Performance-based compensation | The Barefoot Spirit

Forbes Magazine Article

Michael Houlihan & Bonnie Harvey — Tue, 09 Dec 2014 20:13:12 +0000

The Incredible Story Of Starting The World’s Largest Wine Brand, Barefoot Wines

I was recently speaking with Michael Houlihan, co-founder of Barefoot Wines. This is the story of how two people overcame remarkable odds and built a beloved brand that transformed the wine industry. It is hard to believe that such an iconic brand as Barefoot Wines began in a laundry room of a rented farmhouse in the Sonoma County hills. Even more surprising is that the people who started it were just an average business couple, Michael Houlihan and Bonnie Harvey. From the start, with virtually no money and no wine industry experience, they employed innovative ideas to overcome obstacles, create new markets and strategic alliances, while pioneering Worthy Cause Marketing and performance-based compensation. They successfully sold the brand to E&J Gallo in 2005 and Barefoot is now the largest wine brand in the world. (ref The Drinks BusinessJune 2014 London)

TO READ THE COMPLETE ARTICLE, PLEASE VISIT FORBES

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To Get True Entrepreneurial Culture, Corporations Must Pay for Performance

Michael Houlihan & Bonnie Harvey — Sat, 02 Aug 2014 18:30:35 +0000

Some of the most popular search terms we see coming from the so-called C-Suite (top corporate executives) these days are, “entrepreneurial culture, employee engagement, and employee empowerment.”

Nowadays it seems even the big corporations want to make the shift to a more entrepreneurial culture. So we put together a companion to The Barefoot Spirit just for the C-Suite. It’s called – you guessed it– The Entrepreneurial Culture, 23 Ways to Engage and Empower Your People.

We will be announcing it this week with several media appearances in New York, including the taping of a new TV show run by Jeff Hayzlett (the former Chief Marketing Officer of Eastman Kodak) called C-Suite TV. We are very excited to have our new book launch coincide with the launch of the C-Suite TV and C-suite Book Club in early September.

We saw a great cartoon recently where a haggard employee was sitting at a bar after work, complaining to the bartender, “Sure they want me to be creative and innovative, but I’ve got a career to think about!” One of the chapters from The Entrepreneurial Culture suggests entrepreneurial compensation to solve this problem.

Chapter Four

Use performance-based compensation, and share the wealth.

Allow us to be blunt: we don’t think that set salaries are a great idea. When you have a compensation plan based on an hourly rate, you’re paying for attendance, not production. Regardless of how much they do or don’t accomplish, your employees will have an “I was there, pay me!” attitude…and can you blame them? Instead, our experience has shown us that performance-based compensation is better for everyone– you, your employees, and your company as a whole.

We created a pretty radical pay system at our company for a simple reason: We were a small company that needed to sell large quantities of merchandise, and we couldn’t afford unproductive people. So basically, we asked employees to bet on their own productivity. (Or as Michael told job applicants, he was asking people to bet on themselves.)

For salespeople specifically (and to a lesser extent, sales-support people), we offered a small base salary and told new hires, “The more you sell, the more you make. There’s no limit.” And in order to ensure that our employees didn’t ease off when they felt they were making “enough,” we set up an increasing incentive, so each step—though harder—would be worth a lot more than the last.

Here’s an example of how it worked: If someone sold, say, 100 cases in April 2000, and 100 cases in April 2001 (these numbers are unrealistically small for simplicity), their commission would be the same in both years. But if they sold 10 percent more – 110 cases – they would get $1 for every case over that 100, or $10 more.

If they sold 20 percent more in April 2001 – 120 cases – they would get $2 per case for every case over 100. Not just $1 for cases 101-110 and $2 for cases 111-120; they would make $2 for each case, or $40 more. They didn’t just get higher pay for additional growth, they got the boost for all the growth. It kept multiplying. So, 30 percent more – 130 cases – would earn $3 times 30 cases, or $90, and on up. (And again, keep in mind that these numbers are unrealistically small!)

At various points, we were chastised by other businesspeople who felt that we were “overpaying” salespeople. This was partially due to the fact that several of our top salespeople made more than we, the owners, did! Yet when we looked at the numbers, we knew we were doing the right thing.

Our unorthodox compensation system didn’t stop with our salespeople, either. Performance-based pay also applied to our sales support-staff (i.e., everyone who wasn’t a salesperson). In addition to their salaries, these employees received bonuses based on quarterly sales.

At first, many members of our sales-support staff were skeptical. For example, one bookkeeper claimed that it wasn’t fair to be paid a bonus based on quarterly sales because bookkeepers could not affect sales. Turns out, that claim wasn’t entirely accurate. Here’s what happened: Soon thereafter, one of our salespeople got a last-minute meeting with “Mr. Big,” a supermarket chain buyer, at 8:00 AM the next morning. And because the bookkeeper in question knew that his bonus would be affected by the sale, he made sure that the salesperson had all the necessary reports by 7:00 AM. Needless to say, our salesperson came back to the office with the purchase order.

Here’s another example of how pay-for-performance motivated our sales-support staff. One day, a gentleman walked into our reception area wearing an aloha shirt and Bermuda shorts. Although he appeared to be on vacation, this man was checking out our wine display and everything written on the walls. Our receptionist, who knew that her bonus was based on sales, proactively asked the visitor if he was a wine buyer. When the man shared that he was actually a big wine buyer for a 30-store chain in the Southwest, our receptionist immediately introduced him to our national sales manager. And because this wine buyer was relaxed, on vacation, and in discovery mode, he ended up putting our product in all of his 30 stores! You can bet that our receptionist really savored that particular quarter’s bonus.

Overall, performance-based pay really helped us grow, and best of all, the increased “pay” was “found money” that cost us nothing.Plus, we reduced turnover, which is the #1 hidden cost of doing business. Think about it: when members of your team leave, you don’t just lose those employees; you lose their hours of training, their institutional knowledge and their relationships outside the company. In the case of salespeople, you can lose customers who are more loyal to your former employees than the product they represented. Plus, it can be costly to look for and train new candidates.

Basically, our compensation system meant that producers couldn’t afford to leave, and non-producers couldn’t afford to stay. Meanwhile, we constantly attracted new go-getters who were willing to bet on themselves.

It’s simple: How you treat your employees directly correlates to how successful your business will be. If you treat them like a commodity—if you’re stingy with pay, recognition, and benefits—they’ll do only the bare minimum to keep their jobs, and eventually, they’ll leave.

We suggest you use performance-based compensation, too. Yes, every company and every industry is different, but if it’s possible to earn profits, it’s possible to tie those profits to your employees’ salaries and bonuses—and we guarantee that you’ll see results! Sharing the wealth never looked so good!

Who We Are

Michael Houlihan and Bonnie Harvey co-authored the New York Times bestselling business book, The Barefoot Spirit: How Hardship, Hustle, and Heart Built America’s #1 Wine Brand. The book has been selected as recommended reading in the CEO Library for CEO Forum, the C-Suite Book Club, and numerous university classes on business and entrepreneurship. It chronicles their humble beginnings from the laundry room of a rented Sonoma County farmhouse to the board room of E&J Gallo, who ultimately acquired their brand and engaged them as brand consultants. Barefoot is now the world’s largest wine brand.

Beginning with virtually no money and no wine industry experience, they employed innovative ideas to overcome obstacles, create new markets and forge strategic alliances. They pioneered Worthy Cause Marketing and performance-based compensation. They built an internationally bestselling brand and received their industry’s “Hot Brand” award for several consecutive years.

They offer their Guiding Principles for Success (GPS) to help entrepreneurs become successful. Their book, The Entrepreneurial Culture: 23 Ways To Engage and Empower Your People, helps corporations maximize the value of their human resources.

Currently they travel the world leading workshops, trainings, & keynoting at business schools, corporations, conferences. They are regular media guests and contributors to international publications and professional journals. They are C-Suite Network Advisors & Contributing Editors. Visit their popular brand building site at www.consumerbrandbuilders.com.

To make inquiries for keynote speaking, trainings or consulting, please contact sales@thebarefootspirit.com.

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Doubt the Doubts Interview with Paul Blais

Michael Houlihan & Bonnie Harvey — Wed, 30 Oct 2013 18:04:57 +0000

EPISODE 95 MICHAEL HOULIHAN

Posted on October 26, 2013 by Paul Blais

Podcast: Play in new window | Download

Michael Houlihan, author of the New York Times bestseller The Barefoot Spirit: How Hardship, Hustle, and Heart Built America’s #1 Wine Brand, started the Barefoot Wine brand with Bonnie Harvey in their laundry room in 1986, made it a nationwide bestseller, and successfully sold the brand to E&J Gallo in 2005. Starting with virtually no money and no wine industry experience, they employed innovative ideas to overcome obstacles and create new markets.

Pioneers in what they termed “worthy cause marketing” and performance-based compensation, they held a comprehensive view of customer service that resulted in the National Hot Brand Award for outstanding sales growth in 2003 and 2004.

Michael now shares their experience and innovative approach to business as a consultant, author, speaker, mentor, and workshop leader. His book, The Barefoot Spirit, chronicles the history and lessons learned building the popular Barefoot Wine brand.

Who We Are

To make inquiries for keynote speaking, trainings or consulting, please contact sales@thebarefootspirit.com.

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Corporate Structure Can Turn Information into Currency – Part 2

Michael Houlihan & Bonnie Harvey — Fri, 05 Oct 2012 15:49:26 +0000

Johnny Carson used the expression, “I did not know that” and brought the house down. It was his way of stating his lack of knowledge about any surprising event. The audience was also surprised and couldn’t help but laugh.

It’s no laughing matter when your staff finds out that they are out of a job because your company lost a major buyer or couldn’t solve a critical problem. But if they don’t understand the challenges, they can’t help with the solutions. If their good ideas are suppressed or the free flow of information is stopped because of politics or turf wars, the challenges your company faces can be become even greater.

Your people are your greatest assets. They all come with a brain, imagination, and a desire to better themselves. They will use those resources to the benefit of your company if you let them.

Here are some effective practices we found that engaged our people to help us solve our challenges and keep the information free flowing:

1. Need-to-Grow Trumps Need-to-Know. We told our entire staff our major challenges and asked for their suggestions. Their outsider’s view in many cases provided fresh, out-of-the-box solutions. What if they didn’t know? We would have lost those insights.

2. De-Specialization. Every year we asked each employee what they would like to do within our company. We put our various job requirements on the table and they were all picked up, but not necessarily by the same folks who had them the previous year. We found that people whose job fit their skills and desires out-performed strict job specializations.

3. Performance-Based Compensation trumps position, tenure, or attendance-based compensation. Once all our people were getting bonuses on sales it became clear to them that the money came from the customer, and not the “company.” Sharing information and ideas was good for everybody’s paycheck.

4. Out-sourcing. Rather than trying to do everything in house, we would out-source for as much as possible. We paid only for the products and services that were to our specifications. Our people managed outsourced companies, which had the net effect of keeping us smaller and less restrictive. It reduced the typical company pyramids and enabled people to communicate directly with the decision-makers in our company, allowing more good ideas to reach top management.

5. Public Acknowledgement. We would “catch” someone doing something beneficial to the entire staff and, much to the chagrin of the lawyers, publicly acknowledge them in writing. We encouraged everyone to come forward with new ideas and for that they would gain appreciation. This practice also built a strong company culture since everyone understood and appreciated how other folks in the organization were improving their job security and increasing their paychecks!

Of course, all these ideas may not work in every situation, but it’s the spirit behind them that can help any business. Respecting the intellect of your human resources, giving them a financial reason to work as a team, and sharing your challenges can avoid hardening of the information arteries and prevent them from saying “I did not know that.”

Who We Are

To make inquiries for keynote speaking, trainings or consulting, please contact sales@thebarefootspirit.com.

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Put Your People on the Same Team

Michael Houlihan & Bonnie Harvey — Sun, 26 Aug 2012 00:29:36 +0000

No matter what kind of business you think you’re in, you quickly find out you are in the personnel management business. With careful hiring, mentoring, recognition, and compensation plans, your people can be your greatest asset.

Recurrent, personnel issues can be a distraction to you and your staff. Some react to personnel problems by firing the offending parties. Occasionally this may be necessary, however the issue may be a symptom of misunderstanding how your company works.

This is why it’s so important to address the main areas that can permit or actually cause personnel issues:

1. Hiring. Before you are dazzled by a stellar resume with the perfect skill set for your opening, consider the individual’s ethics, motives, and team outlook. Do they think they should be paid whether or not you are paid, or whether or not the company satisfies its customers? Are they bringing an agenda to work that has nothing to do with the job? Do they want to get paid for attendance or for production? Are they willing to take responsibility for their own behavior or are they looking to blame and complain?

2. Orientation. Don’t just show them the lunchroom and the bathroom. Show them where the funds come from that pay their salary, benefits, and bonuses. Give them an info graphic that traces the money from your customer, through your sales people, to cover your overhead and eventually pay them. Show them how their job affects the bottom line. Show them how everybody else’s job affects their paycheck. It’s easier to look beyond a co-worker’s personality when they know how everyone fits into the big picture.

3. Compensation. Most compensation plans are based on an hourly rate, which is paying for attendance, not necessarily production. Consider offering bonuses based on sales, cost reductions, and customer retention. Give them a financial reason to help the team perform. With the ideal compensation system, non-producers can’t afford to work for you and producers can’t afford to leave.

4. Mentoring. The time and attention you put into a new hire pays off. Listen to their questions. Clear up quickly any misconceptions about processes and interrelationships. Instead of narrowing down their focus, broaden their outlook to include their co-workers and the larger processes at work. Help them establish priorities. Seeing the big picture keeps the focus on their careers and performance rather than personnel issues.

5. Acknowledgement. A great way to build team spirit is to send out written acknowledgements or make an announcement when a person does something that positively affects business. We did this on each employee’s anniversary. Your people will gain more respect for their co-workers’ value as a team member. It is great when your employees can be friends, but respect and appreciation for their interdependence can be more effective in reducing personnel issues.

When your people know how their check gets to them, how they depend on their teammates, and how their bonuses are affected by the company’s performance, they are more likely to all pull together. Then you can focus on the journey and not the pebble in your shoe.

Who We Are

To make inquiries for keynote speaking, trainings or consulting, please contact sales@thebarefootspirit.com.

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Grow Your Business Faster by Sharing the Wealth

Michael Houlihan & Bonnie Harvey — Fri, 18 May 2012 03:19:46 +0000

Henry Ford used to say he’d rather have 1% of what a hundred others made working for him, than 100% of what he made by himself. Some business owners want to have it all, but in the process, cut off the very folks they need to get what they want.

Our business colleagues have chastised us for “overpaying” our sales people. They’d say, “Aren’t you afraid they will make more than you?” Actually, we had several sales people who made more than we did.

When we looked at the efficiencies of scale, the value of stability, and the increase in sales, we knew we were doing the right thing. So, why should you apply this winning philosophy to your business?

1. Reduce Your Turnover. Turnover is the largest hidden cost in business. It can take up to six months to find and train a new person. There is no guarantee that this new person will work out, either. You may have to start all over again with someone new. This can go on for quite a while until you get the right person.

Now you have someone who will be under-producing until he or she is fully trained. You also lose the time of the new hire’s trainer, who now has two jobs to do. Both jobs suffer. And the relationships built by the person who left could either be dropped or taken away by the departing employee. These must be re-built.

Remember, top performers who get a “piece of the action” are generally loyal and truly concerned about the welfare of your business.

2. Attract the Go-Getters. People who know they are excellent at their jobs want to work for a company that compensates them based on their performance. People who are less productive can’t afford to work for a company that has performance-based compensation plans.

When your job candidates ask where your profit centers are and how that flows into their paychecks, you should realize you are talking to a go-getter. Keep your performance metrics well thought out and achievable.

Rewarding for growth over same month last year is a good start. Averaging last year’s prior and subsequent months with the same month will smooth out most anomalies. Renegotiate profit-sharing bonuses annually.

3. It’s Free! If you know the profit of your business now, and you know your rate of growth for the past few years, any increase in that rate of growth attributable to your people’s performance is “found money.” When you cut an employee in for a piece of your increased profit, he is motivated to produce even more. It really costs you nothing. Just make sure the payment is tied into profitability, and not based solely on “growth.”

You are paying too much for labor when you pay for “attendance” alone. It’s their production you really want, because that is where your profits come from.

Why settle for 100% of a smaller pie when you can have more pie by taking a smaller piece of the larger pie others helped you get. When it comes to growing your business fast, it pays to share the wealth.

Who We Are

To make inquiries for keynote speaking, trainings or consulting, please contact sales@thebarefootspirit.com.

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