Chapter 11
In This Chapter
Finding the best employees for your business
Deciding on motivations and rewards
Keeping on the right side of employment law
Unless you intend to work on your own, when running a business you’re involved in employing and motivating others to do what you want them to do. Even if you don’t employ people full-time, or if you outsource some portion of your work to others, you have to choose who to give those tasks to, how to get the best out of people and how to reward their achievements.
In recent years with high levels of unemployment, even among well-qualified graduates, recruitment has been a buyer’s market. But times change, and sometimes faster than you believed possible. Who’d have imagined in June 2013 that by September the number of jobs in real estate would have grown by 50,000 over the quarter to 562,000, the highest level since records began in 1978!
In any event, you’ll never find it easy to get the best people to work for a new or small enterprise. Poor promotion prospects and low job security, both hallmarks of the sector, aren’t exactly great pullers. So, you may find it better to work at getting your work proposition polished up.
In this chapter, I show you how to find the right people for your business, what to pay them and how to motivate and retain them.
You may need to change your attitude to the whole hiring process. Most entrepreneurs dislike hiring employees, so they do it as little as possible and fit it around their other ‘more important’ tasks. You have lots of important factors to consider here: Do you need full-time or part-time employees, or a mix of both? How do you go about finding them? What exactly do you want your employees to do and how can you build that into a job description and your selection criteria?
If you hope to grow your business, recruitment will become a routine task, like selling or monitoring cash flow, which you do every day. Furthermore, you need a budget to carry out recruitment and selection, just as you need a budget for equipment or rent. If you don’t have a recruitment budget, you shouldn’t be surprised if a task for which you’ve not allocated any money goes wrong.
One important decision you need to make before you can start your search for staff is whether you need to hire a full-time person. Some good reasons may exist for not doing so. If, for example, the demand for your products is highly seasonal and has major peaks and troughs, keeping people on during slack periods may make no sense. This scenario may be the case if you’re selling heating oil, where you can expect demand to peak in the autumn and tail off in the late spring because of variations in the weather. Other examples of seasonal fluctuations are increased sales of garden furniture and barbeques in summer, and toys and luxury items before Christmas.
Using part-timers can open up whole new markets of job applicants, sometimes of a higher quality than you may expect on the general job market. Highly skilled and experienced retired workers, or women who’ve given up successful careers to have a family, can be tempted back into temporary or part-time work. You may sometimes be able to have two members of staff sharing one job, each working part-time. You can also use this tactic to retain key staff members who want to leave full-time employment. This solution makes for continuity in the work, allows people to fit in their job around their personal circumstances and brings to the business talents that it may lose if it insists on full-time work.
You can find part-time staff using the same methods as for full-time employees, which I discuss in the next sections.
To make sure that you get great people into your business, follow the tips in these sections.
The starting point for any recruitment activity is a review of your short- and medium-term business goals. If you’ve recently updated your business plan (see Chapter 6), your goals should be fresh in your mind. If not then you need to do so. You need to be sure of exactly who you’re going to recruit. For example, if you plan to sell and service software via your website, the people you need may be quite different from those required if you plan to supply physical products.
Set out the scope and responsibilities of the job before you start recruiting. The job description should include the measurable outcomes that you expect, as well as a description of the tasks the person is to do. So, for a salesperson, spell out what the sales target is, how many calls you expect the person to make, what the customer retention target is and so on.
Too many small firms don’t get round to preparing a job description until the person is in place, or worse still they don’t have job descriptions at all. They argue that because jobs in the small business world have a short shelf-life because the company is growing and changing all the time, why bother? Well, if you don’t know what you want the person you recruit to be doing, he won’t know either.
Flesh out your idea of the sort of person who can do the job well. If you’re looking for a salesperson, communication skills and appearance are important factors to consider, as are the person’s personal circumstances, because he may have to stay away from home frequently. Make sure that you pay regard to discrimination legislation when looking at candidates’ personal circumstances (I cover this topic in the section ‘Avoiding discrimination’, later in this chapter).
As well as qualifications and experience, keep in mind the person’s team skills and that all-too-rare attribute, business savvy.
You can fill positions from outside your company but also from inside it – don’t overlook your existing staff. You may be able to promote from within, even if you have to provide additional training. Also, your staff, suppliers or other business contacts may know of someone in their network who may be suitable.
You can advertise in newspapers and also on the Internet, which has a proliferation of recruitment websites and is a major source of staff.
The type of vacancy you have determines the medium that’s best for you. The Internet may be right for design engineers, but a leaflet drop on a housing estate can be better when looking for shift workers.
When you have a number of applicants, your first job is to screen out the people who don’t meet your specifications. Phone them if you need to clarify something; for example, to establish whether they’ve experience of a particular software package. Then interview your shortlist, perhaps using a test where relevant to your business. Many self-administered tests are available, designed for different types of work – I talk about tests in ‘Testing to find the best’, later in this chapter.
Set your criteria into a short-listing matrix – a table with criteria in the rows and candidates in the columns – and score candidates between one and three against each criterion, with three being a good rating and one being barely acceptable. (The Start Up Donut, a resource provided by the National Enterprise Network, has a number of useful recruitment templates at www.startupdonut.co.uk/startup/employees/hiring-employees.) You can set the cut-off point where applicants below a certain standard wouldn’t be offered a job under any circumstances. Raise the standard if this cut-off point still leaves you with an overly large list of candidates to interview.
You may want to let the applicants meet other people in the business. Doing so gives them a better feel for the company and you can get a second opinion on them. When Apple was developing the Macintosh, the entire Mac team was involved in every new appointment. Applicants spent a day with the team, and only when the team decided that people were suitable did they let them in on the project.
Ideally, you end up with at least three people whom you’d be happy to appoint. Offer the job to the best candidate, keeping the others in reserve. You must have a reserve in case your first choice lets you down, accepts but then changes his mind or quits or is fired after a week or two.
Having got the right people to join you, make sure that they become productive quickly and stay for a long time. The best way to ensure that they do is to have a comprehensive induction process showing them where everything is and the way things are done in your business. Keep them posted about developments – put them on the email circulation list straight away. Set them short-term objectives and monitor performance weekly, perhaps even daily at first, giving praise or help as required. Invite them to social events as appropriate.
You can supplement the classic trio of selection methods – application letter or CV, interviews and references – with other tools that can improve your chances of getting the right candidate for most of the jobs you may want to fill. These tools are often clustered under the general heading of psychometric tests, although most of the tests themselves have less to do with psychology than with basic aptitude.
Although tests are popular and becoming more reliable, they’re neither certain to get selection decisions right nor risk-free.
Dozens of commercial test publishers exist, producing collectively over 3,000 different tests. You can locate a test and guidance on which is best for your business needs through the British Psychological Society (www.psychtesting.org.uk) or the Chartered Institute of Personnel and Development (www.cipd.co.uk/hrsuppliers/listing/guide/assessment-psychometric-testing).
You don’t have to do everything involved in recruiting employees yourself. You can find a recruitment consultant or use a government Job Centre to do much of the hard work for you. In fact, they may even be better at recruitment than you, because they recruit and select every day of the week. Research suggests that recruitment consultants, for example, are twice as successful at filling vacancies than are entrepreneurs on their own. You can also consider taking the job in question out of your business and paying someone else to do it. The following sections take you through your options.
Occasions may well occur when you feel that you’re unable or unwilling to do the job of recruiting yourself. In such circumstances, you may find it useful to use a recruitment agency. The costs involved may sound high, but when you reckon up your internal costs you may find that an agency isn’t that expensive. Doing the recruiting yourself can take several days of your time and that of others in your firm. If you’re working on your own or with just one or two others, this work may be too great a distraction from other key tasks.
Job Centre Plus is the government-run employment service that has professionally run offices with a growing number of staff specialising in small and medium enterprises (SMEs). Typically, the service operates out of 1,000 Job Centres based in towns where job seekers are likely to live. At any one time, it has around 400,000 job seekers on its database.
Job Centre Plus is particularly helpful to small firms with little experience of recruiting, because it offers a wide range of free help and advice on most matters concerned with employing people as well as signposting to other related services.
The Job Centre Plus range of services includes everything you expect of a recruitment consultant. But unlike other recruitment agencies, many of its services are free and in any event cost less than using any other external recruiter. You can find details of all services for employers at the Job Centre Plus website (www.gov.uk/jobcentre-plus-help-for-recruiters).
The fastest-growing route to finding new job applicants is via the Internet. The number of websites offering employment opportunities has exploded in recent years. The advantages of Internet recruitment to both candidates and clients are obvious. Internet recruitment offers a fast, immediate and cheap service compared to more traditional methods of recruitment. A number of recruitment sites have established formidable reputations in Europe and the US. These sites include
Another option is to have a job-listing section on your own website. This solution is absolutely free, although you’re certain to be trawling in a really small pool. However, it may not matter if the right sort of people are already visiting your site. At least they know something about your products and services before they apply.
If you want to, you can probably buy in almost every part of the work you do from external sources. Other companies can design and host your website and you can rent other technology. External warehouses can hold stock of your product. Transport companies can deliver on your behalf. Third-party call centres can handle your customer services. Online banks compete with traditional banks to offer online payment processing. You can outsource almost every other aspect of business – from accounting and recruitment, to payroll and human resource services.
After you’ve recruited the staff you want, you need to manage them in the most suitable way for your business. Management is the art and science of getting people to do what you want them to do because they want to do it; something, of course, that is easier said than done.
Most entrepreneurs believe that their employees work for money and their key staff work for more money. Pay them enough and they’ll jump through any hoop. In contrast, most research ranks pay as third or even fourth in the reasons for people coming to work.
If they don’t necessarily work for money, why do people work in a particular organisation? I provide some of the answers in the following sections.
My best advice for getting the best out of your employees is: get to know everyone. This statement may sound insane in a small firm – after all, you almost certainly recruited them all in the first place. However, by observing and listening to your employees you can motivate them because you make them feel special.
Some practical tools and techniques can help you get the most out of your employees. For example:
If you employ fewer than five people, you need to spend time with each of them every day; up to ten people, spend time with them every week. After that, you should have managers doing much the same thing, but you still need to get around as often as possible.
If you do need to criticise, keep it constructive and lighten it with a favourable comment. For example, if an employee is making some progress but is short of being satisfactory, saying something like ‘This is certainly an improvement, but we still have a way to go. Let’s spend a little time together and I’ll see whether we can’t get to the bottom of what’s holding you back’ may produce a better level of motivation than just shouting out your criticism.
You need to make clear that tolerance of mistakes has its limits and that repetition of the same mistake won’t receive an equally tolerant reaction.
Difficult or demotivated people need prompt and effective managing. Dissatisfaction can spread quickly and lower other people’s motivation levels. The first step is to identify the causes of the problem – is it to do with the employee or with the job itself? The problem may be brought about by illness, stress or a personality clash between people working together.
Whatever the cause, the initiative for re-motivating an employee has to come from you. However, the only reason for going through this effort is that the employee has delivered satisfactory results in the past or you believe he has the potential to do so, if you can only find the key.
Over 80 per cent of small businesses are family businesses in which one or more relatives work in the organisation. Family businesses have both strengths and weaknesses when it comes to motivation. By being aware of these factors, you can exploit the former and do your best to overcome the latter to give your business a better chance of prospering.
The factors that motivate or demotivate family members can be different to those affecting non-family members.
The overwhelming strength of a family business is its different atmosphere and feel. A sense of belonging and common purpose usually leads to good motivation and performance. Another advantage is that a family firm has greater flexibility, because the unity of management and shareholders provides the opportunity to make quick decisions and to implement rapid change if necessary.
On the downside, several weaknesses exist. Although these weaknesses aren’t unique to family businesses, family firms are particularly prone to them.
A family firm must address these problems to avoid all the effort it puts into motivating employees being seen as a cynical deception. Having a clear statement of family policy on the employment of family members, succession and ownership can be helpful. If these things are in place, non-family members can buy into this policy or not join the company in the first place.
Different types of work have different measurable outcomes. You need to identify the outcomes you want and arrive at a scale showing the base rate of pay and payment above that base for achieving particular objectives. Different types of ‘payment by results’ schemes are in common use, and you need to make sure that you pick the right mix of goals and rewards.
People don’t come to work just for money, but they certainly won’t come if you don’t pay them, and they won’t stay and be motivated to give of their best if you don’t give them the right pay. But how much is the right amount? Get it too low and you impair your ability to attract and retain productive and reliable people capable of growing as your business grows. But pay too much and your overheads rise so high that you become uncompetitive. Small firms face the real danger of a wage bill that represents their largest single business expense.
You may want to add to people’s salaries by rewarding them with money or benefits for the level of performance they achieve. I discuss various reward approaches in this section, which all follow the same ground rules for matching pay to performance:
Paying commission is perhaps the easiest reward system, but it really only works for those directly involved in selling. A commission is a payment based in some way on the value of sales that the individual or team concerned has secured.
You have to make sure that the order is actually delivered or executed before you pay any commission and you may even want to make sure that the customer has paid up. However, as with all rewards, you must keep the timescale between doing the work and getting the reward as short as practicably possible, otherwise people forget what the money is for.
A bonus is a reward for successful performance, usually paid in a lump sum related as closely as possible to the results that an individual, team or the business as a whole has obtained. In general, bonuses are tied to results, so that how an individual contributed directly to the result achieved is less obvious. For example, a company bonus may be paid to everyone if the firm as a whole achieves a certain level of output. Keeping everyone informed about how the firm is performing towards achieving that goal may well be motivational, but the exact role that, say, a cleaner or office worker has in helping to attain that goal isn’t easy to assess – not as easy as it is to calculate a salesperson’s commission.
You can pay bonuses periodically or as a one-off payment for a specific achievement.
Profit sharing involves giving a specific share of the company’s profit to its employees. The share of the profits can be different for different jobs, length of service or seniority. This type of reward has the great merit of focusing everyone’s attention on the firm’s primary economic goal – to make money. One or more employees can be performing well while others drag down the overall performance. In theory, in such circumstances, the high-performing staff put pressure on the others to come up to the mark.
If profits go up, people get more; but profits can also go down, which can be less attractive. Also, the business can miss profit targets for reasons outside of employees’ direct control. If your company depends on customers or supplies from overseas, for example, and the exchange rate moves against you, profits, and hence profit-related pay, can dip sharply. However unfair this situation may seem to a receptionist who’s been hoping for extra cash to pay for a holiday, it shows the hard reality of business. If you think that your employees are adult enough to take that fact on board, then profit sharing can be a useful way to reward staff.
Share option schemes give employees the chance to share in the increase in value of a company’s shares as it grows and prospers. The attraction of turning employees into shareholders is that doing so gives them a long-term stake in the business, hopefully makes them look beyond short-term issues and ensures their long-term loyalty. Of course, unwelcome side effects can occur if the value of the business goes down rather than up. Share schemes also have important tax implications that you need to take into account. You can find out all about these implications on the HM Revenue and Customs website (www.hmrc.gov.uk/shareschemes).
You can give a skill or competence award when an employee reaches a certain level of ability. These awards aren’t directly tied to an output such as improved performance, but you must believe that raising the skill or competence in question ultimately leads to better business results.
A benefit is defined as any form of compensation that’s not part of an employee’s basic pay and isn’t tied directly to his performance in his job. Non-salary benefits such as a pension or changes in working conditions can also play a part in keeping people on your side. A wide range of other perks is on offer to employees, ranging from being allowed to wear casual dress to on-site childcare. Other benefits available in some organisations include personal development training, company product discounts, flexible hours, telecommuting and fitness facilities.
All businesses operate within a legal framework whose elements the owner-manager must be aware of. The areas I cover in the following sections summarise only a few of the key legal issues. Different types of business may have to consider different legal issues, and employment law itself is dynamic and subject to revision and change.
You need to keep records about your employees, both individually and collectively. Keeping records makes the process of employing people run smoothly. Some of the data you need to keep is a legal requirement, such as information on accidents. Some of the information is also invaluable in any dispute with an employee; for example, in a case of unfair dismissal.
Collective information should include
These rights mean that an employee is entitled to gain access to his personal data at reasonable intervals without undue delay or expense. This request must legally be put in writing, although you may choose not to insist on this, and you must provide the information within 40 days of the request.
You have to give an employee a written statement of certain terms and conditions of his employment within two months of starting work for you.
The list of terms that form part of this statement include the following:
Although the owner of a business may be content to work all hours, the law strictly governs the amount of time employees can be asked to put in. The Working Time Regulations apply to any staff over the minimum school-leaving age. This group includes temporary workers, home workers and people working for you overseas.
As an employer, you must keep records that show you comply with the working-time limits and that you’ve given night workers the opportunity for a health assessment.
Occasions are bound to arise when you’re obliged to give your staff time off work other than their usual holidays or when they’re unwell. You have to meet statutory obligations of course. Otherwise you may not have to pay them when these occasions occur, but you do have to respect their right to be absent for compassionate or sickness reasons. And if they’re off sick, always meet up with them when they return, just to make sure that all’s well and that no underlying problems exist.
Employees who become parents naturally or by adopting a child are entitled to paid time off and other benefits, including Statutory Maternity, Paternity and Adoption Pay. The employee may also be entitled to have his job back at some later date.
Work Smart, a Trade Union Council-run website, has a full description of the latest rules and regulations on these ever-changing topics. (Go to www.worksmart.org.uk, click on Your Rights and then Working Life and Family-friendly Policies.)
Employees have the right to reasonable unpaid leave where their dependants – spouses, children, parents, other people living in an employee’s house (except lodgers) and others who rely on an employee in emergencies, such as elderly neighbours – are affected by
To take this leave, your employee should give notice as soon as reasonably practical, giving the reason for, and likely duration of, his absence. The legislation doesn’t define reasonable time off, but usually one or two days should suffice.
By and large business owners can employ whoever they want. However, when setting the criteria for a particular job or promotion, discriminating on the grounds of sex, race, age, marital status, religious beliefs, sexual orientation or union membership is usually illegal. Regulations also prevent you from treating part-time employees less favourably than comparable full-time employees – that is, someone doing broadly similar work and with a similar level of skills and qualifications.
Discrimination starts right from when vacancies are advertised – you can’t include such phrases as ‘women required’ or ‘young person sought’, or ‘no blacks’ or ‘no whites’. The rules extend to the pay, training and promotion of those who work for you.
Victimising someone who’s complained about being discriminated against is illegal. Sexual harassment is also a form of discrimination, defined as the ‘unwanted conduct of a sexual nature or other conduct based on sex affecting the dignity of men and women at work’. This description can include unwelcome physical, verbal or non-verbal conduct. Finally, you mustn’t include in your reason for dismissing an employee that he’s a member of a particular minority group protected by law.
By law you have to provide a reasonably safe and healthy environment for your employees, visitors and members of the public who may be affected by what you do. This obligation applies to the premises you work from and to the work itself. An inspector has the right to enter your premises to examine it and enforce legal requirements if your standards fall short in any way.
When you have employees you must take some or all of the following measures, depending on the number of employees. A prudent employer should take all these measures whether or not the law requires them. Doing so sets a standard of behaviour that’s common in the very best firms.
You, as an employer, can in turn expect your employees