Bonus Formula

Elle · September 2004

Does anyone have a formula for caculating annual bonuses?

In the past, my boss would just go down a list and write a number. Managers usually receive more but that is it as far as a formal process.

Any help would be great. Thank you in advance.

marc · September 2004

It's like asking how do you get there from here? W

hat are you trying to accomplish with the bonuses? Do you want to reward excellence or is it just profit sharing? Lots of formulas out there based on salary, production, years of experience, etc.

I personally like discretionary bonuses, which is what your boss is doing, but they do allow for all sorts of bias and sometimes appear to have no rhyme or reason.

Elle · September 2004

Well, I think that ee think that they are all the same. I want ee to know that there is a formal system. I want to tie in how the organization (or even the department) is doing financially somehow. They keep decreasing every year (for most ee) and my boss just says it is b/c we aren't doing well. I would like to create and then communicate a better way.

With our current system, it really isn't fair and can be bias. There is absolutly no justification for the way they are done.

marc · September 2004

That is the nature of discretionary bonuses. I always tell the EEs that these bonuses are based on two things. One, how well the company did and two, how well the employee did. After year-end results are in, we would always determine how much bouses could the company afford, thereby creating a bonus pool. Then the pool would be divided into small pools for each department. The CEO would skim a portion out for top management and the balance would be given to senior management to divide up among their people. Always discretionary. In some cases, a single person in a department would get all the dollars, in others, the senior manager would devise a system based on the overall evaluation score and divide the dollars up proportionally. As archaic as this was, there would be no oversight to make sure that someone scoring a 3.5 in one department would equal the dollars given to a 3.5 in another.

This is not going to help you much, but that is the nature of discretionary bonuses.

Does your boss even want to change his system?

Elle · September 2004

Thanks for the background information.

My boss leaves things up to me to improve. If I present him with a better way of caculating the bonuses, he will most likely agree.

I think this year there may be potential issues with the bonuses if we continue to go about it the same as in the past.

It sounds as if your system is still more formal than ours. Thanks again!

Dutch2 · September 2004

We have a formal program, actaully we refer to it as an Incentive Compensation Plan, (sounds better than bonus, right?) Each ee works with his superivsor and establishes 4 to 5 personal goals for the year. Then based upon the bank's final numbers the employees receive anywhere from 7.5 days work of pay to 28 days pay if they make their goals. The company numbers are set at the start of the year and we keep our ee's informed monthly. If outside costs are incurred that were not planned and could not be helped they are deducted from the final numbers. We have been doing this for 4 or 5 years now with very good success. Prior to that we were one of the last bank's in this area to just give every ee a "Christmas" bonus equal to two weeks pay (basically an extra paycheck just before Christmas Day.) The program calculation is a bit different for our Sr. Mgmt. team, but still based on indivdual achievement of their personal goals.
Good luck,
Dutch2

Elle · September 2004

Great advice, thanks Dutch2.

bamahr · September 2004

Our bonuses are basedon goals and objectives. If you meet your goals and objectives you get a bonus - typically 10 - 15% of your base salary.

Bonus Formula

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