Can Bonus Plans Differ Between Departments? Four Thoughts

Situation: A CEO wants to build a new bonus program for the company’s professional services team. He wants to include a customer satisfaction component, because the group is historically weak in this area. Does it make sense to have a different bonus plan for professional services personnel and managers than for product development personnel and managers? Can bonus plans differ between departments?

Advice from the CEOs:

  • Many companies have different bonus structures for different departments. This is natural because different departments have different functions. For example, Sales may evaluated for bonuses based on a combination of revenue and gross margin achievement, while Finance is evaluated on profitability and Product Development is evaluated on hitting product launch schedules and new product sales.
  • Changing bonus structures can be a sensitive matter. If the team impacted is not included in the process of drafting the new plan, changes may be perceived as negative. If this is the case, it’s better to frame the new program so that you limit your commitment to it to just one year, and let the team know that this may change this next year.
  • How do you go about including customer satisfaction surveys as a component of bonus calculation?
    • If you want to use customer satisfaction as part of the plan, benchmark customer service satisfaction before you launch the plan. If you don’t benchmark, how do you know whether performance improves?
    • Survey response rates will be an issue – you won’t get 100% and may get a survey response rate of 10% or worse. Be prepared for this and make sure that data with a low response rate will support your objectives.
    • A survey is a lagging metric. If you can find a measurable leading metric to use as well this is better.
    • Be careful of how the survey is drafted and who conducts it. Both can bias results.
  • As an alternative to making customer satisfaction part of a bonus plan, consider starting a customer satisfaction or loyalty program. The most important question to ask will be: would you recommend us to your peers?  Any low response guarantees a follow-up call from the company.

2 thoughts on “Can Bonus Plans Differ Between Departments? Four Thoughts

  1. John

    Be very careful when choosing who gets what and who does not. I came from a group where we received bonuses and when restructured into another group they did not have them and denied that they existed except that I obviously knew better. Now in addition when I challenged this I was then told it was “illegal” for them to give me a bonus! Again I know better and asked for the legal precedence showing this from HR and management alike and they refused and/or were unable to provide this legislature. Be mindful that this can and will cause hard feelings and significantly impact employee productivity. Word gets around no matter how hard management tries keeping incentives secret and when employees find that they have been out and out lied to they are increasingly offended by it.

  2. Sandy Post author

    Thanks, John. I sympathize with your situation. Fortunately the company that raised the initial question in my blog is not looking at doing anything as drastic as you encountered. To your situation, while it may provide little solace, it is important to remember that bonuses are discretionary and at the will of management. The existence of a bonus package one year does not guarantee the same the following year. Was the restructuring that you mention internal to a single company or did it result from M&A activity? If the former, then clearly the company did a poor job of communicating to you and others what was going on. If the latter, unfortunately, there are simply no rules, though better communication would not leave you with the angst that you, and certainly others, currently feel.

    I note from your email address that you work at Baxter. I worked at American Hospital Supply Corporation when AHSC was purchased/merged by Baxter in the mid-1980s. From the AHSC perspective that one didn’t go very well, particularly from the communication side, and as a result a lot of management talent from AHSC was lost.

Leave a Reply

Your email address will not be published. Required fields are marked *

Sign in with Twitter