Incentives and Bonus Plans

Mel Holsinger Comments
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As competition escalates in every market, putting pressure on facility operators to improve performance, it becomes increasingly important to ensure your managers are at the top of their game at all times. Knowing they will usually perform better when given incentive to do so, what types of bonus plans can you put into place?

Laying the Groundwork

For the most part, the primary goal of the manager is to rent units at market price, maintain the grounds and buildings in a professional manner, and be an all around director of the business. But we also know managers wear many hats including salesperson, maintenance manager, bookkeeper, customer-service rep, guidance counselor, negotiator, collections agent, etc. In self-storage, it’s difficult to identify everything a manager does because the job has a tendency to change somewhat every day.

Now, let’s cover some basic assumptions. First, I assume you have done your homework and are paying your managers a competitive wage for the facility at which they work, that the wage is competitive with similar businesses in the community, and the employee’s experience and knowledge is sufficient for your operation. Most storage companies pay staff a salary or hourly rate; many offer living quarters and utilities as part of the package; and more and more offer benefits such as medical, dental or life insurance. They might even offer a 401k or IRA type of pension plan.

The question is, once you have negotiated salary and benefits with the employee, what can you do to increase his motivation and reward him for outstanding performance?

A Simple Plan

I suggest starting with a very basic plan to provide bonuses based on economic performance. Once you’ve prepared your annual budget, sit down with your manager to discuss how you arrived at your numbers, and get his input regarding how to meet them. This can involve many hours of looking at historical data, competition, economic changes in the community and other factors. You need to think about when you will increase board rates, when your discounted customers will get a rate increase, how many delinquent customers you will have (and how you will deal with them), the types of discounts might you offer to increase occupancy, etc.

When you and your manager feel confident that you have assembled a good budget, agree this will be the economic basis for consideration of a bonus. I suggest paying 10 percent of the over-budget revenue, paid in quarterly installments.

For example:

Now, what happens if the manager fails to meet the budget in the second quarter? Based on this type of bonus plan, he would not get any bonus for the second quarter but would still be eligible in the third and fourth quarters. This is a good plan provided the budget is fair, the manager is allowed some freedom in making decisions that will potentially affect his performance, and the owner/management company is willing to adjust the budget if some unforeseen event happens that could adversely affect revenue such as a natural disaster, fire, etc.

Sales Commissions

Another incentive that can be put into place is a direct commission for the sale of merchandise, insurance, and other add-on products or services. If you give the manager a direct commission on each product he sells, it’s easy to assume he has a motivation to sell more. I recommend awarding a 10 percent to 15 percent commission on these types of sales, since the margin is generally sufficient enough that you can give him part of the profit and still make enough to restock inventory.

Delinquencies

Although part of the manager’s job is to minimize delinquent customers, we all have some tenants who fail to pay on time. I like a bonus plan that says, “If you maintain a certain low percentage or dollar amount of delinquencies, I will reward you with something such as a gift certificate to a local restaurant or shopping mall, a three-day weekend at a local resort, or even a couple of paid days off at a predetermined time.”

When implementing this sort of plan, you have to set specific guidelines. For example, the low percentage has to be maintained for three months. It might also be tied to the length of the delinquencies (30 days, 60 days, 90 days, more than 90 days, etc.). It could also include provisions for auctions if applicable. Plans such as these give the manager a reward but can be difficult to implement, and should only be given for a set length of time.

Merit-Based Bonuses

Some facilities employ a mystery caller/ shopper company to help them evaluate how well the facility is presenting itself to prospective customers. As part of its service, the company will generally provide a report with subjective grading or points to set a benchmark and demonstrate how well a manager is doing.

If a manager scores in the top percentage (say, 90 percent or better) he should be rewarded. Consider assigning dollar amounts to various score levels. For example, if he scores 90 out of 100, it’s worth $25; a 95 would be worth $75; and 100 points could be worth $100 or more. This provides motivation for the manager to consistently answer the phone professionally and use the sales techniques in which he has been trained.

Bonus on the Fly

Now let’s consider some other things that are not directly tied to revenue but can potentially increase or decrease a facility’s performance. I like to use what I call “the spontaneous bonus.”

Here’s how it works: Visit your facility unannounced and immediately do a property inspection. If you find the property is spic and span, there are no ignored maintenance items, the landscaping is immaculate, the buildings are not in need of touchup paint, etc., give the manager a bonus just for doing an excellent job. By doing this at random, it shows the manager you appreciate his effort. It tells him you got a positive impression of the property and feel good about how it is perceived by prospective customers.

These types of bonuses can be mutually rewarding, as they build loyalty. I’ve often heard managers say things like, “We like to work for this owner because he appreciates our dedication to his property.”

Cost-Savings Bonus

Most managers cannot control the costs of an operation, but there are ways you can reward them for helping to reduce expenses. If your manager can fix something that normally requires the services of an outside contractor, should you give him some of the potential savings? This can be a complex issue, and you have to be careful; but in some circumstances, the answer is “yes.”

For example, I worked with one manager who was a retired painting contractor. The facility he managed was in dire need of paint, and he had acquired some bids for the work. He asked if I wanted him to do the job himself and, if not, if I wanted his assistance in evaluating the bids. I opted to give him the project. It took him longer to complete, but at a considerable savings. I gave him a 25 percent bonus over his costs and was still able to save almost 35 percent over the price of another contractor. Again, use caution if you decide to use this type of bonus, as it can potentially cause problems.

Annual Rewards

Last but not least, at a minimum, give your employees an annual raise as part of their basic compensation package. I’ve never met a manager who felt he could make a million dollars by running a self-storage facility; but most managers seem to enjoy the challenge of increasing occupancy, decreasing delinquencies and working with people. They understand the limits of what they can earn in this industry. Incentives and bonuses can provide them with a better lifestyle and help you, as an owner, enjoy the economic benefits of the business.

Managers are a facility’s greatest asset and should be recognized as such. A good manager can make a poor location great, just as a poor manager can make a great location bad. By providing incentives and bonuses, you will likely reap more in benefit than what you pay out in cash. 

Mel Holsinger is president of Professional Self Storage Management, based in Tucson, Ariz., which offers facility-management, consulting and development services to the self-storage industry. He is also president and co-founder of the Self Storage Education Network, which provides online-based manager and owner education (www.selfstorageeducation.net). For more information, call 520.319.2164; visit www.proselfstorage.com

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