Use these guidelines to develop winning bonus and incentive programs.
Every year, business owners face the decision of what to do about year-end bonuses. Some have an incentive compensation formula they attempt to calculate. Others use simple bonus plans. Many just do not know how to keep their employees happy and reward those who contributed to the overall company success.
Surveys show that as many as 50 percent of all construction and manufacturing companies offer some form of bonus plan, and another 33 percent have a pay-for-performance incentive program. Company owners always ask which structure works the best and how to implement a program to get the biggest bang for their buck.
Many professional football and baseball teams use financial incentives with their players. If players achieve certain milestones or targeted results, players are awarded financial bonuses. Some bonus milestones for baseball players include playing in a set number of games, batting 300, making the all-star team, pitching a certain number of innings or achieving a specified earned run average. Remember, these incentives are for achieving specific results versus simply doing a good job.
What Kind of Bonus Program Works?
There are four basic kinds of employee recognition, bonus and incentive compensation programs for employees. They include thank-you awards, gifts, incentive compensation and profit-sharing. The one you choose for your company is dependent on your overall goals. Many business owners are overly generous, think they have to give bonus checks at year-end and want to give their employees extra money whether the company does well or not. But without an incentive compensation program that everyone understands, does handing out bonus checks motivate employees to work harder, build teamwork and result in the extra bottom-line profit?
You can set targets and goals for each project or key employee, and if the goal is met, attach an extra cash reward. Or you can attach bonuses to a percentage of the net profit your company makes. This requires you to show all profit-sharing participants your financials. Giving out money based on an arbitrary formula that employees do not fully comprehend is nothing more than a gift. For example, if you arbitrarily decide to give all of your project managers $5,000; foreman $2,500; field workers $1,000; and office workers $500 as their year-end bonuses, will you get them to work harder next year? No! Will they appreciate the bonus? Some might, while others will think it isn't enough and complain to their peers. To make matters worse, they will expect the same or more next year, whether or not your company makes any money or achieved better results than the previous year.
Bonuses without a required performance level are nothing more than gifts, which deliver goodwill and/or frustration. Profit-sharing tied to performance makes everyone in your company focused on hitting the targets you want to achieve: growing your customer base, increasing productivity and profit, acquiring more referrals, improving customer service or safety and producing on-time delivery.
Consider these questions when deciding which bonus program to implement. What happens if your company has a great year? What about a bad year? What if all of your employees worked hard to achieve spectacular results, but one of your customers went broke, did not pay and caused your company to lose money for the year? What if some foremen always finish their jobs under budget, while others continually go over budget? How do you reward your best foremen and project managers who are assigned the most difficult projects and do an incredible job that only breaks even? What about a field superintendent who can get a project going quickly but takes forever to get the punch-list completed? Or what about a field operator who does a good overall job but has an accident and destroys a large piece of company equipment?
Thank-You Awards
The No. 1 employee motivator is recognition and praise. People want to know they
