Bonus Your Way to Profits!

Sometimes you need to think counterintuitively to motivate your staff.

By Gary Brose | September 2010 | FROM THE PRINT EDITION

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 who was telling
me to my face that the $300 quarterly bonus just 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 that 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 has participated in a bonus program. I have designed
more than a hundred different bonus plans during the past 25 years. Some have
worked better than others and a few have been “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!”

Small Biz Rule #41: Base the Timing of Bonuses on the
Employee Level

Over time, excruciating trial and error, and many false
starts, I learned that 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 haven’t got the time or space to discuss all of them
here, but let’s talk about the one that resulted in the conversation above.
That employee’s quarterly bonus. 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 be given 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 that 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. 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’ll be the first to admit that I have 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 that it’s a win/win event … so that 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 a Seattle entrepreneur who has owned more
than a dozen companies during a 30-year career. He is the author of Bonus Your Way to Profits! A Manager’s Guide to
Radical Pay Restructuring. For a free full list of all “8 Essential
Elements of a Productive Bonus Program,” e-mail gary@smallbizsherpa.com.