We Are All In This Together

In many organizations, the rules seem "different" for the boss. It is easy to become cynical in an organization where the rules seem inappropriately different for different levels of employees. The issue is not one of perfect equality, but relatively equal treatment. For example, no one expects that the CEO and the accounting clerk earn the same pay. However, it seems reasonable to most that the fruits of success and the costs of poor results somehow are more evenly distributed.

This idea can effect many areas: compensation, staffing, layoffs, benefits, etc. For now, I will focus on compensation, and one specific item of compensation -- the annual bonus. There are many issues I have found with most bonus plans that render them completely ineffectual at motivating the intended behaviour -- they are too complex, the formulas can be manipulated, the end of the year comes and no one is quite sure if they will get a bonus and if so how much it will be, at the beginning of the year the employees recognize how hopeless it is to reach the targets so the plan is not an incentive. Over time I will likely address each of these shortcomings.
For now I would like to address the idea that bonus plans should be developed that affect all employees proportionately.

What do I mean by this?

1) A bonus plan should affect all employees -- that is, to the maximum extent possible, all employees should be covered. Yes, I understand union issues, international labor regulations and other factors can hinder this. However, it doesn't preclude the objective -- and that plans should be set and tracked toward achieving this objective.

2) Maximize the opportunity to group people into logical units -- by factory, business unit, etc., where performance can be well measured and understood and that there is some commonality of work product. A group of the total organization is probably too high, and by individual is certainly too low.

3) Avoid individual metrics and performance criteria for purposes of earning a bonus. These are always too much trouble to administer. I have seen too many times where almost every employee has achieved 90%+ of their objectives and earned a great bonus while the company is losing money and the value is deteriorating. Individual metrics and objectives should be used for individual performance measurement that results in raises, promotions...or severance.

4) Either all covered employees should receive a bonus, or none do. This should apply from the CEO on down the line. The idea is that if the organization is having success, then everyone should share in it. If the organization is failing, everyone should feel the pain.

This does not mean that everyone in the end receives the same bonus -- the percent of bonus to salary can certainly be different (and likely higher) the higher one goes on the organization chart. However, it does mean that the formula for bonus determination is common, and it does mean that the performance of the group means much more than the performance of the individual.

Yes, you might ask -- why should we pay a poor performer a bonus? I would ask why are you keeping a poor performer on staff? If they are good enough to be employed, then they are part of the team and should share proportionately in the success.

You might ask -- why should I limit the upside to a good contributor by the average performance of the group? I have seen this handled a couple of different ways: with an additional bonus to the exceptional performance, or conversely, nothing extra -- thereby emphasizing the "team" concept. I cannot strongly choose one over the other as I have seen both handled well.

There are many details to consider in such a plan, and cannot be answered in a blanket manner. These details and answers depend greatly on the circumstances of the company and the leadership style of the CEO. However most critical is to instill a belief in the entire organization based on fact -- that is the CEO and the top executives will not treat themselves well when the rest of the company is suffering. That the fruits of good performance will be shared, as will the pain of poor results.

When such a system is implemented, clearly communicated, and managed well it can go farther to bringing a team together than any other tool available -- and certainly safer and more effective than jumping off a cliff onto a canvas held by your Human Resources director or other such "team building" activities.