Bonuses – Management Inequalities

If you own a business, I believe that you have a right to make more money than the rest of your employees. You are taking on a risk, and greater risk should result in greater reward, at least that’s how capitalism is supposed to work.

But what about management? Often I see management (meaning directors, VPs, C-level) having different bonus plans than employees. They have different targets, which makes sense, but also different measures. As a result, management often gets bonuses when employees do not.

I think this is a huge mistake. It contributes to a lack of loyalty from employees, they don’t trust management, don’t see them as leaders, and don’t feel they have a reason to support the company.

In times past, in the military, in companies in the late 1800s, workers had much less power and management took advantage of that. Workers don’t have much more power today, but they have much greater mobility, especially in the technical world. That means that by not creating a more equitable distribution of incentive pay, or bonuses, you are destroying the goodwill you can build with employees.

If you are running a company that deals more with very unskilled labor, say a retail store, then perhaps it doesn’t matter as much. If you have high employee turnover, then perhaps you are not losing much, though I would argue that you could reduce training costs with better retention, and that’s what bonuses give.

I’m getting off track here, but I want to provide a basis for building a better bonus plan.

I think management should have different targets they need to achieve, but these targets much be tightly coupled to those targets for employees. In fact, one of the management bonus targets ought to be that employees get their bonuses. If this measure isn’t achieved, then how is management succeeding? They must be driving employees, who actually do the work, to do a better job, or at least get the best effort out of them.

Management bonuses should be larger, and you can’t do much about the anger there. They take on greater responsibility, arguably greater risk in their career, and should be rewarded, but in determining that reward, it ought to also depend on their subordinates achieving their goals as well.