Jul
22
Written by:
Moyle Consulting
Friday, July 22, 2011 3:48 PM
I frequently read articles and listen to speakers at seminars who state that for New Zealand to raise its standard of living we need more small, New Zealand businesses growing to become large, innovative, export focused, globally competitive companies. With a few more Fisher & Paykel Healthcare’s, Rakon’s or Weta Digital’s, we could improve our economic performance and make New Zealand a better place to live.
Even a small amount of growth across New Zealand’s SMEs would have a significant impact on our economic performance. By recent measures, the sector contributes 42% of total economic output (according to the Ministry of Economic Development SME report).
The Government has dedicated resources to helping achieve this growth. What seems to me to be missing in the considerations is how to manage reward for the achievement of results.
According to our 2011 Moyle Consulting CEO Survey, only 47% of CEOs of private sector companies with fewer than 30 employees received some form of performance pay (incentive, bonus, commission, profit share etc.) This compares with 67% of those companies with 30 or more employees. Of the SME CEOs who did receive some form of performance pay, it was typically only 17% of base salary, compared with 34% of base salary for those in companies with 30 or more employees.
I believe this valuable tool to drive growth and productivity is being under-utilised in the SME sector. Discussions with clients in these companies confirm this is the case.
It’s true, it’s not easy to get it right, and you’re better off with nothing rather than having a poorly designed scheme (and we’ve seen plenty of shockers). Many SMEs don’t have the expertise within their management teams or boards to develop a scheme that is going to benefit the company and the individuals. Something thrown together by well intentioned managers without the expertise can have a devastating impact that lasts for a long time.
Some companies claim they simply can’t afford to pay bonuses – especially start-ups where cashflow is tight and the owner/managers survive on the bare minimum drawings from the business. But what drives these people is the belief that one day - and it might be years off - they will be able to reap significant rewards from their endeavours. Surely if that works as a motivation for the owners, it can be shaped to work for key people who are supporting them?
Incentive schemes, especially long-term incentives (anything with a timeframe of more than a year) are not just the domain of large corporates. And it may not even require giving ownership in the company - there are other tools that can be used to get employees thinking and operating like owners.
I believe ignoring incentive pay is missing an opportunity to take the business to the next level. Done right, everyone wins, and SMEs can make an even bigger contribution to the overall performance of the economy.
Moyle Consulting and Deloitte have just launched a new survey focused on ‘Succession, Ownership and Pay’. It will examine the challenges facing private businesses in managing these issues with their senior managers. We invite you to participate.