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Bonus Your Way to Profits
August 17, 2009
By Gary Brose
"I don't care, Gary. I mean, I have to tell you, I just don't care about the bonus."
I was listening to Ron, a veteran employee tell me to my face the $300 quarterly bonus wasn't important to him. Wait a minute! When was the last time I had my hearing checked? I couldn't be hearing this, could I?
Well, I was hearing it and it took me a while to drill down and find out the reason he didn't care…but we'll come back to that in a few moments.
I believe a smart company will always see the benefits of creating productive and rewarding bonus programs for their employees. Over the years, I have tried to reward good performers and involve everyone in striving toward the company's goals by creating effective bonus programs.
A good program has the potential to improve morale, minimize turnover, and increase pay for most of your employees. Since 1982, EVERY employee at my delivery company participated in a bonus program. I have designed more than a hundred different bonus plans during the last 25 years, and some have worked better than others, and a few were mild successes (that's corporate-speak for dismal failure).
The truth is, most of the plans failed. They failed to excite the employees; they failed to result in sales or operational improvements; they failed to assist the company in improving the bottom line. As Thomas Edison said after his 500th failed light bulb experiment, "We know hundreds of things that don't work!"
SmallBiz Rule No. 41: Base the timing of bonuses with the employee level.
Over time, excruciating trial and error, and many false starts, I learned there were certain key elements to a successful bonus plan. In fact, I identified eight essential elements that had to be in every plan or the plan flat-out failed.
Now, I don't have the time or space to discuss all of them here, but let's talk about the one that resulted in the conversation above. That bonus paid the employee quarterly. After a long conversation with him, the truth finally came out. He couldn't sustain his interest in the program for that long. He needed more immediate gratification.
That bonus-timing information gave me the first and most important element of a good bonus program: Vary the bonus time frame inversely with the level of the employee. That is, entry level and lower level employees should receive bonuses more frequently while managers and higher-level employees can receive their bonus less frequently.
A good general rule of thumb is to pay lower-level employee bonuses monthly and management, or higher-level, quarterly or even yearly.
So, now let's rejoin that earlier conversation…in progress:
Ron has finally "fessed up" that the time between bonuses was just too long, and he couldn't stay focused for that period of time. My original thinking was a bigger bonus amount over a three-month period would be more attractive than a smaller one over a one month period. I was dead wrong. So, doing an incredible feat of mental math, I cleverly suggested, "How about if we did a $100 bonus every month instead?" Wow! You would have thought I'd just found the cure to cancer! Ron was extremely enamored of that idea and felt that now he could sustain interest AND get better results too!
I will be the first to admit I designed several bonus programs that paid my employees more, but did not necessarily help the company achieve its bottom line goals. In fact, it's quite easy to do that. Companies do it all the time in the form of a "Year-End Bonus" or "Profit Sharing." It's easy to give away money and get nothing in return. The trick is to structure the bonus plan correctly so it's a Win/Win!…so the employee makes more money AND the company does too. When you can do that, you can literally "bonus your way to profits!" And nobody does that better than an entrepreneurial, open-minded small business owner! Small Biz! I love it!
Gary Brose is the author of "Bonus Your Way To Profits!"
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