Let’s take a moment to discuss employee bonuses. To help, we must define the differences in base pay and bonuses. In talking with several companies lately, there seems to be a disconnect between how business owners and their employees view bonus programs. This disconnect appears to be causing unnecessary stress, so I’m hopeful a few thoughts here can be used to lessen that burden.
I’ll start with concept of a base pay (salary or hourly). A salary or hourly pay is the reward for hard work. In fact, it’s a simple contract really. I (or you) agree to work hard to meet a set of expectations, during an amount of time, in exchange for an amount of pay. Unfortunately for owners, salaries are rare year after year. Most are left with whatever remains from the company’s performance, good or bad. The stability that a salary gives any employee is a stress relieving benefit. That’s often overlooked or unappreciated, especially as companies go thru varying economic times.
There are a lot of reasons for bonuses, and many are based on complex spreadsheets and variables. That often leads to confusion throughout the ranks. Bonuses aren’t supposed to be a reward for hard work…. without a specified achievement. Bonuses, as the word actually implies, are extra. Extra reward for exceeding expectations.
Employees sometimes confuse doing their job well as a bonus-worthy achievement. It’s not. Managing people, equipment, materials, overtime and safety is the job the base pay is based on. Managers need to have clearly communicated expectations and they should be held accountable, both when they are successful and unsuccessful. Simply managing the status quo is a lot easier than surpassing expectations. Good managers understand that weather, personnel, the economy, and resources are part of managing, not excuses for failure. They also know that failures will definitely occur from time to time and those failures should be studied to help get back on track. Great managers believe that the responsibility for both failures and successes lay solely at their feet.
Expectations vs Exceeding Goals
Your employees will want bonuses for exceeding their goals, but will rarely offer their resignation for failing. Or better yet, voluntarily return a previously paid bonus if production falls in a consecutive month or quarter. Accountability has to work both ways if you’re truly committed to success.
Is it really reasonable for a manager to remain unprofitable for 3 consecutive months, but then expect a bonus for one good month? Any manager willing to take a bonus, should also be willing to be reassigned if they continually fail to meet their expectations (goals). The success of the team or department is much larger than one employee or manager. We must all agree that if one person, as manager, cannot meet the expectations of the job, they have to be willing to step down or step aside for someone that can.
Make Sure Everyone is Clear
Employees, especially managers, must be clear that their base pay is derived from mathematic equations based on the profitability of the team’s or project’s they manage. If goals aren’t met, much less surpassed, then there should be no expectations for money available for bonuses. Benchmarks for when bonuses are earned must be clear up front. It must be understood that bonus money comes from extra company earnings, not for doing a job they were paid a base pay to perform.