Evan's Aetiology - v3.19

Creating a Bonus Program

So you’ve found a capable second-in-charge, and you plan on setting up an incentive program to keep your business growing. If you’re going to do this, it’s important to do it right.?

First, set clear targets and expectations. One of my clients—let’s call him Calvin—provides highly specialised services to the construction industry. Years ago, he realised he needed to appoint a general manager if he wanted to meet his business goals. So Calvin found the right man—we’ll call him George—who quickly proved himself to be extremely capable.?

When Calvin banked a bumper profit the first year after employing George, he paid him a bonus. George was delighted. Next year was good, but not exceptional. Calvin hummed and hawed about paying another bonus—until he realised George expected one. Awkward.?

You see the problem? By not setting clear parameters for a bonus scheme, Calvin placed his working relationship with George in jeopardy. Which meant risking everything they’d achieved together over those two years. Calvin and I scrambled to rescue the situation.

First, we identified the growth targets George needed to hit. They had to be simple, measurable, and within George’s control.

Then we worked out the percentage of gross profit Calvin would pay to George for exceeding his targets.

Next, we identified any other business measures we needed to include. For example, ensuring that 90% of quotes were finalised within two weeks. Or keeping accounts owing within tight limits.

We decided to pay the bonuses quarterly. Leaving them until the end of the financial year pushed them off into the never-never. Paying every three months would give George immediate feedback on his performance, in hard currency.

‘Hang on,’ Calvin said. ‘What if we have one great quarter, followed by three flops? I’ll have paid out more than if I calculated the bonus at the end of June.’

‘Fair call,’ I said. ‘Once you’ve paid a bonus, you can’t claw it back. Which quarter is usually your weakest?’

‘Probably the third quarter,’ Calvin answered. ‘There’s a lull after the New Year’s break.’

‘OK. So start with your gross profit from January to March. If George hits his marks in the third quarter, the rest of the year should be smooth sailing, right?’

Calvin nodded. ‘Sure. Barring a general downturn in the economy.’

‘Great,’ I said. ‘But if the third quarter’s a shocker, carry the loss forward to the fourth quarter. We’ll work out the maths before we present this to George.’

‘So he’d need to perform even better in the fourth quarter to make up for lost ground?’ Calvin asked. ?

‘Exactly.’

‘I like it!’ Calvin said. ‘That keeps George on his toes. Plus, he knows if he’s on track each quarter, or if he’s falling short.’

Once Calvin and I had firmed up all the details, we sat down with George and explained our offer. His verdict? A fair process. He knows where he stands, and he’s keen to exceed the targets we set. It’s a win/win for all parties.

One final point. Paying rolling bonuses each quarter linked in with the 90-day sprints (short, focused projects that create positive growth) I’d incorporated into Calvin’s business. Ninety days gives team members the time they need to achieve real results, while keeping their eyes on the prize.?

At the end of each quarter I can see if a project has succeeded, or if it needs to be revamped. And George is heavily invested in the success of each sprint. Because if it doesn’t have the potential to lift the bottom line, it doesn’t run. ?

As you can see, creating a compelling incentive program requires careful consideration. Get it wrong, and you could lose good people. So if you want to do this,?contact me. Together, we’ll motivate your senior leaders and take your business to the next level!

Whether you’re building your business, growing it, or looking for an exit strategy, the best way to get the most out of your business is to have?Australia’s leading financial concierge?in your corner.

We work with companies and organisation who:

• Want to dramatically improve their revenue and profitability
• Are ready to focus on people, communication
• Are open to exciting new possibilities

If this resonates with you, find out more.