Bonuses

The salary bonus thing is interesting. However I’m not sure that a rolling bonus in lieu of bonuses and salary increases makes sense. You pay salaries no matter what. A bonus typically is paid when things are good, not when bad. So I tend to agree that limiting pay raises makes some sense. But I’m not sure rolling bonuses make a lot of sense. If we have a bad quarter, then if we know next Q won’t end up with a bonus, you’ll get people that game it.

Actually people will game anything. He’s what I suggest. I’d set a minimum number you need to hit to pay a bonus, something lower than you have and a lower bonus. Maybe $250k profit, and then 300pounds bonus. So if we hit this, no looking back at previous quarters. Then set a discretionary bonus based on numbers above that does look back. I think you have to define profit and define how you look back, or at least explain it every quarter. It doesn’t have to be a set formula, but the explanation has to make sense. It doesn’t have to be the same every quarter, you can modify this each quarter, just in a way that makes sense.

You have a certain amount of goodwill, so the discretionary part might work. If you maintain the trust with employees and this type of open dialog. While I would like to know the exact structure, it’s so I can keep track. Others would game it, and I don’t like that, nor do I like management gaming it either. Both sides tend to slide revenue to make/miss bonuses, at least in the US. A minimum ensures there is always something to shoot for, but a discretion, especially one that is explained, keeps people from gaming.

I've been reading Big Brown, about UPS, and they have some interesting thoughts in there on sharing with employees on a regular basis the profits of the company. I think that might actually be a better solution than bonuses over time. That's if you want to build a long term business and not just have employees there for a short period of time.

No matter what you do, the effectiveness of the plan really comes down to how your employees feel they are being treated, and the quality of your employees. You won't please everyone, especially those that are not high performers, but you can definitely motivate those that are.

And perhaps use people's reactions to your plan as a way to weed out those that don't fit with your company's culture.