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Employee Incentives

Is there a place for profit or performance-related schemes in an industry such as print?

Many companies within the print industry operate some elements of performance related pay. Typically sales and senior management staff will receive bonuses based on achieving certain targets. However profit related pay tends to be limited to senior executives. There are a number of reasons for this. One is that a large part of the print industry is made up of owner managed businesses who are often coy about discussing profit publicly. In many cases it is simply that it can be difficult to relate the overall profit of the organisation to the day to day activities of individuals in various departments.

It is clear however that profit related payments can be a valuable tool for businesses; for example encouraging sales staff to stop selling on price, focusing on more profitable sales, or as an incentive to reduce waste in production.

Why has their popularity waned in recent years?

Certainly Profit sharing schemes were more popular in the nineties than they are today. I part this is as a result of the reduction and eventual elimination of tax relief’s.

Initially, tax relief was given on one-half of profit-related payments up to a limit of the lower of £3,000 or 20 per cent of the employee's pay in the profit period to which the PRP relates. The cash limit was increased to £4,000 in 1989 but the Finance Act 1997 provided that the income tax relief for PRP is to be phased out. It was eventually ended in 2000.

Other factors included the variability of the pay outs. In good times when companies were consistently out performing targets Profit share was popular. In tougher times perhaps owing to adverse market conditions beyond the control of individuals the incentive lost its appeal as profits tumbled.

The complexity of administration was also a factor for some companies. One company told us they had to devote a lot of time to payroll to ensure the payments were transparent and understood by staff. Even then there remained some mistrust. This in combination with the other factors led them to abandon the scheme early.

What incentives are proving popular in the modern business world?

Bonuses and performance related pay are still very popular. Typically applying to sales and managerial staff these are usually based on specific KPIs set for the individual, agreed with their manager, and can be as high as 40% of salary.

Non-essential company cars have been in decline for some time but now even sales staff are choosing opt out schemes in favour of company cars. Tax efficiency aside these opt out schemes are also popular for the freedom of choice of vehicle they offer. There is no doubt that cars as status symbols or objects of desire for “petrol heads” are still powerful motivators.

Pension provision has become ever more important in recent years. Final salary or defined benefits schemes remain the gold standard but are increasingly rare and companies struggle to meet their pension liabilities. With defined contribution or money purchase schemes being the order of the day the real debate now revolves around the level of employer contribution; typically in the range of 4% to 9%.

Despite high profile government reorganisation healthcare provision remains a concern for many people. Waiting lists still exist and the peace of mind provided by private medical insurance is very much sought after. Certainly at mid and senior levels it is almost obligatory for companies to offer private medical insurance. Provision varies from subsidised rate to full provision but there is no doubt it is becoming ubiquitous.

Less common but certainly available in some measure are options for child care, tax and legal advice and other day to day assistance measures.

A few employers are now offering “Pick and Mix” or points based systems whereby employees qualify for a certain level of benefits or points but are free to choose which of a range of benefits best suit them.

Are there any particular incentives that you would recommend?

In an industry with a large proportion of the workforce over half way through there working lives there is no doubt print employers need to focus on pension provision.

Training a development opportunities are key motivators and are likely to remain so. It is unfortunate than many employers in the print industry have been reluctant to invest in training for fear that staff will leave and the company will loose out. It is true that this can happen but there are measures which can be taken to avoid this such as requiring staff to pay back the training cost if they leave within a certain period of completing the training. This provides and measure of security to the employer and staff genuinely interested in improving themselves will not be put off.

In sales roles one of the difficulties in recruiting new staff can be that a successful sales person will loose out on the commission they have become accustomed to, whilst they establish their sales pipeline, in the initial months after joining a new employer. Some employers are addressing this, with significant success, by offering a lightly high basic with lower commission in the initial months which then reduces in favour of higher commission over a period of months.

It is clear that incentives based on profit rather than turnover are to the industries advantage. Of course this requires a good deal of transparency and clear communication internally so that everyone from the estimator to production and sales staff understand the costs and margins associated with the business.

Incentives and benefits have to serve a purpose. In some cases they may be a way of increasing loyalty in others simply a cost effective method of increasing the value of the overall package on offer to employees. There is no doubt however that whatever the motivation incentives have to work for both employer and employees to be effective.