First published in the May 2008 issue of HR Network Scotland.
Many a business owner has sat in his boardroom, looked over his accounts for the umpteenth time and muttered darkly to his fellow directors: “Turnover is vanity; profit is sanity.” What may not be so obvious to everybody else in the room is how to track down that profit.
New research by Icas, the professional body of Scotland’s accountants, shows one way forward. It supports the theory that profit performance is strongly and significantly related to the level of profit-related incentives which are on offer to individuals within a firm.
It confirms what most good employers know instinctively – that individuals perform better and have a meaningful impact on the bottom line when they have an intrinsic interest in both the organisation’s short term financial performance and its long-term prospects.
That much seems clear. How to achieve this alignment of interests not only in the upper strata of a firm but also in the lower echelons is considerably more problematic and calls for a cohesive, constructive and closely considered strategy involving HR, line managers and senior management.
In the professions, remuneration packages have changed out of all recognition over the recent past. In Big Four accountancy practices, for instance, it is not uncommon for new hires to be presented with a “shopping list” of benefits – including areas such as schooling, health and lifestyle – and invited to choose what they want up to a specified monetary limit.
Even for lesser mortals, however, benefits packages are now included as standard conditions of service which only a few short years ago would have been reserved for the firm’s most senior people – such as cars, well-funded pension schemes, health benefits extending to partners and family, travel loans and generous holiday entitlement.
The fact that most recruitment in the professions is now carried out almost exclusively by agencies which have a direct interest in continually enhancing packages – and that there is a well-documented shortage of suitably qualified candidates – means that remuneration costs are only going in one direction.
So, faced with such heightened expectations, how can firms further motivate individuals to a degree where their performance has a tangible and quantifiable effect on profits and the longer term growth prospects of the organisation?
With senior people, this is easier to achieve since they are likely to be party anyway to the finer detail of the accounts, the firm’s financial prospects and their personal input to the success of the wider strategy.
Further down the structure, however, it may not be wise or desirable for the details of the firm’s dealings and future strategies to be generally disseminated. But there is no reason why departments or people within individual departments cannot be given some insight into how the brick that they place in the wall supports others.
Effectively communicating the importance of an individual’s contribution to the greater good of the enterprise – and rewarding its success – is crucial to an incentivisation programme. In most instances, this can best be achieved by regular and relevant appraisal processes in which people’s objectives are clearly spelt out, measured and suitably recognised.
There are many tried and tested programmes such as Investors in People which can drive productivity by putting people development at the core of the business – and there are often substantial central and local government financial packages which can ease the cost of their implementation.
A properly thought out, funded and implemented incentivisation programme can deliver clear and obvious benefits not only to productivity and profitability but also to the more nebulous areas of employee relations such as job satisfaction.
This can, in turn, lead to quantifiable cost benefits from improved retention rates, lower sickness and absence incidence and even less likelihood of expensive and time-consuming employment tribunal actions raised by disgruntled employees.
It is important for professional advisers to be aware of best practice in these areas not only for the effect it can have internally but also for the enhanced experience and expertise it can bring to advice to clients in industrial and commercial sectors outwith the profession.
There is no dispute that profit is a powerful motivator. It is a happy chance if those engaged in its pursuit can distribute some wider benefit along the way.
Tony Sinclair is a staff partner at French Duncan, Chartered Accountants
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