“Motivating people” : Getting beyond money | McKinsey & Co

” The economic slump offers Business Leaders a chance to more effectively Reward talented employees by emphasizing non-financial motivators rather than bonuses “… 

Companies around the world are cutting back their financial-incentive programs, but few have used other ways of inspiring talent. We think they should. Numerous studies have concluded that for people with satisfactory salaries, some non-financial motivators are more effective than extra cash in building long-term employee engagement in most sectors, job functions, and business contexts. Many financial rewards mainly generate short-term boosts of energy, which can have damaging unintended consequences. Indeed, the economic crisis, with its imperative to reduce costs and to balance short- and long-term performance effectively, gives business leaders a great opportunity to reassess the combination of financial and non-financial incentives that will serve their companies best through and beyond the downturn.

A recent McKinsey Quarterly survey underscores the opportunity. The respondents view three non-cash motivators—praise from immediate managers, leadership attention (for example, one-on-one conversations), and a chance to lead projects or task forces—as no less or even more effective motivators than the three highest-rated financial incentives: cash bonuses, increased base pay, and stock or stock options (exhibit). The survey’s top three non-financial motivators play critical roles in making employees feel that their companies value them, take their well-being seriously, and strive to create opportunities for career growth. These themes recur constantly in most studies on ways to motivate and engage employees.

Exhibit : 

It’s not about the money… 

THREE non-financial incentives are even more effective motivators than the THREE highest-rated financial incentives. 

There couldn’t be a better time to reinforce more cost-effective approaches. Money’s traditional role as the dominant motivator is under pressure from declining corporate revenues, sagging stock markets, and increasing scrutiny by regulators, activist shareholders, and the general public. Our in-depth interviews with HR directors suggest that many companies have cut remuneration costs by 15 % or more.

What’s more, employee motivation is sagging throughout the world—morale has fallen at almost half of all companies, according to another McKinsey survey—at a time when businesses need engaged leaders and other employees willing to go above and beyond expectations. Organizations face the challenge of retaining talented people amid morale-sapping layoffs that tend to increase voluntary turnover over the medium term. Often, top performers are the first to go. Strong talent management is critical to recruit new ones from, for example, the financial sector, who have been laid off from their employers or feel disenchanted with them.

Yet while 70 % of organizations have adjusted their reward-and-motivation programs during the past 12 months or plan to do so, relatively few have gone beyond the direct management of costs. Two-thirds of the executives we surveyed cited cost reductions as one of the top three reasons for the changes; 27 % made changes to increase employee motivation; and only 9 % had the goal of attracting new talent. Regional differences were striking. 45 %  of the respondents in developing markets, where economies have proved more robust, cited employee motivation as a key reason for modifying incentives, compared with only 19 % in the United States and Western Europe, where the crisis hit hardest.

Even though overall reliance on financial incentives fell over the past 12 months, a number of companies curtailed their use of non-financial ones as well. 13 % of the survey respondents report that managers praise their subordinates less often, 20 % that opportunities to lead projects or task forces are scarcer, and 26 % that leadership attention to motivate talent is less forthcoming.

Why haven’t many organizations made more use of cost-effective non-financial motivators at a time when cash is hard to find ? One reason may be that many executives hesitate to challenge the traditional managerial wisdom: money is what really counts. While executives themselves may be equally influenced by other things, they still think that bonuses are the dominant incentive for most people. “Managers see motivation in terms of the size of the compensation,” explained an HR director from the financial-services industry.

Another reason is probably that non-financial ways to motivate people do, on the whole, require more time and commitment from senior managers. One HR director we interviewed spoke of their tendency to “hide” in their offices—primarily reflecting uncertainty about the current situation and outlook. This lack of interaction between managers and their people creates a highly damaging void that saps employee engagement.

Some far-thinking companies, though, are working hard to understand what motivates employees and to act on their findings. One global pharmaceutical company conducted a survey that showed that in some countries employees emphasized the role of senior leadership; in others, social responsibility. The company is now increasing the weight of engagement metrics in its management scorecard so that they are seen as core performance objectives. One biotech company has re-framed the incentives issue by putting the focus on “recognition” instead of “reward” in order to inspire a more thoughtful discussion about what motivates people.

The top three non-financial motivators our survey respondents cited offer guidance on where management might focus. The HR directors we spoke with, for example, emphasized leadership attention as a way to signal the importance of retaining top talent. When one global pharma company’s CEO was crafting corporate strategy this year, he convened several focus groups of talented managers to generate ideas about how to create more value for the business. With the same aims, a leading beverage company asked every executive committee member to meet with the critical people in their own product groups.

“One-on-one meetings between staff and leaders are hugely motivational,” explained an HR director from a mining and basic-materials company—“they make people feel valued during these difficult times.” By contrast, our survey’s respondents rated large-scale communications events, such as the town hall meetings common during the economic crisis, as one of the least effective non-financial motivators, along with unpaid or partially paid leave, training programs, and flexible work arrangements. While communication is critical, attempts to convey messages about the state of the business often have some spin, one HR director told us.

A chance to lead projects is a motivator that only half of the companies in our survey use frequently, although this is a particularly powerful way of inspiring employees to make a strong contribution at a challenging time. Such opportunities also develop their leadership capabilities, with long-term benefits for the organization. One HR director in the basic-materials industry explained that involvement in special projects “makes people feel like they’re part of the answer—and part of the company’s future.” A leading company from the beverages industry, for example, selected 30 high-potential managers to participate in a leadership program that created a series of projects designed and led by the participants. “Now is the time to swim upstream and invest more in our high potentials,” said the HR director, when launching the program this year.

With profitability returning to some geographies and sectors, we see signs that bonuses will be making a comeback: for instance, 28 % of our survey respondents say that their companies plan to reintroduce financial incentives in the coming year. While such rewards certainly have an important role to play, business leaders would do well to consider the lessons of the crisis and think broadly about the best ways to engage and inspire employees. A talent strategy that emphasizes the frequent use of the right non-financial motivators would benefit most companies in bleak times and fair. By acting now, they could exit the downturn stronger than they entered it.

“Spencers Retail” to “invest Rs 600 crore in new stores”| Plans branded, co-branded products in the F&B segment | Business Standard


Spencer’s Retailan RP-Sanjiv Goenka Group company, is chalking an aggressive growth strategy, with a focus on hyper-format stores. It plans to invest about Rs 600 crore in setting up new stores. The company also plans to come out with branded and co-branded products in the food and beverage segment.

Speaking to Business Standard, Shashwat Goenka, sector head, Spencer’s Retail, said the company would set up 80 hyper stores in the next 48 months. As of now, the company has 132 stores, including 26 hyper stores, 14 super market and 92 daily (convenient) stores.

Goenka, here to inaugurate the city’s first hyper store at Velacherry, said the new stores would predominantly be located in tier-I and tier-II cities. The company would focus on the North (Uttar Pradesh & the Delhi-National Capital Region), the East (West Bengal and Chhattisgarh) and the South (Andhra Pradesh, Tamil Nadu and Karnataka).

“ We will open 12 stores this year and 15 next year; the rest would come up in the following two years,” Goenka said. The company has already signed property agreements for 68 stores. The investment would primarily be funded through internal accruals.

The Rs 1,400-crore company would turn earnings before interest, tax, depreciation and amortisation-positive by the third quarter this financial year and full-year cash profit would be seen in 2014-15, Goenka said. The company expects by the end of this financial year its turnover would stand at Rs 1,800 crore. Owing to the planned new stores, the revenue is expected to touch Rs 2,800 crore in 2014-15, said Mohit Kampani, chief executive, Spencer’s Retail.

In 2011-12, the company reported 15 per cent growth; in 2012-13, growth stood at 16 per cent. Kampani said in 2011-12, the industry grew 12-14 per cent, while last financial year saw single-digit growth. Hyper stores, which contributed 58 per cent to the turnover in 2012-13, are expected to contribute 70 per cent this financial year and 85 per cent in 2014-15.

Spencer’s Retail is also reworking its store format. “We made a mistake of having too many formats in many areas. Basically, retail is a local business, not national,” Kampani said. Since the company faced hurdles, in terms of cost structure in its convenient store model, it has decided to go slow on expanding the format. In the last three years, the company shut 64 such stores. However it had been decided the two major issues — cost structure and assortments — would be addressed, Kampani said, adding, “We may go for a franchisee model. Currently, we are studying various options.”

The company is also streamlining its distribution system and putting in place a new network strategy.

Goenka said the company would increase the share of unique commodities in the food and beverage segment from about five per cent to 30 per cent. These products might be company-made, produced along with another manufacturer, or sourced from other companies. Spencer’s is also set to introduce its own wine, bottled in Argentina. It is working with Ambika Appalam to introduce the latter’s products, as well as various types of ready-to-eat food in north India.

On foreign direct investment, Goenka said the company was exploring various possibilities. “Our first intention is to make the business profitable. We also have plans to come out with an Initial Public Offering (IPO), before which we may look for private placement by roping in a strategic partner,” he said.

“51% FDI in multi-brand retail likely to include FIIs”, in India | Economic Times

The 51%  Foreign Direct Investment (FDI) in Multi-Brand Retail is likely to include Foreign Portfolio Investment as well, as the government is keen to ensure that the restriction on foreign ownership is not breached.

The government is wary that any breach in the limit will give more fodder to those opposed to opening of the sector to foreign investors, a hard fought reform for the UPA government that lost some key allies on the issue.

” There will be a composite 51% cap for both FDI and FII investment in multi-brand retail,” a government official privy to the development told ET. The composite cap could restrict the options of existing listed multi-brand retailers that may be keen to sell stake to multinational stores.

Under the current rules, investment by foreign institutional investors can go up to 24% in a listed company and can be further raised with a shareholder resolution to up to the sectoral limit cap.

This implies that a listed multi-brand retail player that has FDI could have foreign ownership much more than 51% cap as stipulated in the policy, a situation the government is keen to avoid.

Sectors such as Telecom, Banking, Information & Broadcasting also have composite caps wherein the cap is applicable on all forms of Foreign Investment and not just FDI. 

The policy on multi-brand retail mentions 51% cap on FDI but the view across the stakeholder ministries is that the intent was to allow foreign investment upto that limit. The government is concerned about the sensitivities attached to the sector and wants to tread with caution. Only 11 states have allowed FDI in the sector.

However, Foreign Institutional Investors ( FIIs) investors will not face the sector conditions imposed on foreign retailers that invest in India.

Foreign retailers that want to set up retail stores in India have to mandatorily invest at least 50% of the total FDI brought in has to be invested in ” Back-End Infrastructure” within 3 years of the first tranche of FDI, wherein back-end infrastructure includes capital expenditure on agriculture market produce infrastructure and others. At least $100 million FDI has to be brought in by the foreign investors.

Foreign retailers also have to adhere to minimum sourcing requirement from small and medium enterprises. Moreover, any entity with FDI can only set up shop only in those states that have allowed FDI in retail.

India had opened the sector in September 2012 but is yet to see any FDI in the sector.