My best HR management idea: Designing incentives in a tough economy
September 12, 2008 by Jim GiulianoPosted in: Communication, In this week's e-newsletter, Incentives, Latest News & Views, Money, My best management idea, Pay and benefits, policies
When revenues dropped at his company, Wesley Bacon faced tough questions: How do you kill bonuses that people had come to accept as “standard” — without killing morale? And is there another incentive you can use that satisfies employees and keeps the company out of the red? Here’s how he found good answers to both.
His story:
When we hit a little rough patch in business and revenues declined, we found we had a pay dilemma, too. People had been used to getting bonuses based on productivity, but during a business slump, that proved costly for the company.
I mean, people might still produce a lot, but that didn’t necessarily mean we were selling a lot. So how could we cut bonuses without having a mutiny on our hands? The answer came in how we decided to figure bonuses, rather than cutting them.
No more productivity bonuses
The new plan: Instead of setting bonuses on straight productivity, we also tied them to company profits.
In effect, we moved from a bonus plan to an expanded profitsharing plan.
We explained the new plan to our employees in small groups and gave the reasoning for it: If the company makes more money, you’ll make more.
And we threw in a kicker: With the old bonus plan, there were limits on how big anyone’s bonus could be. We scrapped that and announced that there were no limits to the profit-sharing – if the company keeps making more money, you will, too.
People bought into it, since they realized that the new system was designed so that if the company was successful, we’d all share in that success. And when revenues started to inch up, our employees realized they were being rewarded in a better, more fair system. I doubt we’ll ever go back to the old way.
(Wesley Bacon, Latco Corp., Houston)
Tags: bonuses, Incentives, morale, profitsharing
September 15th, 2008 at 5:07 pm
I have worked in smaller companies (less than 25 employees) for 20 plus years. While my employers seemed to follow the recommendation in this article, the part I did not like is that bonus also seemed linked to pay and seniority, so that higher earning and upper level bonuses were always more than staff level, on both dollar and percetange basis (I did the payrolls so I know). I would like to know if any company has a bonus pool, which splits bonus evenly between all employees on a dollar basis, regardless of employee level or seniority. Or a company that pays bonus truly based on performance, so that people who get the work done actually get bigger bonuses than management who only give the orders. Let’s face it, in some companies, it is the low and mid level employees who make it possbile for the company to make money. Someone may have a great idea, but without others to get the work done, the idea would go no where.
September 18th, 2008 at 11:55 am
That is so true Joe. I work and continue to oversee payroll too and I see it all the time. Where executives and people with seniority receive a much higher bonus. On the other hand, I’ve also worked for a very large international company where staff employees (laborers and assemblers) received most of the perks. Their reasoning was based on “With out their hard work, dedication, and attention to detail to make the best widget in the world, you would not be here today.” Bonuses were distributed evenly throughout the company….a percentage of your base annual salary. I believe this what makes a company successful…share the wealth!