The Bonus Dilemma, by Linda Leigh Francis
Let's say the holidays are right around the corner and with them comes an annual dilemma. What do I do about bonuses? Should it be a ham or a turkey? A big party with gifts? A year-end cash bonus? Who gets how much? What will one employee think if they get less than another employee? Hey! Let’s just ignore the whole thing and hope it goes away!
When contractors broach this topic, some experience frustration that borders on anger. They try to be generous and fair, only to have their efforts slap them in the face. They see their employees expecting the annual gift and then complaining at the level of generosity. Many also have to struggle with the idea of bonuses, not only at Christmas, but throughout the year.
A major cause of this frustration is that employers and employees don’t know how to think about bonuses. For example, some employees think of bonuses as gifts, rather than something earned. While working for a framing contractor, I interviewed one of his foremen. I asked whether he had gotten any bonuses. He said that he’d received $1000 several months before. I asked what he had done to earn such a generous bonus. He replied, "I don’t really know, but I wish I did, so I could do it again!"
When employees don’t know why they receive a bonus or come to expect one as a right, the employer has incurred an expense without reaping any benefits. To benefit from giving bonuses, one has to think about bonuses as rewards for specific achievements. Accordingly, a business should develop a bonus program that clearly describes the level of achievement that will earn rewards.
The goal of such a bonus program is to focus your employees’ attention on making the company stronger and more successful. A good program:
1. Has clear goals that draw people into the process.
2. Relies directly on employees’ efforts to meet the goals.
3. Achieves the goals through a team effort.
4. Gives frequent feedback on progress.
5. Gives the employees the required knowledge and training to meet the goals.
6. Has achievable goals that require effort to reach.
For example, a business’ annual plan will have a sales goal and a gross profit margin goal. Usually, the owner has the responsibility of hitting the sales goal. However, the owner AND the employee share the responsibility of meeting the margin goal. The owner must be successful at selling, bidding, and negotiating the job, and the employee must be successful at:
- Getting the job done as scheduled.
- Effectively managing materials.
- Effectively managing people or trades.
- Doing it right the first time.
Keeping this in mind, a company can create a powerful bonus program based on the company achieving its annual sales goal and then exceeding the margin goal for the year. (A clear goal) Exceeding the margin goal requires doing a good job on each job throughout the year. (Relying directly on employee efforts.) Jobs go best when there is a coordinated effort between the field and office. (Creation of a team effort.)
The owner should also share job costing figures throughout the life of a project and share the monthly status of annual sales and margins. In this way, people can see how well individual jobs, the company, and their future bonuses are progressing. (Frequent feedback.)
Remember, employees may require training on how gross profit margin is determined and training on how employees control the profitability of a job once the contract is signed. (Training and knowledge required to meet the goal.) Finally, the objective is to do better than the annual plan, with a portion of the increased profits shared as the company bonus. (An achievable goal that requires effort.)
Distribution of the bonus can be done in several ways:
1. Give everyone in the company an equal share.
2. Give different amounts based on seniority, by position, by number of jobs or sales volume managed, or
3. Do a combination.
For instance, let’s say there is $6000 available for bonuses. Split $2000 evenly between all the employees. Split $2000 based on a combination of seniority and the level of responsibility. Distribute the final $2000 based on attitude, special efforts, or other subjective criteria as determined by the owner.
type of bonus program will insure that the company gets a bang for its
bonus buck. It will also get everyone in the company excited about the
success of the company. Fortunately, for your sanity, it will also
relieve the annual dilemma of what to do about Christmas bonuses!
Like to learn more? Get Linda Leigh Francis' book, Run Your Business So It Doesn't Run You.