So your son’s coming back to work on the farm at last. He sailed through his diesel mechanics course and apprenticeship, and his five years of servicing and selling tractors in the US was a great experience. You’ve done a good job of succession planning. Now – how much are you going to pay him?
“Well…,” I hear you say, “this is a small farm that always seems to be short of cash, so we can’t afford two managers. As a start I thought we’d give him enough to cover his costs, and when things get better…” And so things start going wrong for both of you. But let’s first talk about how much you pay the rest of your staff. Do you pay them in the same way – what you can afford, and just enough to cover their costs?
Of course not. If you did, you’d have no one working for you. Very well. How then do you determine the going rate and how do you know that your pay rates and all other conditions of service are fair? Remember the terms ‘true motivators’ and ‘hygiene factors’, used by Frederick Herzberg to describe how people respond to different factors in the workplace? His research found that people are motivated by things that are part of the job itself.
These include recognition, challenging and interesting work, increased responsibility and personal growth and development. But motivators don’t work unless the hygiene factors, things that surround the job and aren’t part of it (pay rates, leave conditions, hours of work), are competitive and fair.
These factors never motivate, they only have potential to dissatisfy and demotivate. Pay is the key hygiene factor. Make a mess of this and you’ll never motivate your employees – including your son. In farming, managing hygiene factors is much more difficult than in other businesses. Farmers still provide all sorts of benefits-in-kind, such as housing, electricity, water, medical care, funeral benefits, transport and so on.
How well are you managing the hygiene factors in your business? Are they seen as equitable by your staff? Do you have a logical basis for determining and allocating them? On paper, divide your staff into four groups – call them A, B, C, and D. The A group is all your manual labour, the B group semi-skilled and skilled, the C group artisans and clerical and the D group management. Now subdivide each group into three levels – call them A1, A2, A3, and so on, and build a hierarchy, intuitively placing the name of each staff member on the appropriate job level. You’ll have 12 levels.
The higher the name on your hierarchy, the more important the job. Remember: you’re looking at the job, not the person.
Now take a name or two from each level at random and add up the estimated full cost to the company of all remuneration, cash and kind. Is the person at the top of the hierarchy costing the company the most, and the person at the bottom the least?
Are people on the same level costing more or less the same amount? Is there a logical transition in cost from top to bottom, or are there those low down the schedule who are costing more than those higher up?
Remuneration packages are often the product of years of ad hoc adjustment and develop inequities. If yours are logical and fair, congratulations! If not, get to work and start sorting it out. Back to your son. Pay him exactly as you would any employee. As he moves up the hierarchy, pay him a market-related salary. If you’re unsure about that rate, get a consultant in to help you.
Now, I accept that, in a growing business, when your son is earning top dollar, you might find it difficult to keep both of you fully paid. The solution is simple – you both take a pay cut, treat it as a loan to the business, and don’t forget the interest!
Contact Peter Hughes at [email protected]. Please state ‘Managing for profit’ in the subject line of your email.
This article was originally published in the 31 August 2012 issue of Farmer’s Weekly.