Many consultant companies depend on bonus plans to reward their employees. Some companies are looking to pursue a bonus program, but don’t how to do it effectively. We asked TechRepublic members who’ve seen the benefits of a good bonus plan to describe what’s worked for them. Here are some advantages of bonus programs and some ideas from TechRepublic members on how to implement them.
Bonus programs add up to savings—if done correctly
A good bonus plan can be beneficial in many ways, including:
- Solid bonus programs can attract, retain, and motivate staff.
- If you’re a small company with cash flow issues and you’re worried about committing to a uniform and ongoing pay increase, bonuses can be the answer.
- Bonuses give employees an added incentive to complete projects on time and to seek out upcoming projects they can work on.
When constructing your bonus plan, you have to be very careful to tie bonuses in with specific achievements and behaviors, or else the plan can work against you and demotivate your staff. For example, let’s say you award a bonus to a staff member based on his supervisor’s subjective judgment of his performance. That employee continues the same performance into the next year, but the supervisor wants to single someone else out with a bonus and he doesn’t award a bonus to last year’s star employee. Although the lack of bonus is not a direct comment on his performance to date, the first employee may still look upon it as a disincentive.
The answer to this bonus plan problem is to be as specific and as objective as you can. Always tie the bonus in with company goals and with the employee's contribution to the bottom line. Here are a few bonus plans that TechRepublic members have found that work well in their organizations.
A bonus pool
One TechRepublic member, Douglas, of Philadelphia, PA, described the plan his company uses: “At the beginning of every month, a certain amount of money is set aside to be awarded to me for completing projects. I meet with my boss about upcoming projects for the month, spec them out, and establish a timeline.”
The goals are very clear and Douglas knows exactly what he has to do to earn those bonuses.
Bonuses tied to budget
Shawn McKay, of S.M. McKay Consulting, ties his company’s bonuses directly to the budget goals. “If our goals are met, one month’s salary for each employee is put into the pot. The pool is divided in half. One half is distributed according to salary and the other half is distributed equally among those who met the quota criteria,” McKay said.
For example, let’s say you have 20 employees, including consultants, managers, and support staff, and the salaries range from $300 to $2,000 week. The company as a whole has met its budget for the quarter, but three employees did not attain their personal goals for the quarter. (Pool=20 employees; pot=4 weeks salary x 20 employees.) The pot is divided in half, and each half is dispersed as follows:
Each employee gets two weeks salary bonus because the company met its goal, Seventeen employees get an additional one-seventeenth share of the remainder of the pot.
“This arrangement works very well, although it does require some effort to administer,” said McKay.
Bonuses based on money saved
Bortek Industries has an interesting twist on bonuses, according to Tom Bruner, director of MIS. His own bonus plan last year was targeted at reducing the company’s dependence on its accounting system vendor who had a billable rate of $125. He saved the company money by learning the database environment and the Optio Documents environment so that simple changes to documents didn’t require service from the vendor.
His company analyzed the amount spent the previous year on the vendor and awarded him a bonus of half of whatever they didn’t spend the next year. He’d cut the company’s expenditures on this vendor by 90 percent and received a 45 percent bonus based on that savings amount. It was obviously good for him, but also good for the company: The bonus plan in this case motivated an individual employee to find a creative way to curtail spending.
“This year I have a bonus plan based around writing a new CRM system as opposed to upgrading the existing one. The total amount of the bonus is the cost of what the upgrade would have been, and it’s paid out based on milestones of implementing the project.”
The tangible and the intangible
Chip Nickolett of Comprehensive Consulting Solutions, Inc., says his company has a quarterly bonus plan that’s based on company profitability (weighted most heavily) and personal contributions. Nickolett describes personal contributions as tangible things like billings and profit by period (they do a COGS analysis by employee), as well as more intangible things like training a new employee, writing a white paper, developing new tools, and so on. According to Nickolett, the plan has worked extremely well for the last four years.
“People don’t focus on ‘I need to bill x amount of dollars in order to get my bonus.’ Rather, they focus on ‘we need to deliver on our work, work efficiently and accurately to minimize re-work, and look for opportunities to grow the business.’ Everyone wins,” Nickolett said.
The goal of a bonus program is to motivate employees and increase their accountability in company goals. Every company will have to make tweaks to find a plan that works specifically for them, but these should certainly give you some good ideas on how to implement an effective and realistic bonus plan in your organization.
Toni Bowers is Managing Editor of TechRepublic and is the award-winning blogger of the Career Management blog. She has edited newsletters, books, and web sites pertaining to software, IT career, and IT management issues.