Are you realizing the benefit that should be gained from having an employee bonus plan
Selling your company one day will have a third party probing all aspects of your business. If they plan to assimilate your team, they will take a close look at your compensation plans and will specifically inquire about the philosophy and structure of any bonus plans you have. One question they will ask…is your bonus plan delivering the results you intended?
Let’s start with what an employee bonus plan is designed to do. Its purpose is to influence and reward behavior. Ask yourself, are the bonus plans we have in place for members of our team driving the desired behaviors? If yes, great. If no, then although it’s nice that you’re paying your team additional compensation, you’re not benefitting from the payments (other than a feeling of goodwill) and certainly not using your bonus plan as a tool to help build your company worth.
An effective bonus plan contains the target or targets (the fewer the better) you want your team to strive toward and the associated behaviors needed to achieve the target(s). And an effective bonus plan is one that employees can easily understand how it’s designed, calculated and reported on a regular basis.
We often recommend the following:
Senior team bonus – these are often the direct reports to the CEO, leading the functional departments. This plan is often set on achieving Revenue, Margin and/ or Net Income and also contains a small number of personal goals for each senior leader. This bonus plan is annual in nature as you want these key leaders thinking longer term and not just month to month.
Sales team – these teams are often commission based so generally no additional bonus plan is required. The right commission plan should be motivating to your team and driving the right sales behaviors that align with your strategic sales plan.
Rank and file – these are your line managers and all employees reporting to them, so it’s the balance of your workforce. This bonus plan is set to the company achieving a financial target and as well a metric related to customer satisfaction (on-time delivery/fulfillment, quality, etc). This bonus plan is more often quarterly to every 6 months in payout as these members of your team are critical more to the short term performance of your business.
If you’re investing in bonus dollars today, great. But if you or someone has to act as Solomon in deciding payouts and employees have little to no idea what their bonus payouts are based on, then you’re missing a wonderful company worth building opportunity. Give us a call and we can help you decide what type of bonus plan to get in place and can show you samples that may quickly fill your need.
