In 1983, along with 12 other managers, Jack Stack scraped together $100,000 in cash, borrowed $8.9 million and transformed a failing division of International Harvester into one of the most successful and competitive companies in America. Under Mr. Stack’s leadership and Open-Book Management approach, this formerly failing company has now become SRC Holdings Corporation, a thriving $400 million company with 1,200 employees in 17 business units. In that time, the company has increased its stock price from 10 cents per share in 1983 to over $234 in 2008.
In his popular and widely acclaimed book, The Great Game of Business, Jack Stack exposes the secrets he used to increase the value of his business. He attributes his success to getting every employee in the company to focus on the overall success of the business (rather than its component parts). He does this using open-book management, where every employee is not only shown the company's financial statements, but is expected to understand them (with training and support).
It turns out that Stack is huge fan of incentives. What's more, he singles them out as his most powerful tool. In fact, he begins Chapter 7, titled "Skip the Praise--Give use the Raise," with the following statement:
There is no more powerful tool a manager can have that a good bonus program--which is why some companies will pay a consultant tens of thousands of dollars to design one. That's not necessarily a stupid investment. If a bonus program works, it can be an incredible motivator. It can get people producing at levels that make the cost of the program seem like peanuts, no matter how much you may have spent to set it up.
My experience certainly bears this out. In my 25 years of consulting, I have observed no single business practice that positively impacts business success more than well designed incentives. Here is another relevant excerpt from the same chapter:
What a bonus program does is communicate goals in the most effective way possible--by putting a bounty on them. It says to people, "These targets are so important we'll give you a reward if you hit the them." When you do that, you get people's attention very fast. You send them a strong message. You provide them with a focus. You give them a challenge and a very good reason for working as hard and as smart as they can to meet it; they're going to get paid.
Stack goes on to list what he likes most about incentives:
- It is our most effective educational program: We use it to teach people about business.
- The bonus program serves as a kind of insurance policy on the company and our jobs...because we use it to target our vulnerabilities.
- The program brings us together as a team.
- It ensures that everyone has the same priorities and that we all stay focused on the same goals.
- The program helps us identify problems fast.
- It is the best program we have for increasing the value of our stock.
- Most importantly, the bonus program provides the structure for the Great Game of Business.
You can learn much more about incentives by clicking the Incentive Design link in the column at the right. I also encourage you to visit Incentive Plan Builder. I designed it to allow you to create professional, customized incentive plans on your own without the need for extensive support from outside consultants. Right now, Incentive Plan Builder is the only on-line incentive design tool available for managers. If you don't currently use incentives, I recommend that you start NOW. In today's perilous economic climate, there is no time to lose.