Self Actualization and Self Esteem are the Highest Order of Incentives

Frank C. Hudetz

Mr. Hudetz is chairman and CEO of Solar Press, Inc., a direct mail and packaging printing business in Naperville, Illinois.

No matter title, seniority, or salary -- every employee wants to be recognized. It's our human nature to want appreciation for our efforts. There's no question that a sincere thank you at the right time from the right person works to build self esteem and motivation. Responses to thank-you notes I send annually on managers' employment anniversaries, always remind me just how powerful an incentive the short verbalized or written thank-you can be.

So, yes, rewards and recognition expressing appreciation do work as incentives. Still, I have to qualify my "yes," by saying as Alfie Kohn does in, "Why Incentive Plans Cannot Work," (Harvard Business Review, September-October 1993), it really depends on what you mean by "work." Some incentives work short term; others work long term. From my own experience, I can honestly say only long-term, team-building incentives have truly contributed to Solar Press's growth.

Cash bonuses for top sales, McDonald's coupons for increased production, employee-of-the-month parking, and even free vacations, however appealing and motivating, are all short term rewards, and, by the same token, short-lived incentives. With this kind of incentive, too often the reward itself becomes the focus. When it's gone, so is the incentive.

"Do rewards motivate people?" Kohn says, "Absolutely. They motivate people to get rewards." In the process, such a misplaced focus may be counterproductive to the whole corporate philosophy.

Important aspects of a company's mission are lost when the focus is on rewards; and the essentials -- improvement, innovation, quality, craftsmanship, teamwork, customer focus -- end up secondary to the reward. Furthermore, according to Kohn, the fallacy of expecting incentives to solve such organizational problems as inadequate training, rigid hierarchies, inadequate communication, failure to collaborate, and burn-out is widespread in the corporate world.

Short-term rewards may also prove counterproductive if they're perceived as a kind of paternalistic, token thanks. From that perspective, a well-intended incentive can actually demean the very effort it attempts to reward. Consider, for example, an administrative assistant who routinely spends 50 to 60 hours a week at her job because she finds her work challenging and prides herself in its quality. A $25 employee-of-the-month gift certificate and a month of front parking in appreciation of her efforts are hardly equal to her consistent commitment of time and energy. In fact, to some extent, they actually demean her contribution and ignore the intrinsic motivations that are the real incentives behind this performance. And, what about all those who are not rewarded? In effect, by omission, they are punished for lack of performance.

Unlike short-term incentives that may actually prove counterproductive to morale, long-term incentives tied to company philosophy can prove worthy of the highest employee performance and actually build intrinsic motivation -- the highest order of incentive. This is the kind of incentive that drives every valuable employee. Company-paid education and training, career advancement opportunities and counseling, open communication, involvement in decision-making, meaningful work, quality health insurance, improved work areas and lunchrooms, child and senior care programs, retirement and investment programs, company stock ownership -- these are more than token rewards. They're equal to the commitment of valuable employees, and, together with verbalized appreciation, they say loud and clear to all employees, "Your contribution is highly valued and your quality of life matters to this company."

Such across-the-board incentives also recognize the whole team rather than singling out departments or individuals and omitting others. Two years ago at Solar Press, low health-cost premiums company-wide allowed us to provide eye insurance at no additional cost. This new benefit was tremendously appreciated, and the fact that it was the result of employee achievement in keeping premiums low was communicated to everyone. Pride in accomplishment and team achievement, the long-term byproducts of this reward, will keep on motivating.

Tom Peters makes this point in Lessons in Leadership, when he grades American companies "marginal" in the area of incentives and says giving everyone a stake is the best incentive. Those incentives that align with organizational and individual goals by treating employees as partners in both the risks and the successes of the business recognize and reward in a manner equal to the intrinsic motivation behind their contribution.

An equally important incentive involving this partnership is a role and voice in decision making, which empowers employees. At Solar Press, an Employee Stock Ownership Plan and employee-elected trustees provide employees a 30 per cent ownership and voice in the company. Annual ESOP meetings and quarterly communication with employee shareholders educate and involve all employees in decision-making affecting policy, operations and the bottom line.

Training is another incentive that, long-term, becomes an intrinsic motivator. I'm reminded of the adage, "Give a man a fish and he eats for a day; teach a man to fish and he eats for a lifetime." I believe most employees at Solar Press value training and advancement -- incentives for a lifetime --more than they value incentive cash and gifts. Our training department maintains a full schedule of production training, basic math and communication courses, computer classes, and upward mobility counseling, and these courses are always full. It's said that learning is its own reward. And what could be a more powerful incentive?

I have to agree with Chrysler General Manager Tom Staffkamp, when he says "Greed is a great motivator." However, based on our experience at Solar Press with incentive plans that didn't work, I'm certain greed is not an attitude we want to encourage. It feeds on competition and destroys the team with divisive rewards.

We've come a long way in our thinking since our first incentive plan at Solar Press. The first official incentive program was very casual, even paternalistic. In the early years, my father (company founder John F. Hudetz) would hand out checks -- usually $20 to $60 -- with everyone getting the same amount. The problem was: employees didn't really know what they were being rewarded for.

When the company reached $2 million in sales, we tried a better-defined program. Employees were assigned to specific machines and divided into work teams of four or five. The more a team produced during a given month, the bigger the bonus for each member.

This new incentive system had an immediate effect. Packaging machines ran faster than ever as employees jockeyed for larger and larger payments. In many cases, production doubled. In good months, team members in the top group would see bonuses of about $250, while their counterparts might receive a quarter of that. Because of the pressure to produce, however, other problems occurred -- such as machine breakdowns caused by a failure to carry out regular maintenance -- and an increase in injuries. It became apparent that this incentive program was actually counterproductive. Not only had it become an administrative nightmare -- even worse -- it set off rivalries among departments and individuals.

Today we have an across-the-board gain-sharing plan. The company rewards everyone for bottom-line results, according to a clear-cut formula; every year, management sets a target for pre-tax profitability based on market analysis and manager input. Assuming the company exceeds the target -- and the numbers are openly discussed within the company -- 25 per cent of the incremental earnings in excess of the profit target goes into a bonus pool. The pool is then divided in relation to a person's earnings during the previous quarter. If, for example, an employee earned 0.5 percent of the total payroll, he or she is entitled to 0.5 percent of the bonus pool, modified by two factors: it takes two years to become fully vested in the program, and unexcused absences or tardiness can shrink a bonus check. Payouts are made each July and January based on the previous six months' results.

This current system is the best so far -- it's simple to understand and emphasizes teamwork and interdepartmental coordination. Our incentive program is still evolving. Solar Press is committed to long-term reinvestment; hiring, training, and retaining valuable employees; replacing hierarchical management with workplace autonomy, empowered employees and team production. We know our incentives need to be aligned with these long-term goals for the well-being of all our stakeholders: employees, customers, shareholders, vendors, and community.

I'm confident we have put the focus in the right place. I'm also inclined to agree with Alfie Kohn when he advises, "Pay people well and fairly; then do everything possible to help them forget about money ..." Our current profit-sharing, together with long-term incentives that work toward achieving our goals, comprise our current and best incentive program to date.