DecisionWise Digest February 3, 2023

Years ago, I was given financial oversight of a boutique restaurant and lounge 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 (i.e., the food and drinks) and labor.

For several months, we tried to dial in our labor costs, and our knee-jerk reaction was to limit overtime. Makes sense, right?  Why pay someone 1.5 times their normal pay when you can hire someone else to do the same task at the standard hourly rate?

I discovered, however, that my “gut” was wrong, and I learned a few things about our best performers. 

1. They were naturally hard workers.
2. They loved getting overtime pay.
3. The gave the same effort in hour 48 of the week as they had in hour 15.
4. They didn’t purposefully game the system to get overtime pay. They just wanted to help. 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 below-average performers wanted overtime, we limited it.

Interestingly, the restaurant’s performance began to improve. What changed? Our engaged employees 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 a week, they paid for themselves – and more – because they added value. When we stopped focusing on cost saving and started focusing on the employee experience, the financials began to improve.

In terms of finances, we became more focused on what was important above the line – sales and customer service – rather than merely searching for savings below the line (labor costs). We also discovered that if the employee engagement level is high, it is possible to run a restaurant with fewer employees. So, even though we paid overtime, our total payroll costs decreased.

This experience taught me the importance of managing for the employee experience. 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 follow a bell-curve pattern. No organization has top performers in every position. Nor can any single company maintain an entirely engaged workforce. We strive to increase employee engagement, but we will never be able to abolish the bell curve; we can only change its shape for the better. Consequently, there will always be a smattering of high-performing talent to work with. Savvy managers recognize this fact and strive to manage their employees across the board, not only in 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: it could try and help the other 10 sales team members improve; it could lay off the bottom quartile, which simply resets the bell curve; or it could implement stricter oversight for the entire team, which might harm the employee experience – even for the top performers.

While these options appear reasonable, they are primarily focused on the problems. If the company is focused on managing for the employee experience, it would incentivize the two top performers even more.

Managing for the employee experience will help you see past the distractions and realize that value can be harvested not only by helping those that need improvement but also by giving additional attention to those that are already engaged.

Don’t fall prey to the same mistake I did with our top performers at the restaurant, assuming that there was no way to get more from them or that it would be too expensive.

A well-designed employee experience is more than just a “feel-good” goal for the HR department; it can and should be a company asset. While employee experience cannot be recorded on the balance sheet, it can be used for the organization’s benefit in the same way that name recognition, market share, or any other intangible asset can.