more-arw search

Q&A Forum

Any first-hand examples of incentive programs driving revenue growth?

I am CEO/CFO at Taico Productions in New York. I attended "How CFO's are Driving Growth conference held at the Cornell Club Feb 22nd.  One of the concepts being explored by my company is the services of a vendor which provides the tools and incentive rewards system to motivate, engage and improve workforce performance. I posed the question if there is any real data available for CFOs that will aid us in deciding if using incentive programs can positivily drive top line growth and revenue.

The panel at the event was helpful but was not able to offer any first hand definitive information.

Any help would be appreciated.

Thank you

Tai Aguirre-

973 854 6253

taiattaicoproductions [dot] com

Answers

Ross Fuller
Title: Chief Financial Officer
Company: Ross DS Fuller CFO Services, LLC.
LinkedIn Profile
(Chief Financial Officer, Ross DS Fuller CFO Services, LLC.) |

My experience is that it is very difficult to structure an effective incentive plan. There is an almost impossible balance to strike between having a stretch incentive target (and not such a stretch that it is demotivating), having an appropriate corporate incentive target, and not diluting earnings.

Topic Expert
Lee Andrews
Title: P/T CFO, Business Consultant
Company: Pacific Bag, Inc./Other Clients
(P/T CFO, Business Consultant, Pacific Bag, Inc./Other Clients) |

My main client is a distributor/sales organization which relies on tight inventory management to balance meeting customer needs at short notice, without keeping too much excess on the shelf. There are some value added services in about half the business volume, and a small specialty manufacturing element on site. So we have several diverse goals in designing incentive programs to meet the overall corporate goals. We focus on only two numbers for incentive purposes. Revenues -- supported by tiered commission programs from the junior sales staff to the national sales VP. And EBITDA -- other managers, operational staff and execs are rewarded based on whether EBITDA meets an annual goal or close % thereof. So we have employees working on revenue growth and others monitoring the cost structure (bottom line). Any thoughts of bringing in more complicated ROI type incentive programs would make it hard to explain, to monitor and for employees to influence. Most employees would not understand such classic financial measures anyway and would feel that they are subject to smoke and mirrors beyond their influence. I feel that those types of measures (return on investment, cash flow, debt/equity ratios, etc.) are more for the CFO and execs to monitor -- and you could create more sophisticated incentives just for those folk to monitor such criteria. I would not use an outside vendor to implement such plans. We do it ourselves with good success, and we keep it simple. I have no other data sources to suggest, but incentives have worked well in this particular company -- the result is steady growth even through recession, strong EBITDA %, little capex needed, and debt paid down at accelerated rates.

Bryan Frey
Title: VP Finance/Corp Controller
Company:
(VP Finance/Corp Controller, ) |

I have used incentive programs at a few past companies that directly tie some revenue metrics to executive compensation. They have worked remarkably well and for the same reason you pay salespeople on commission: money moves people.

I understand Ross (above) may have had difficulty finding a tight "zone" in which to model payoffs, but that's just part of the game. Some companies have very predictable revenues and others have a high beta. Those are both addressable via good plan design and one plan certainly does not fit all.

All that said, I have seen many, many instances of the VP of Engineering, for instance, working really closely with sales b/c their bonus depended in part on the sales team hitting their revenue targets. Sure, they're supposed to do that anyway (that is, everyone at a company is supposed to work to maximize good outcomes), but the direct revenue target incentives seem to have a clear, extra motivational impact. It also gets folks focused. Every day there are a hundred things calling out for attention. If you directly incent a very few items, you will get much stronger pull towards those things.

I would add anecdotally, that I have rarely seen companies of any size without such incentive programs. Not to say the crowd is always right, but in this case, i think there is wisdom in crowds and past evidence of success.

Finally, who are we kidding, it just makes sense. Pay people directly for an outcome and you are more likely to get that outcome than if you didn't.

2906 views

Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email content@proformative.com to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.