The Semco Style 5 Principles to transform the way we work

Points For Impact

Incentives and positive peer pressure improve employee engagement and performance.

For a company to excel, employees must be reassured that self-interest, not the company’s, is their foremost priority. We believe an employee who puts himself first will be motivated to perform. – Ricardo Semler


IN A NUTSHELL

The practice of organizations offering monetary incentives to improve employee performance has been around for quite some time. Although there is a marked improvement in performance, thanks to the incentive, the practice has been ineffective in bringing about lasting changes in behavior.

In other words, people do work towards attaining a set target in the hopes of reaping a reward, but once they receive the reward they tend to revert to old habits. In a study published in the Harvard Business Review, Susanna Gallani studied the relationship between incentives, peer pressure and long-lasting change and found that peer pressure was a more powerful agent of change than monetary incentives.

So, although people people are motivated to varying extents by cash rewards, it’s peer pressure that helps them sustain their new ways of working. Teams that hold each other accountable and develop a single-minded focus towards achieving the monetary reward, it’s bound to be much more effective than people individually striving towards goals and rewards.

Such an outlook helps people to not just improve their efficiency at work, but to also stick to those new found ways of working. Much like the dynamics in a group fitness class, work groups that have positive peer pressure tend to achieve more with less management; they learn how to optimize their resources to improve efficiency; and they encourage each other to stick with it.


What

Create a system of points that dictates who gets what share of the service fees collected every month. Use the system to encourage employees to work efficiently and apply positive peer pressure to optimize processes and resources.


Why

In most organizations the regular reflex is to hire new people when the business grows. It may seem like the rational thing to do, but in reality, many employees end up being under-utilized; processes become too long-winded and inefficient; and there’s no active optimization of resource utilization. The practice of sharing the service fee collected at the end of every month and dividing it among employees on the basis of a points system will motivate people to do more with less. After all, the lesser the number of people sharing the money, the better are their chances of taking home a bigger share. Since it all depends upon the number of persons sharing the money, it helps teams manage themselves more efficiently and collaborate better among themselves. On the flip side, the company saves a lot of time, money and resources that may have been spent on hiring and training new people. It also helps organizations cut down costs in a more sustainable way.


How

 

Create a points system to reflect contact and impact: The number of points awarded to each employee should be a direct reflection of the kind of contact they have with customers and the level of impact they have on customer satisfaction. In a luxury hotel, for instance, the work of an executive chef plays a major role in the level of satisfaction guests experience. So he/she should be given the highest level of points on the scale. Employees who don’t really come into contact with guests and their work doesn’t really affect guest satisfaction – like the people who work in the administrative back office – they could be given lower points on the scale.

Get the worker’s unions onboard: Before getting started with such a system, it’s extremely important to get the worker’s unions onboard. Make them understand how it’s a win-win proposition for both the company as well as the employees and make all major decisions with their approval. Ensure the management meets with the unions at least once a year to review the system and make any adjustments.

Divide service fee according to points: At the end of every month, divide the service fee collection (post tax deductions) among all the employees. It should be split based on the number of points each employee has. For instance, imagine that a hotel in Brazil, with 40 employees was able to collect 10,000 reais in a month as service fees. Let’s say the total number of employee points is 120. Then the 10,000 should be divided by 120, which is almost 100 reais per point. So if an employee has three points, they get 300 reais and if they have 20 points they get 2000 reais.  

Create processes to change or modify an employee’s points: While the points of an employee who just got promoted changes automatically, it’s not so straightforward when it comes to those who haven’t been promoted but want to increase their points on the table. Since it requires the approval of the unions to change a person’s points, it isn’t a very simple adjustment to make. In such situations, the management and the company need to review the kind of impact the employee is having on the customer and informal adjustments can be put in place if justified. The change can be officialized later when the management meets with the union.

Hire flexible workers when necessary: Since it’s unrealistic to expect a small team of employees to manage the extra workload that comes with peak seasons, it’s important to hire contract workers when needed. They could be workers hired on a daily or weekly basis, to take away some of the burden from the team of permanent employees.


Level to implement

  Hard


DO’S

Get the support of the worker unions

Award points based on an employee’s level of customer contact and their impact on customer satisfaction

Allow employees the freedom to manage their work and resources themselves

Create a process to change an employee’s points

Hire flexible workers when required

Be transparent

DON’TS

Interfere too much in how teams optimize resources, improve efficiency and reduce waste

Make changes in an employee’s points without the approval of the unions

Let employees feel overburdened during peak seasons

Pros

When employees do everything they have to do without requesting for additional recruitments, they reap bigger rewards

Saves money, time and resources spent on hiring and training new people

Increases sense of ownership

Encourages positive peer pressure and accountability

Employees are protected by the unions and cannot be exploited

Cons

Management might need to constantly negotiate with employees who ask for a raise in points

The requirement of union approval makes modifying an employee’s points a tedious process and it might demotivate some people

There may be times when workers feel overloaded – especially in peak seasons


CASE

 

It’s quite common to see organizations within the service and hospitality industry charging their customers with a service fee. It’s usually 10 percent of the bill amount collected in exchange for the services offered. At Botanique, a hotel run by Fernanda Semler, the wife of Ricardo Semler, they introduced a system to guide how the service fee was distributed among the hotel staff.

Dubbed the Botanique Points System, it awarded points to employees based on the level of contact they had with the guests at the hotel. Another important consideration was the extent to which their work was able to impact the satisfaction of the guests. The points ranged between three and twenty and the portion of the service fee given to each employee directly depended on their points on this scale.

Accordingly, the main chef of the hotel, whose recipes and fast delivery of food orders played a major role in impressing hotel guests, he or she was given 20 points – the maximum level of points on the table. Other examples of employees who came in close contact with hotel guests are the front desk staff, the valet, the bartender and the waiters to name a few. On the flip side, the employees who did jobs that didn’t bring them into actual contact with the guests – administrators in the back office; gardeners or the cleaning crew – were given lower points on the scale.

Every month, the money collected as service fees was subjected to the necessary tax deductions and the remaining was entirely split between the hotel staff on the basis of their points. So, irrespective of the points on the table every employee took home some share of the service fee, which acted like a monetary incentive.

The system created a win-win situation for the employees as well as the hotel management. Unlike other organizations where the employees constantly clamour for additional recruitments, the Botanique crew made sure the management had no reason to hire new people and further divide their share of the pie. They came up with innovative ways to squeeze more out of their time and resources; they collaborated on a greater level and cut down on wastages wherever they could. In other words, they were nimble self-managed teams that did everything in their power to hold onto their incentives.

As a result, the hotel has been seeing a phenomenal increase in the number of guests they receive and yet they’re managing perfectly fine without increasing their crew members. In fact, there was one time when the management engaged an external consultancy firm that worked with luxury hotels, to determine the number of employees required in each department to maintain a high level of service. The consultancy came back with a suggestion of about 112 people. Botanique has been pleasing guests with just around 40 employees, which is a phenomenal achievement. Just imagine the impact that has on the business, expenses and results.

Of course, the hotel hires a floating group of contract employees who come in on a daily or weekly basis during peak seasons to shoulder some of the burden. But until such time, the hotel is run by the small team of 40 employees, with even the managers pitching in to do many of the jobs. They get the work done by taking shorter breaks, managing themselves to be more efficient and if necessary they even work on off-days.

Although that sounds like a corporate fairy tale, it’s not without its usual dose of problems:

The points an employee receives cannot be changed without proper justification. The table of points are reviewed once a year, with the involvement of the unions. So, changing the points someone gets is not something that can happen with a moment’s notice.

While the points automatically change when someone gets promoted, it’s not very easy to effect promotions because the change needs to be approved at the meeting with the unions. So, it’s not something that can happen at any time of the year. Instead, it’s a centralized and concentrated change process that involves multiple stakeholders.

However, if the management wants to increase the points given to an employee without promoting them, they can do so informally during the course of the year and officially update the points table during the yearly meeting with the union. So, overall it is a bit challenging to manage people and the points table because of all the bureaucratic processes involved. Besides, everyone invariably wants more points and higher paychecks – so it needs constant negotiation to make sure that everyone understands the level of their contributions.


Changemaker

Expert avatar

Borges, Ian

Co-founder at LeadWise | Partner at Semco Style Institute | Entrepreneur | Lifestyle Strategist | Digital Nomad

Rio de Janeiro, Brazil

Portuguese, English, French, Spanish

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