THE HUMAN FACTOR - When share options are under water and the concept of a profit-related bonus sounds like a bad joke, one of the hardest tasks facing managers is to motivate staff and maintain morale. Difficult markets make it more important than ever t

by PATIENCE WHEATCROFT, business and City editor of The Times
Last Updated: 31 Aug 2010

When share options are under water and the concept of a profit-related bonus sounds like a bad joke, one of the hardest tasks facing managers is to motivate staff and maintain morale. Difficult markets make it more important than ever to hold on to the key people in an organisation. Yet when job cuts are in order, the challenge is to ensure that crucial talent doesn't trickle away along with the more dispensable.

This is when leadership is put to the test. Staff need to be convinced that there is a bright future, for the business and for them within it.

The boss may be looking at poor trading figures and a sinking share price, but still he must persuade staff that their efforts will be well rewarded eventually.

If there was an overwhelming reason why Ian Harley should not have continued as chief executive of Abbey National it was that he had lost any ability to lead his troops. After four years at the top of Abbey, the dour Scottish accountant had become a leader with no following. Four executive directors had preceded Harley out of the door in the past year. Some botched treasury dealings and the bank's first ever profits warning were the trigger for his departure, but Harley had become such a negative factor that new chairman Lord Burns really had no option but to seek change.

Rather than wait until a new CEO could be found, Lord Burns has stepped temporarily into Harley's role. His twinkling enthusiasm should provide an injection of hope to the battered and bemused Abbey workers.

When the business climate is chilly and no job totally secure, positive messages from the boardroom are crucial. Otherwise, talent can dissipate frighteningly fast. In the case of Camelot, almost a third of its staff left as it resorted to legal action to secure a second term as national lottery operator. Such is the firm's dependence on a single contract that it was powerless to quell fears that it might not have a future.

Businesses intent on holding on to talent through the lean times need to make that talent feel appreciated. With money scarce, words resume their importance as useful currency. Managers must rediscover the morale-boosting effect of the 'herogram' to express thanks for a job well done; encouragement is always welcome but never more so than when the sales figures are refusing to rise despite prodigious efforts.

Larger organisations are finding that formal appraisal systems provide a framework within which to nurture staff when lavish bonuses are not available. When conditions are exceptionally demanding and everyone is working flat out, appraisals can seem irritatingly time-consuming, but those who operate them say they're worthwhile. They allow management to tell individual members of staff that they are appreciated and that their longer-term prospects with the organisation are good. Or, of course, the reverse.

There is growing enthusiasm for the 360-degree appraisal, in which individuals have their contributions assessed by colleagues up and down the organisation.

With today's emphasis on flatter business structures and team working, such a system will measure more than pure achievement. One investment banker told me of how a top dealmaker in his bank had been so unanimously denounced as impossible to work with that it showed him the door. Eventually, however, the organisation felt his absence on the bottom line and a return was broached. The happy ending was that the dealmaker was so chastened by his colleagues' verdict that he returned to work an equally effective but pleasanter chap.

Imaginative managers are finding other ways of motivating staff - for instance, offering the opportunity to spend a small part of the working week on community service. Firms say the cost of the time involved is more than compensated for by the bolstered morale and loyalty of staff who have the chance to work with local schools or housing projects.

But financial incentives remain the strongest cement for securing key staff. It follows that a shed-load of share options that have been made worthless by the tumbling stock market can have a dispiriting effect on staff. City institutions remain largely opposed to allowing the rebasing of share options, arguing that options align the interests of executives with those of investors rather than providing a one-way ticket to riches.

But that should not stop companies implementing new incentive schemes with lower-priced options so long as the targets are demanding and the amounts involved not over-lavish. Vodafone's shareholders approved Sir Chris Gent's potential pounds 12 million package, but most executives could be motivated by a fraction of that.

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