Putting PEP (Per Employee Productivity) into Your Organization

Money is an entrepreneur's most powerful motivating tool. Properly structured, cash incentives develop people by providing performance feedback, helping employees create savings or wealth, increasing profitability and dramatically improving productivity. 

I have designed and implemented two ways to increase your organization's PEP–Per Employee Productivity. These cash incentive concepts, an excellent alternative to privately-held stock incentives, have been in place at our magazine for more than five years. They are working well, providing a win-win situation for everyone in our organization. 

Much is written about teamwork and worker productivity, but it's typically abstract theory or professorial preaching. Seldom are these ideas discussed in a practical, "This is exactly how it can be done" context. 

Equity Alternative I
SSI-The Sales Support Incentive

Every business has two types of employees–those who bring in the revenue, the revenue producers. And those who service the revenue, the revenue supporters. One of the constant challenges in organizations with a commissioned sales force is reducing the level of natural antagonism between the commissioned sales department and the salaried support staff. At our magazine we created the Sales Support Incentive (SSI), which is producing a lively, successful team spirit. Our innovative SSI concept was recently the subject of an Inc. magazine story. 

The purpose of SSI is to reward employees (other than commissioned sales people) for enthusiastically supporting our advertising revenue growth.

Here's how it works: 

Our publishing organization has three departments in addition to sales. They are news, composition, and front office. We issued a total of 1,000 shares of SSI stock to the three departments as follows: 

• News 250 shares 
• Composition 500 shares 
• Front Office 250 shares 
• All non-sales staff members participate. 

We empowered employees to negotiate the distribution of shares within their department. There haven't been any disagreements, but the general manager arbitrates the distribution of shares if the need occurs. 

We calculate and pay the cash incentive monthly, based on advertising revenue pages above the base level identified when we installed the incentive. SSI is worth about $2,500 per year per employee and growing. 

SSI shares are issued in fixed quantity to the department–not to the individual. In addition to promoting the spirit of teamwork, this structure encourages per employee productivity. How? The fixed number of shares dilutes each employee's interest if the department adds employees. Additions reduce each employee's percentage ownership of the dollars paid to the department where the new hire occurred. Each employee assumes the identity of the employer since a new hire costs both the employer and the employee money. SSI creates a natural desire for each employee to defer the hire as long as possible, therefore boosting per employee productivity. 

SSI has rewarded everyone on our team several fold. One of the payoffs for me came last January. Our lead typesetter, who carries much of the increased composition workload of a growing magazine, told me–with a smile–to get those advertising people rolling so she could pay her Christmas bills. 

That's when I knew SSI was maximizing PEP–Per Employee Productivity—in our organization. 

Equity Alternative II
Employee Profit Ownership Plan (EPOP) 

This is the second cash incentive plan we use to measure achievement and reward productivity. Tri-State Neighbor issues employees profit certificates that give them 10 percent ownership of the monthly pre-tax earnings, rounded to the nearest $100. 

All full-time employees are eligible to participate on the first January 1 of their employment. Each employee's profit ownership is determined annually according to the following: 

1. All employees who have been full-time for at least ten months receive an initial offering of 100 profit shares. 
2. Each enrolled employee receives an additional five (5) shares of EPOP stock for every year of full-time employment completed as of each January 1. 
3. Each employee receives one EPOP share for every thousand dollars of earnings during the previous calendar year. 
4. The general manager, advertising manager, news editor, and business manager receive a 20 share Department Head Premium. 

Total EPOP shares outstanding are fixed during the calendar year, changing only on January 1, as provided by the preceding four-part formula. EPOP payouts range from $3,500 to $6,000 per employee per year. In an organization with a strong emphasis on per employee productivity, EPOP should increase faster than corporate earnings. 

Summary 

Each month, upon completion of the profit and loss statement, the business manager and the general manager calculate and post the monthly SSI and EPOP earnings per share. SSI and EPOP payments are made monthly on the 20th of the month following. 

The uniqueness of these incentive plans is their encouragement of per employee productivity. With SSI, revenue units must increase faster than the number of employees required to produce the revenue. For EPOP, pre-tax profits must increase faster than the number of shares outstanding. When these productivity goals are met, each employee's incentive paycheck increases. When staff levels grow at the same rate as output and profit, incentive payments are the same. And when the number of employees grows faster than revenue pages (SSI) or earnings (EPOP), it creates lower per-employee productivity and incentive payments to each employee decrease. 

These cash incentives have created some lively discussions. During one meeting a department head indicated he was thinking of adding a new person. Before the meeting was over, other staff members had volunteered to chip in to handle the department head's need. They didn't want a marginally-needed new hire to reduce their EPOP awards. 

Employee response to these two plans is highly gratifying. We all look for opportunities to build a cohesive team. That's what SSI and EPOP are doing–delivering a strong, team-oriented working environment. Awareness of personal productivity is high, and if someone forgets it, a fellow employee is likely to provide a pleasant reminder. 

The Sales Support Incentive and Employee Profit Ownership Plan are two living examples of cash incentive strategies that work for everyone. Whenever we can find ways to get employees and employers on one wavelength we've got a winner. Take advantage of every such opportunity.