Estimated Lesson Time: 4 minutes
Back in the old days of the Internet, obtaining investment money was cheap and easy. As long as you had a “dot-com” (yes, even if your business plan included a talking hand puppet with a fake microphone), you had access to the cash you needed to build your on-line empire. However, as investors began to realize the error of their ways, entrepreneurs had to use their heads more and their money less. Enter incentive partnership.
Incentive partnership is a performance-based compensation arrangement between two or more entities. Unlike the traditional employee/employer relationship, the incentive partnership rewards individuals based on efforts or results. Incentive partnerships can have rewards based on one or more of many criteria such as company-wide profits, departmental revenues, individual sales or a combination of criteria. Unlike the traditional commissioned sales professional, the reward is not solely in the form of a sales commission.
Imagine you have an amazing idea, one that you are confident can make you wealthy beyond your wildest dreams. It is an idea that has both excited you and filled you with enthusiasm. You plan out every detail of your idea, but then, reality hits and you realize that you do not have a dime to your name to hire the help needed to execute such a plan. What do you do? What if you are already in business and your problem is one of decreased productivity and low morale? The answer: form incentive partnerships. Incentive partnerships can be of great benefit to all parties involved in the following ways:
- Makes business relationships possible. Offering a compensation package other than a salary allows businesses to enter relationships that would otherwise not be possible, feasible, or financially sound.
- Aids in startup. Startup businesses or ventures often require cash for labor. That need for cash can be offset by incentive partners who are eager to be compensated with partial ownership or some type of profit sharing.
- Promotes unification. In business, there is often the “us versus them” mentality between those who do the work and those who own the business or share in the rewards. When rewards are shared with those doing the work, everybody becomes the “us.”
- Promotes understanding. When workers are compensated based on the success of the business or department, they tend to see the larger picture. Petty complaints are often eliminated as workers begin to see themselves as part of the solution to their problems.
- Creates unified goals. Salaried employees or commissioned salespeople usually have one main goal in mind—to look out for themselves. When workers are incentivised partners, the goals of the organization become the goals of the individual.
- Motivates. A fixed salary generally does not rank high on the list of motivators, especially as time passes. Incentive partnerships motivate workers in many ways: more substantial payoffs, long-term investments; and the feelings of belonging, accomplishment, and importance.
Once you are convinced that incentive partnerships can help bring you closer to your financial and business goals, it is time to take action. Here are some tips on building incentive partnerships.
- Finding people. Incentive partnerships certainly are not the norm and are not part of traditional industrial age thinking. Potential incentive partners will most likely have to be sold on the idea and the benefits beforehand.
- You may need more people than you think. If you are compensating based on partial ownership, profits, or any form of long-term and less guaranteed income, you may have trouble finding people who are financially secure enough to act on that kind of opportunity—at least on a full-time basis. If this is the case, you will most likely need several part-timers to perform the work of one full-timer.
- Compensation. You can compensate incentive partners by giving partial ownership of the entity, giving a portion of the revenues or profits of the company, department or division, or paying based on performance such as number of widgets assembled; the possibilities are only limited by your creativity and imagination.
Incentive partnership can be one of the fairest forms of compensation. By treating workers as owners and sharing common goals, leaders can get more productivity from those whom they lead while creating business relationships that otherwise may not have been possible. Be open to alternative compensation plans whether launching a new venture or building an existing one, and success can be yours.
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Some discussion questions (some may not apply to this lesson):
- Have you implemented this idea in your life? How has it been working for you?
- Do you have any interesting stories related to this lesson? Do tell!
- What do you admire most about this person? (success biography days)