Managing for Employee Engagement, Not Overtime
A while back, I was given financial oversight for a boutique restaurant and lounge that had recently opened in Los Angeles, California. Food and beverage operations were new to me, but I quickly discovered that two costs really mattered – costs of goods sold (e.g., the food and drinks we were selling) and of course labor. For months we tried to dial in our labor costs, and our knee-jerk reaction was to limit overtime. It made sense, right? Why pay someone 1.5 times their normal pay when you can hire a new person to do the same task at a standard hourly rate?
What I discovered, however, was that my “gut” was wrong, and I learned a few other things too. First, my best people were naturally hard workers. Second, they loved getting overtime pay. Third, the effort I saw from my star performers in hour 48 of the week was the same as what I saw in hour 15. Fourth, the better employees didn’t purposefully game the system to get overtime pay. Rather, they just wanted to help out, and if they made a little extra, they saw that as a win-win scenario for them and the restaurant.
Armed with these observations, we started deploying our employees differently. We managed them based on engagement, productivity, and value. If our engaged performers wanted overtime, we gave it to them. If our average and below-average performers wanted overtime, we limited it. Interestingly, the restaurant’s performance began to improve. My sense is that our engaged servers and bartenders sold more product, and they certainly created better customer experiences. So while it cost us extra to have them around for a few more hours during the week, they paid for themselves and more because they added value. Once we stopped focusing on cost cutting and started focusing on engagement, the needle on the financial dial started moving in the right direction. In financial terms, we became focused on what mattered above the line (sales and customer service) as opposed to only looking for savings below the line (labor costs). We also learned that you can run a restaurant with fewer employees if engagement is high. So, in the end, even though we paid overtime, total payroll costs went down.
This experience taught me the importance of managing for engagement, not overtime. I would recommend the same basic concept to you; don’t let performance problems, costs, delays, and other distractions keep you from focusing on those within your organization that are already engaged and ready to contribute more. It’s another way of gathering the proverbial “low hanging” fruit. Engagement and performance predictably aligns itself across a bell curve. No organization has within its ranks all top performers. Nor can any single company maintain a workforce that is entirely engaged. We try to improve engagement, but we will never eliminate the bell curve, we can only change its shape for the better. Consequently, you will always have a smattering of talent to work with. Savvy managers accept this fact and attempt to manage for engagement across the entire spectrum, and not just in the problem areas.
Consider this example. A company’s sales team has about 12 members, with two members that account for over 40% of the company’s top-line revenue. Their superb performance is not solely attributable to the nature of their accounts. Management has observed that these two employees simply seem to “get it.” This company might respond in a few different ways. First, it could try and help the other 10 sales team members. It might lay off the bottom quartile, which simply resets the bell curve. Or, it could implement stricter oversight for the entire team, which might lower engagement – even among the top performers.
While these options seem reasonable, they are primarily focused on the problems. When managing for engagement, successful leaders also consider ways to incentivize their top performers even more. Remembering to manage for engagement will help you to look through the distractions and realize that value can be harvested not only by helping those that need improvement, but by giving additional attention to those that are already engaged and ready to work. Don’t fall prey to the assumption that I had made about our top performers at the restaurant—that there was no way to get more from them or it was too costly to do so.
I also need to touch upon a hot-button issue for many companies. As the Affordable Care Act continues its rollout, many organizations are focused on keeping employees part-time so as to avoid having to pay increased healthcare benefits. This is a smart tactic, but it also presents the same issue that I dealt with in my overtime example. Thus, my advice is the same. Don’t automatically assume it will be too costly to utilize good people.
In the end, engagement is not just a “feel-good” goal for the HR department; engagement is a company asset. While it can’t be booked on the balance sheet, engagement can be used effectively—the same way you use name recognition, market share, or other intangible assets for an organization’s benefit. This was a key takeaway for me from my restaurant management days. Finally, I am not suggesting the only way to manage for engagement is by spending more or avoiding cost-cutting measures. Nonetheless, glaring financial metrics shouldn’t necessarily distract management from examining ways to maximize value from its best and brightest.