Gary Brose, author of "Bonus Your Way to Profits!", has some unique first-hand insights into motivating employees and energizing the workforce. The following is an excerpt from Chapter 14 of his book about how to design bonus programs.

MAKING SURE THE COMPANY WINS!

Probably the most important aspect of restructuring pay for your employees is making sure that it is a long-term win for the company. Now, I am not defining "WIN" as more profit in the short term. A win may come in the form of an improved work environment, a solution to turnover problems or a culture change turn-around. I would define a win as something that enhanced the long-term profit picture and viability of the company. Whatever it is you do, you must make sure the company wins too. In this chapter, we will discuss some of the specific techniques for doing just that!

When it is going good…

Probably one of the more easy things to do is raise pay at a company that is already quite profitable and financially secure. Although there are a number of ways to do it, the bottom line is that you can’t screw up too badly. Simply raising pay across the board is one solution but as we discussed in previous chapters, that would be missing a huge opportunity. If you are committed to paying more, tie that extra pay to specific performance and make sure that the company gets back something too.

When you are financially secure, the stakes are not as high. You can design a bonus program, initiate it, discover it is off target and adjust and tweak as you go along. It’s not life and death. The only cautionary note I would make here is to communicate to the employees and then over-communicate to the employees exactly what you are doing. I would encourage you to issue a memo something like this:

To all the employees of XYZ Company:

Over the last ten years, XYZ has established itself as a top ranked company in the field of widget design. Much of our success has been a result of your hard work and commitment to excellence. Accordingly, we would like to share some our success with you and reward you in an on-going and permanent way.

Effective Thursday, May 1st, we will begin a new bonus program for each group of employees. This will be a monthly bonus paid to each of you based on your performance for the previous month. Each Department will have its own program and your participation and input will be valued and appreciated.

Building a quality bonus program can be a tricky thing and we will not pretend to be experts at it. A good bonus program needs to be a fair and honest motivator for employees. It should guide us to improving our service and/or product for our customers. And it should return a value to the company. Achieving all of those things AND being fair to all parties involved can be quite a challenge. Everyone should expect that we may not nail it on the first try. We are open to suggestions and are more than willing to tweak and adjust over time. If we find that the bonus program pays out too little to be a fair and equitable motivator, we will try to fix that. If the program pays out too much compared to the value that the customer and the company get in return, we will have to adjust that too.

But you can count on a few absolutes: 1) We want to be fair to everyone and 2) From this day forward, there will always be a bonus program in effect and the company will always meet its commitment to the employees.

If you have any thoughts that you would like to share with us on this process, please see your Supervisor today and discuss them. Thank you all for your efforts in the past and your commitment to the future.

Sincerely,

John Manager, Owner

"OK, Gary, what does that achieve?"

I’m so glad you asked! First of all, you have to make some kind of general announcement such as this to kick it off and get the ball rolling. This, of course, would be followed up by another memo that described the precise formula and way that the bonus structure would work.

But the most important part of this process is that you admit that developing a bonus program is a challenging process and will likely require some changes and adjustments. This takes the pressure off you and your Supervisory team to be perfect. When an employee comes to you later and tells you why some part of the plan doesn’t work, it’s not criticism. It’s two people having a calm conversation about how to tweak the formula so that it has the desired effect. This is a journey that you and all the employees are on. Everyone should expect change along the way and then, when it happens, no one gets freaked out over it.

I have seen this done the wrong way in many organizations. Employees who complain about the inequities or results of a bonus program are branded as complainers and malcontents. Soon no one wants to complain or offer his input because nothing good ever comes of that. You end up getting no participation and a ton of apathy about the program itself. Your goal here is create an atmosphere where the development of the perfect bonus program is a shared goal between the rank and file and the management team. Then no one is defensive about his bonus program (even if they personally dreamed it up from scratch) and everyone is on the same page. Hey, after all, we admitted we weren’t experts, right? The only goal is to create a quality plan that is fair and motivating and returns value to the customers and company alike.

Getting all of your people on the same page is the most important step in creating a Quality Bonus Program. Do not underestimate its importance. Once you have set the tone, you can build the right program over time.