By Mike Antich
Most major corporations reserve bonuses and other money incentives for senior management. Few make financial incentives available to middle management. Should the fleet manager position be an exception? I argue yes, and here's why.
Companies large and small have long understood the value of providing financial incentives to key employees. Financial incentives usually take two forms: an incentive (such as cash and stock options) based on the overall financial performance of the company over a specific time period or an individual performance bonus. While the former depends on the performance of the entire company (or subsidiary or division), the latter is a financial incentive based strictly on the performance of an individual's management of a specific function within the company.
Very few fleet managers are eligible for any bonus. They are part of the ranks of Corporate America's salaried middle management. Considering every company's continuing quest for greater net profits, I will argue incentivization is in the best interests of a company and its shareholders, especially since fleet, at many corporations, represents one of the top five indirect spend categories.
An Incentivized Work Culture
Are the basic management responsibilities for a fleet manager about the same as a sales manager? Is there any commonality between the two? The answer to both is yes. If a sales manager's staff generates $1 million in gross sales that equates to a net profit of $100,000 in a company operating at an annual net profit of 10 percent. The fleet manager sells no product or service; however, he or she does manage an asset and expense base ranging from hundreds of thousands to millions of dollars annually. The fleet manager's target is therefore the reverse of the sales manager. If the fleet manager and staff reduce annual fleet expenses by $100,000, the net bottom line profit effect is the very same as the sales manager's $1 million sales achievement.
Yet, almost all sales managers receive bonuses based on their recorded amount of sales, and almost no fleet managers receive anything other than ordinary salary based on their documented fleet cost reduction. To be objective, incentivization comes with no guarantees. Sometimes companies overestimate the benefits. A company may initiate the best fleet financial incentive program in the world, but it might be all for naught if a fleet manager is not up to the challenge. But this represents a very small minority of fleet managers. The overwhelming majority of fleet managers who are suddenly "money-incentivized" will become incredibly creative in developing cost-cutting initiatives. By implementing a "stretch" incentive program, fleet managers will strive harder and become more innovative in reducing fleet expenses. A tiered incentive program by its very nature encourages managers to formulate strategies to achieve specific goals. Research consistently validates the effectiveness of financial incentives on job performance and the achievement of specific job objectives.
Implementing Benchmarking Metrics
Today's economic conditions are causing companies to thoroughly scrutinize cash flow. However, it is time to stop thinking of cost cutting as simply reducing expenditures. Cost-cutting initiatives can both reduce costs and raise revenues. Some examples would be cost reduction strategies that help reduce driver downtime or a route optimization strategy that cut fuel expenditures while increasing driver productivity.
If incentivized, will a fleet manager do a better job in critical fixed-cost areas, such as depreciation management, replacement cycling optimization, and residual value maximization? Similarly, would a fleet manager reach for higher goals in controlling variable costs, such as fuel, maintenance, tires, and PM expenses? My position is this would indeed be the end result. An incentive work culture would motivate a fleet manager to maintain higher standards and work to create measureable performance metrics.
Not Everyone is the Same
The most common mistake senior management makes when trying to motivate employees is assuming everyone shares a set of common motivators. When managing employees and making an effort to motivate them, consider every individual is different. No employee is exactly the same as another, so it stands to reason no one employee can be motivated to perform in precisely the same way. There are a variety of ways to motivate employees. However, it has been proven time and again one of the best motivators, for most people, is money.
Let me know what you think.