Are incentive-based employment tools a good idea for your farm?

Regardless of the business you are in it seems that managers are constantly looking at ways to improve work performance with incentives and agriculture is no different.

It doesn’t matter the size of your farm, the number of employees you have, or the number of family (paid or unpaid) members working in the business. Everyone has something that motivates them.

I’ve included part of an article Sara Fogleman, Kansas State University, wrote about this topic. I hope you find it useful.

Send the Right Message

When it comes to employee compensation, most managers are busy asking: “What do I have to pay to ….?” That is not an easy question to answer. A better question might be: “What do I want my compensation package to say?”

Whether you realize it or not, it is already saying a lot. The benefits, bonuses and incentives your business offers speak volumes as far as your employees are concerned. Child care and health benefits say that you value family.

Longevity bonuses for employees on the anniversary of their employment with you says that you value employees who stay with the business. Throwing a party at the end of your business’s busy season lets the employees and their families know that you appreciate it when your people go the extra mile.

Bonuses, profit sharing plans and other incentives are amazing managerial tools, but they can also become a slippery slope if you aren’t careful.

Before dangling any carrots in front of your employees, make sure they lead your business down the right path.

Goal-Setting Theory

This theory focuses on motivating workers to contribute their inputs by meeting goals set to improve the overall performance of the organization. Ed Locke and Gary Latham, the leading researchers on this theory, suggest that the goals that employees strive to obtain are prime determinants of their motivation and subsequent performance.

The goal-setting theory suggests that to stimulate high motivation and performance, goals must be both specific (generally quantitative and measurable) and difficult (hard but not impossible to obtain). A survey of 1,010 people, conducted in March of 1999 by Wirthlin Worldwide, examined how respondents spent their most recent cash rewards, cash incentives or cash bonuses.

The results of the study highlighted the limited impact of cash incentives. Of those responding, the answers given to how the cash award was spent were as follows: Bills, 29 percent; do not remember, 18 percent; never received cash reward/bonus, 15 percent; gifts for family, 11 percent; household items, 11 percent; savings 11 percent; special personal treat, 9 percent; vacation, 5 percent; something else, 2 percent (American Express Incentive Services (AEIS).

In a survey conducted by AEIS, 17 percent of the American employees polled said they had received a year-end cash bonus. A full 32 percent of these respondents admitted that the cash bonus did not improve their work performance.

WorldatWork (formerly the American Compensation Association) found than noncash reward programs achieved three times the return on investment, compared with cash-based programs. A recent Incentive Federation survey found that, on average, 79 percent of respondents found noncash reward programs to be fairly to extremely effective in motivating participants to achieve sales and marketing goals.

Top reasons for formal employee Recognition by Employer: Length of service, 87 percent; above-and-beyond performance, 85 percent; sales, 43 percent; suggestions/ideas 36 percent; employee of the month, 29 percent; safety, 28 percent; attendance, 20 percent.

Tips for planning

It’s not about money … it’s about meeting the needs of your employees. It’s easy to think “dollars per hour” when thinking about compensation.

But an employer who develops a truly creative and successful compensation package understands that it’s not about money. It’s about meeting the employee’s needs. Most agricultural businesses are small, and most agricultural business managers think that limits their ability to create competitive compensation packages.

True, a business with three employees might have a more difficult time setting up a 401(k) or health insurance package, but small businesses have the opportunity to know their employees much better, therefore better understanding their needs. The success of compensation packages is not measured by the dollar cost to the employer.

The success of a compensation package is measured in how difficult it would be to duplicate those same benefits from a competing employer. This refers not just to cash wages but also to direct and indirect benefits, including such items as flexibility in scheduling or working conditions.

One of the biggest mistakes an employer can make is to make a large investment of time or money to initiate compensation elements that his/her employees do not need or want. Successful compensation packages are really total rewards systems, containing non-monetary, direct, and indirect elements all based on the objectives of the employer and the needs of the employees.

Some indirect compensation elements are required by law: social security, unemployment and disability payments. Other indirect elements are up to the employer and can offer excellent ways to provide benefits to the employees and the employer as well.

For example, a working mother may take a lower-paying job with flexible hours that will allow her to be home when her children get home from school. A recent graduate may be looking for stable work and also an affordable place to live. Both of these individuals have different needs and, therefore, would appreciate different compensation elements.

Businesses that cannot compete with high cash wages can offer very individualized alternatives that meet the needs of the people you want to employ. Such creative compensation alternatives are the small business’s competitive advantage.

Examples of indirect compensation include flexible working schedules, retirement programs, insurance (health, dental, eye), subsidized housing, paid leave (sick/holiday/personal days), subsidized utilities, tickets to events (ball games, concerts), magazine subscriptions, boots and clothing, laundry service, company parties, use of farm trucks, machinery, farm Produce/foods, and many other things.

Use right carrots

A compensation package is one of the most concrete ways in which an employer can communicate the mission, vision and values of the business. The benefits and incentives set in place by the compensation package will invoke certain responses from the employees.

An employer has to be certain that those responses match the objectives of the business. In other words, the employer has to be careful to “use the right carrots.”

So, is it worth the risk?

Should an employer instigate some type of performance incentive when there is a possibility that it will only create problems in other areas of the business?

The answer is, yes, it is worth the risk. The general consensus of recent studies is that pay should be tied to performance to be effective. The key is in finding carrots that don’t send the wrong message and making employees understand how their actions impact the entire business.

Successful managers must search for things the employees influence and base performance objectives on these areas. Your operation may benefit from the following: tenure bonuses for longtime employees, equipment repair incentives to encourage good equipment maintenance, or bonuses for arriving to work on time.

The more production information data your business has, the easier this is to accomplish. Measures such as feed conversion rates, somatic cell count, or mortality can offer great sources for performance incentives.

But, as always, be certain that those incentives send the message that you want your employees to receive. It may take a few tries to find the system that meets your objectives and your employees’ needs, but with good communication and an open mind, you can achieve great rewards.

Conclusions

Successful agricultural producers rely heavily on common sense when it comes to management decisions. The area of employee compensation should be no different. If you want your employees to be innovative — reward them for new ideas. If you want your employees to stay with you for a long time instead of training new employees every season — offer bonuses or tie their wages to their tenure.

If you need employees that show up on time, work hard, and can be trusted with the most challenging of tasks — recruit those people; reward those people; promote those people. The future of your business could depend on it.

(Source: Sarah L. Fogleman, Kansas State University Ag Manager Newsletter)

About the Author

(Chris Zoller is an agricultural extension educator in Tuscarawas County and a member of the OSU Extension DairyExcel team.) More Stories by Chris Zoller

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