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By Grant Douziech
One thing all businesses have in common is the need to achieve company goals. Large corporations have sophisticated structures and systems to support human resources and develop effective teams, whereas in small and medium-sized businesses this responsibility lies with the entrepreneur.
For many entrepreneurs, defining performance and rewarding top performers is complicated. Intuitively, entrepreneurs know who they can trust in their business: the person who treats your business like their own, the person who rolls up their sleeves and gives up their free time to complete a task or project, the person who truly cares about you, the company, and your customers.
For many entrepreneurs, loyalty is a key part of the employer–employee relationship. As an entrepreneur, do you recognize and reward loyalty or performance? Or perhaps you purposefully blend the two. Are you clear in defining your performance criteria based on what performance means to your bottom line? How does loyalty fit into that? In the end, does loyalty or performance drive your company’s results?
What is loyalty?
In a business context, loyalty can include things such as years of service, working long hours, being passionate about the business, or giving up time-off to come in and work: being an employee the entrepreneur can count on. These actions lead to increased trust between the entrepreneur and the employee. As time goes on, loyalty develops into a standard whereby the entrepreneur views loyalty as the measurement for value and therefore may place a higher value on those employees who are viewed as loyal.
For example, when an employee has worked with an owner for a long time, perhaps from the very beginning of the business, this sense of loyalty and trust develops. As the business grows, this relationship continues, leading the entrepreneur to identify their most loyal employees as their top performers. Hence, those employees are rewarded through both promotions and financial gains (increased salary, bonuses). But are they really strong performers? How is loyalty clouding promotion decisions and other rewards?
The inherent risk in recognizing and rewarding employees based primarily on loyalty is that entrepreneurs may be willing to overlook poor performance or accept a lower standard of work from employees they view as loyal. This manifests in things like unmet targets, adverse team dynamics, or decreasing customer satisfaction.
Poor performance in these situations can be a blind spot for the entrepreneur. An entrepreneur viewing loyalty as performance can result in the company not realizing its full potential.
How does performance fit within your business?
In larger organizations, goals, objectives, and performance standards are clear. They are established to maximize the potential of the organization. People are assessed against capability and capacity. The organization sets performance standards and measures employees on their ability to meet and exceed performance objectives. They are then rewarded based on their performance.
However, in small and medium-sized businesses, owners can be willing to overlook performance shortcomings and instead focus on loyalty because they believe that loyalty leads to employee retention and commitment. But is that enough? If loyal employees are not strong performers, where does that leave your business? And if loyal employees are rewarded for their loyalty rather than their performance, how does that affect other strong performers?
As your business grows, how do you assess and promote people? Do you determine the skills and abilities required for a new role and then match candidates to that profile? Or do you promote a loyal employee, hoping that he or she will figure it out and perform well? What if they don’t? How do you address it? Do you leave the employee in the role and turn a blind eye? How is the rest of the team affected?
Poor performance in these situations can be a blind spot for the entrepreneur. An entrepreneur viewing loyalty as performance can result in the company not realizing its full potential.
In addition, as the business expands and layers of management are introduced, many entrepreneurs move existing loyal staff into new management roles. However, these owners may not be promoting their people for the right reasons. For example, owners may value an employee for following directions well and working extra hours to get the job done. But are those the skills necessary for the new role? Is the employee capable of establishing a direction, developing a business plan and budget, setting goals, and leading a team to achieve those goals?
Often, owners will bet on what they know (their loyal employee) rather than what they don’t know (an external candidate). This can be problematic. Many entrepreneurs will recognize a skills gap and believe that some additional training will close that gap. But will the newly promoted employee be capable of gaining the requisite skills quickly, and will they be able to apply those skills to achieve results? Will the employee be able to get up to speed on the technical aspects? How long will it take? Will sales targets be reached? Will customer satisfaction be affected?
When entrepreneurs choose the internal route and promote an employee without the requisite skills, how does the business move forward? It is highly likely that loyalty has clouded the decision-making process and the entrepreneur promoted the employee based on loyalty rather than on capability and capacity.
Entrepreneurs may also award bonuses based on loyalty rather than performance. When a business lacks structured performance indicators, the entrepreneur may use loyalty as the basis for rewarding employees. This creates an environment in which performance is not measured, and loyalty is primarily rewarded.
How to move forward
Loyalty and high performance are not mutually exclusive. Rather, they co-exist. Loyalty captures the hearts of your employees, increases attraction and retention, and improves the customer experience. High performance establishes clear expectations and standards, supports employees’ and teams’ continual growth, encourages individual development and performance, creates companywide accountability, and maximizes the business’s potential.
To find the balance for your company, as an entrepreneur you must first challenge yourself to determine whether you are rewarding performance or rewarding loyalty. This is a very personal and profound inquiry. Secondly, you must identify the balance between loyalty and performance that works for your business to achieve its full potential. That formula will depend on several factors, including industry practices, business goals, culture, the entrepreneur’s leadership style and ability, etc. The balance between performance and loyalty cannot be achieved with a one-size-fits-all approach – it needs to be tailored to fit your business.
Business owners need to both celebrate loyalty (e.g., long service) and reward performance by recognizing and rewarding the strong performers who help drive your business forward.
First published in the June 2018 edition of The Business Advisor.