Bonuses vs. Incentives

Ruby Tuesday

In the past, our company has provided "discretionary bonuses" to our employees. These bonuses reflected for the most part years of service and the Company's profitability. We are now considering linking the "bonuses" (now called "incentive pay") to an individual's job performance. This "incentive pay" would still be discretionary and based on Company profits. The problem I'm encountering is job performance is so subjective. One supervisor might think the world of an employee whereas another supervisor thinks that same employee has a lot of room for improvement. The reviews are so subjective - how do we get around that and create an incentive program that is fair and appreciated by the employees?

If anyone has examples of incentive programs they have in place it would be greatly appreciated. Thank you.

hrqueen

We struggled with how best to implement incentive pay for quite awhile. What finally worked for us was: 1) determine what we wanted to improve, 2) benchmark where we were at that point in time, and 3) agree on what would be an appropriate goal, or amount of improvement. When employees reached or exceeded that goal, a bonus was paid, usually the first payperiod of the next month.

A good book you might consider getting from your library is "Innovative Reward Systems for the Changing Workplace" by Thomas B. Wilson. Its an easy read, has good examples, and you can pick and choose what is appropriate for your company.

Hope this is helpful.

Ruby Tuesday

Thanks for the suggested reading - I'll look into it.

dlail

We implemented this plan just this year, after years of paying discretionary bonus based on what was supposed to be profitability. We created our own monster by sustaining the level over several years, and the retirement plan contributions reflecting the profit level. We have several departments, but many positions have only one employee w/ those responsibilities. We established a simple plan based on improvement to net profit, evaluated each quarter. This way there were 4 opportunities to reap reward for continuous improvement in efficencies. This way, everything isn't tied only to year-end. Lt me know if you are interested in more detail. This is a small company of 48 employees, so it may not suitable for your organization.

Pork

Ruby T: If you want to establish an incentive program that is effective, it can't be done with subjective targets that are just as subjective as the action required to "put out more to achieve more". A bonus like you are talking should be left to the decision of the top head and remain subjective. Let the senior be the one to face the concerned individuals and answer "what must I do to get your eye, your attention, your praise, and your rewards/awards? Our operational incentive is tied to the actual production of "piglets" out the back door each week, each month, each quarter, each year, while maintaining a certain fixed budgetted cost. Achieve an average of 825 "piglets" out the back door gets you your base salary or wage; achieve over 1000 "piglet" out the back door and you'll realize a potential incentive of $15,000.00 over your base salary. I as an HR person never get to be in control of the "piglets" out the back door, therefore, I never get to experience the operational objective incentive. I, however, received the largest subjective bonus last year, because I did what the GM (my boss) wanted and I excelled at that. Hope this helps Pork!

ritaanz

Pork, I'm afarid to ask. What's a piglet?

Pork

Ruby, glad you ask, a "piglet" is what I am all about these days, but Don the "piglet" is not ready for the Bar-B-Que, just yet; But, oh so good once it becomes 250 lb "gilt", which is a virgin, "pigletless female hog". The "Bore and the Sow" are the mom and dad, and they are not good for the Bar-B-Que either. They are 600 to 800 lbs in size. Again thanks for listening! Pork

ritaanz

More information than I needed. But I did ask didn't I?

Don D

When's the Bar B Que?

Ruby Tuesday

I like your analogy of "piglets" but we're a road construction company and we really don't have "piglets", "widgets" or any other "ets" and our crews are located throughout the state so our President does not get the opportunity to see the employees on a regular basis. We have to rely on the supervisors to provide feedback.

We could look at production as far as the number of gallons or tons used but a lot of factors come into play that are not controlled by the employees i.e. weather, breakdowns, moving equipment, etc.

Ruby

Pork

Ruby, OK, then leave it subjective; however, make their project manager responsible for arranging a rating of the crew and dealing with the President as to who should get how much of whatever. Last year we got an additional pot of bonus not budgetted. The President had the GM and the two Production managers input as to got how much of what. It worked very well and every employee got no less than $50.00 a person. Pork

Crout

What are the quality indicators for your company? How do you know your business is growing/improving? Do you receive a rating from your customers? If you deal with the State for road construction, do they set time-dependent benchmarks that must be achieved? I'm throwing these questions out as an example of what you should be asking yourself. I would keep the allocation of bonuses OUT of the hands of direct supervisors, and focus on the big picture(s).

Ruby Tuesday

good point - thanks!

hrqueen

I agree with Crout. Each supervisor will use his or her own yardstick or criteria to measure each employee and the whole process is totally subjective. The company should pay out money based on improvements realized, and this comes from data collected. To be effective, the plan should be fair, equitable and simple enough for everyone to understand.