performance is below expectations
To give people a steer as to what needs to be done to get back on track.
To encourage staff retention by communicating the likelihood of a bonus pay out

Ensure that you pay the bonus when you say you will.

A chunk of our work comes from resolving disputes between employees and the Owner. It usually comes down to poor wording or a misunderstanding on how to get a bonus. The scheme rules are important but they need to be watertight pre-launch. You are likely to run into trouble if you try and change the rules midway through the year because of ambiguous wording.

So wherever you are in your business cycle, and whatever you want to do, if you feel the need for a fresh, neutral pair of eyes give us a call for an initially free consultation.

Contact stephen.cowburn@lgbusinessadvisors.co.uk or 07974 425361, for a focused discussion.

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What should l incentivise people on?

What do l need to do first?

Anything else pre-launch?

Having launched, what do l do then?