Accounting & Finance

Business Owner's Guide to Profit Planning

Owner's Guide to Profit Planning

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Making Rewards Work

Article courtesy of SBAM approved partner, AdvanceHR

At least two dozen studies over the last 30-plus years conclude that people who expect a reward for doing a job do not perform as well as those who expect no reward at all. If this is the case, why are so many employers still using incentive programs?

Steven Kerr, vice president for corporate leadership development and chief learning officer at the General Electric Company (GE), explored this subject as editor of the book Ultimate Rewards -- What Really Motivates People to Achieve.

If so many managers are in search of the right motivational rewards, why do they so often fail? Most would quickly agree that the "Carrot and Stick" is the dominant philosophy of motivation in America. Picture in your mind the carrot and the stick, what is the central figure in the picture? Most often it is a donkey. The resulting attitude is that management is dealing with someone who must be manipulated and controlled. Is it any wonder these programs lack the desired results.

Do rewards work?
The answer depends on what we mean by 'work.' Research suggests that, by and large, rewards succeed at securing one thing only: temporary compliance... According to Kohn, incentives in the workplace simply can't work."
- From Ultimate Rewards: What Really Motivates People to Achieve

Alfie Kohn, a contributor to Ultimate Rewards explained it this way: Punishment and rewards are two sides of the same coin. "Do this and you'll get that" is no different from "Do this or here's what will happen to you." Not receiving an expected reward is the same as being punished. Whether the incentive is withheld deliberately, or simply not received by someone who had hoped to get it, the effect is the same.

Kohn also asserted: Forcing people to compete with each other for rewards and recognition can destroy co-worker cooperation. For each person who wins, there are many others who carry with them the feeling of having lost. The more the reward is publicized, the more detrimental it can be.

Rewards should be capable of promoting both equity and efficiency, equity meaning the reward is approximately related to job performance. Rewarding for efficiency is often thought of as paying for past performance, but may be thought of as invigorating future performance. Keep in mind that most incentive programs also hold clear potential for enforcing dysfunctional behavior as well. For example, a reward for personal initiative may discourage teamwork. Or a reward granted to someone perceived as less deserving may illicit a negative feeling among the most productive.

Sometimes being a large company is more of a hindrance than a help. Companies that have finances available for financial rewards often overlook the non-financial rewards. Those companies that do not have the money to give financial awards often use non-financial rewards and often have better results.

Many employers are having success with team rewards. Kerr pointed out that "teams are made up of people...any reward that you can give to an isolated person you can give to a team, with the probable exception of promotions."

Most managers assume that money heads the list in motivating subordinates, but studies show that pay typically ranks fifth or sixth. If money doesn't motivate them, what does?
  • A sense of accomplishment in their work.
  • Recognition from management and peers.
  • Career advancement.
  • Management support.
The secret is not to worry about what you are going to use for rewards, but who you are going to reward. When you determine who you are going to reward, finding the reward is easy.

"If you think you have a reward problem, it's really a meas

A Balancing Act: Employee Performance and Compensation

Article courtesy of SBAM approved partner AdvanceHR

Assessing and improving employee performance does not come instinctively to most managers and business owners. At the same time, human resource managers in small organizations often are too swamped with time-sensitive administrative tasks to be of much help in this regard. Regardless, since an organization's success ultimately hinges on the performance of its "human capital," managers must take the lead.

A new and somewhat mis-titled book by Dick Grote, How to Be Good at Performance Appraisals (published by Harvard Business Review Press) offers a succinct and practical treatment not only of the appraisal process, but the broader topic of performance management. Grote had a successful career with several blue chip large corporations before launching his Dallas-based performance management consulting business. His insights are applicable to organizations of all sizes.

Of particular interest to many smaller organizations is Grote's perspective on the role of compensation in driving performance. He suggests managers often attribute too much motivational power to dollars, which can be frustrating when there is not a surplus of cash to fund generous raises.

How Important is Pay?

"Just how important is compensation in influencing individual performance? Not all that much, it turns out," Grote writes. More important than the amount of a raise, according to Grote, is its size relative to raises given to other employees. Even a modest pay raise can be highly motivational if the employee is told that it's the biggest raise of anyone in the department.

Grote decries the "peanut-butter approach" to raises ? spreading them around evenly and thinly, out of a misguided notion of "fairness" ? a practice he deems "manifestly unfair." The tactic, he warns, leads to "the loss of top talent and the over-retention of bottom dwellers."

Even more detrimental than the "peanut butter approach" would be the lack of a compensation policy and schedule for compensation reviews. Worst-case scenario: An employee asks his supervisor for a raise, and the supervisor, with no system (or training) in place, either:

 1. Tells the employee she can't approve a raise until she consults with her own supervisor before reaching a decision, thereby revealing the limits of her authority and thus diminishing her credibility as a supervisor, or

2. Makes a snap decision to grant a raise, signaling that compensation levels are subject to the whim of supervisors -- or the employee's level of assertiveness in demanding more.

Responding to a Pay Raise Request

Having an effective performance evaluation system in place reduces supervisors' chances of being put in this tight spot. Still, if an employee asks for a raise outside of the structure of an established performance evaluation system, the following steps may result in the best outcome, suggests Grote:

Thank the employee for bringing the issue to your attention, and give him or her a date by which you will respond to the request.

Allow some time to elapse between the request and the response. This is critical to manage the process thoughtfully. It is also particularly important if you plan to give the employee a raise; holding the meeting hastily risks creating the misperception among other employees (some of whom, it can be assumed, will learn the outcome) that "the way to get a raise is simply to ask for it."

When the time to respond has arrived, hold two separate meetings, at least one week apart, with the employee: The initial meeting to discuss the employee's job and how it can be made more valuable to the company, along with the employee's performance, and the second meeting to discuss y

Pay the IRS Before Other Creditors

Article courtesy of SBAM approved partner AdvanceHR

How Courts Find "Willful Neglect"

It's widely-known that employers are required to deposit employment taxes with the federal government in a timely fashion. However, the potential consequences of a failure aren't as well-publicized. If you are treated as a "responsible person" for this purpose, you may be personally liable for an amount equal to 100 percent of the tax liability.

In other words, the shortfall might come right out of your own pocket!

Liability may be avoided only if you can show that the failure to pay taxes wasn't willful. If you simply know about an employment tax deficiency-or should have known-and you ignore the problem, it is considered to be willful neglect.

Who is a "responsible person" for this purpose? Unfortunately, there's no-clear cut definition in the tax law. Each case is decided on the its own merits. However, the courts have traditionally focused on three key factors:

1. Status - Are you an officer or high-ranking employee of the company or do you otherwise have an ownership interest in the company?

2. Duty - Is the duty to manage, oversee or otherwise administer the financial affairs of the company stated in writing? If so, does it specifically pertain to the payment and collection of employment taxes?

3. Authority - Do you have the authority to ensure that employment taxes are properly collected and paid? Do you have authority to sign checks, hire and fire employees and so on?

Note that the responsibility isn't necessarily limited to just one person in the company. It can be extended to multiple parties who could be held jointly or severally liable, as one court case illustrated.

Facts of the case: Mr. Constantino, the founder of a Pennsylvania-based trucking firm, owned 80 percent of the company and served as its Chief Executive Officer (CEO), president and treasurer. He was paid an annual salary of $232,000. Mr. Horovitz, the Chief Financial Officer and vice-president owned the remaining 20 percent of the firm. He was paid $180,000 a year.

On several occasions, Horovitz advised Constantino that the company was failing to pay its employment taxes. Both officers were fully aware of that the firm was experiencing severe economic difficulties. Nevertheless, using funds collected for employment taxes, Horovitz authorized payments to other creditors totaling $1.8 million. The IRS eventually hit both with a tax bill of close to $1 million after interest and statutory penalties were tacked on.

Eventually, the District Court determined that both parties may be held responsible, Constantino knew about the deficiencies and that other creditors were being paid before the IRS. Also, his status as the CEO and highest-paid employee was a contributing factor. Similarly, Horovitz is also responsible because he authorized the checks to other creditors through use of the funds from employment tax collections. (Horovitz, DC-PA, 2:06-cv-279, 2/11/08)

In similar situations, the IRS can collect the full amount owed-liability, penalties and taxes-from either party or both. However, if one of the parties is not primarily responsible for the liability and pays a disproportionate amount, he or she may sue the other party in federal court for recovery of funds.

Is being sick enough to get you off the hook from the 100 percent employment tax penalty? Not according to another court case.

Due to a wide variety of health problems-including obesity, high cholesterol, diabetes and gout-the CEO of a company curtailed his time in the office. He formally resigned his position as president. The next year, he suffered a heart attack, followed by an angina attack a year later.


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