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For more information contact Lynn B. Keefer, president of Sterling Design, (St. Paul, MN) at (888) 723-2410 or via www.sterlingdesign.com.

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The age-old WIIFM (What's In It For Me) syndrome is one of those human issues that is present all of the time, hard to quantify and changes like the wind. The words What's In It For Me are typically unspoken, yet they manifest themselves subconsciously in the minds of individuals and play a clear role in decisions for management and employees alike. It's about people and their expectations - real or perceived. Although WIIFM tends to surface into the spotlight for most companies in times of a tight labor market, experience tells us that it is ever-present.

For employees, the baseline is usually related to their personal goals and aspirations (see Figure 1):

• How will this help me with my career, my personal life and professional growth?
• How will this make me more valuable?
• Why should I take on that project?
• Why should I go the extra distance to satisfy this customer?
• Why should I fill out the paperwork for this job?
• Why should I stay at this company?

Figure 1: Each individual evaluates decisions and results using two separate elements: the personal element and the organizational element.

For management, the basis is both personal and the organizational in context. (How will this improve profit, throughput, operations, revenue or quality?) Management personnel have another responsibility in this area - they must lead each employee through a process that will help that employee develop a satisfactory answer to WIIFM based on the employee's evaluation criteria. If management does not perform this leadership function, significant issues related to productivity, quality, falling margins and turnover are likely to develop. Often it's labeled attitude problems! Listen for the symptoms of missing leadership and you'll hear comments like:

• How do I motivate these people? We pay them top dollar and yet we don't see the corresponding results. What do I have to do?
• Finding good people is one of our biggest challenges! The labor market is so tight that our own people can go just about anywhere and get more money. How do we deal with this?

Figure 2

The key for management is to establish a link between compensation and an organizational measure. The obvious measure is profit because it is the employees who create profit and profit is the source from which raises in pay and benefits are allocated.

One could argue that the traditional method of granting more benefits and raises in pay are already tied to profit. This is true on paper. Unfortunately, the linkage is usually not fully understood, the measures are arbitrary and the allocations to individual employees are subjective. Management decides that they can allocate a certain amount of annual profit dollars for increasing employee wages and benefits and then subjectively decide who gets what. This allocation is done at a formal annual performance review.

Experience shows that while employees look forward to the performance reviews, in fact these reviews have a high negative impact on productivity - 15 to 20 hours of lost productivity per performance review (per employee) is not uncommon. If a company has 50 employees, performance reviews can cost the company one thousand hours of lost productivity. This equates to some very large dollars when one considers the lost opportunity factor, late delivery factors and potential quality issues.

Why does this happen? The answer has to do with expectations. The employee's expectation is always higher than that which is illustrated by the raise in wages. If the average shop wage is $15.00 per hour and the average raise is 50 cents per hour, we are telling the employee that the work they performed during the last year was worth only three and one-third percent. Maybe this is what other shops are doing. So what! At best it is a cost of living allowance (COLA). So what was the amount allocated for performance? Remember these are performance reviews.

What are we saying to these people? "You are one of the most skilled people that we have - atta'boy - BUT!" Refer to the Life Wheels in Figure 1. All of the changes happen first on the personal side - the raise in pay provides a small short-term increase in satisfaction in the Financial area. The review, however, has a negative impact in the mental area - a self-worth issue. This in turn impacts Family and - depending on the individual and the intensity of the difference between expectation and the review - can negatively impact all of the other areas in the personal element.

Now the employee must go back to work. What's the probability that there will be positive influences in the six elements in the organizational side of the Life Wheels? Bingo!

Annual bonuses can help, but by far the most effective approach to compensation that creates win-win scenarios is some form of profit sharing supplemented with personal, regular communications regarding individual and group performance.

Several of my clients have introduced compensation programs that tie all performance increases directly to profit. A raise in salary is granted when new skills are acquired by the individual. There is no COLA. There are no formal three-, six- or 12-month performance reviews.

Here's how a typical program works.

1. The profit sharing is based on Profit Before Tax (PBT) and allocations. Typical allocations are fixed dollar amounts for a debt reduction, owner return on equity (ROE) and a catastrophe escrow.

2. The residual profit dollars (after allocations) are split between the company and the employees - Typical splits are 60 percent - 40 percent or 70 percent - 30 percent.

3. Fifty percent of the profit sharing earned each quarter is paid to the employees as bonuses (i.e., subject to taxes). The other 50 percent is held in an accrual escrow until the end of the year as a safeguard for risk. At the end of the fiscal year, all accounts are settled. Thus, the profit sharing bonus distribution at the end of the year includes the monies for fourth quarter plus the unused accrued escrow. Note, during the year the risk escrow account can only be used to offset the lack of profit that is needed to fund the allocations (i.e., ROE, debt reduction).

4. Each employee receives the exact same amount of profit distribution regardless of job position, title, or seniority. Owners do not participate in the profit sharing. This has proven to be an effective tool for increasing teamwork and solidifying common purpose. Distributions that are based on salary or position or responsibility set up an arbitrary class system. It pits one employee against another and one department against another. In this environment, one of two results may occur: (1) employees tend to spend more time worrying about themselves and their rear end than they do about the source of all revenue - customers; or, (2) they totally retreat and refuse to be a player (nor a producer, "it's a job").

5. Special management-discretionary company awards such as an innovation award are presented as appropriate to employees at any time for exceptional achievement beyond the call of duty. The award can be money, a trip, a night of the town or any other form of tangible recognition. The award can be presented to anyone in the company except an owner.

6. Employees receive a raise in base salary for new skills that add value to the company. Note: a college or technical degree doesn't necessarily fulfill this qualification - It must be a skill that the company needs. For example, if a pattern maker can do detailed tool design - that employee has added value.

A few cautions:

1.These types of profit-sharing programs must be introduced to the employees in a way that stimulates entrepreneurial thinking. Thus, the fear factor (e.g., fear of job loss, wage freeze perception) must be handled with kid gloves. This calls for true leadership by management as trust is on the line. If not, negative results can accrue quickly because safety and security needs are perceived as being threatened - the key word is perceived!

2. Profits that are shared with employees in the form of bonus checks should be handled as distributions and not - repeat not - folded back into cost of goods or general and administrative expenses. When they are folded back (on the Income Statement), they do two things:

• Inflate the bid rates and progressively make the company less competitive; and,
• Try to get new customers to pay for profits distributed to employees.

4. Profit sharing bonuses can be risky! If bonus checks are distributed quarterly, the company may end the year with a negative employee balance. Recapturing lost profit from wages is not a viable option. At the beginning of the year, all accounts must be zeroed and the process starts over.

5. When new equipment is purchased, the accounting method of handling depreciation on a monthly income statement can have a major swing in profitability. There are several methods for entering this information and the method chosen can greatly impact profit sharing payouts - Talk to your accountant about the options.

Historically, if employees don't know the ramifications of purchasing new equipment, they tend to see this as "management" gamesmanship. You are likely to hear that there are two sets of books - another trust issue. The key is no surprises - to the employees. Whichever accounting method is chosen, the employees must fully understand the impacts of new equipment purchases (or capital leases) up-front before the equipment is acquired.

What about the stockholders? If each employee is becoming a millionaire, the stockholders are probably becoming billionaires. In actual fact, it is a win-win-win-win situation: The customers win, management wins, the employees win and the stockholders win.

Compensation is another test of leadership. It's about trust, hope and building a foundation that allows every employee to reach for his or her own personal dreams. Combine a dynamic profit sharing program with frequent feedback and nurturing by management and the entire staff will soon develop a sense of control of their own destiny, be focused on company business goals, and start to think about the ramifications of their work as well as that of their associates. They essentially answer the WIIFM question for themselves. Profit is no longer a dirty word. When this is done, all six elements in both the organizational and personal life wheels are constantly reinforced and nourished throughout the year and innovation, pride and strategic thinking replace WIIFM as the mantra. Imagine what can happen when all of the employees are as excited about the growth and profit goals of the company as the CEO is committed to achieving them!