Situation: A company has lost six people since the beginning of year – about 7% of employees. Currently the company doesn’t pay bonuses but increases salaries annually. The CEO has been considering creating a bonus pool, distributed based on performance points earned during the year, and including a component for employee longevity. How does your company award bonuses?
Advice from the CEOs:
There is fierce completion for good software engineers. You will lose people unless you focus on culture and pay bonuses of some sort.
Based on reasons that people left you need to start developing and enhancing your company culture.
Don’t kid yourself. You already have a company culture. Hire a consultant to help you identify it so that you are developing it along lines that you desire instead of by accident.
Make it clear that bonuses are not entitlements but are earned. There should be clear guidance as to bonus criteria.
Check out the following YouTube – “RSA Animate – The surprising truth about what motivates us” to see what motivates knowledge workers who are expected to develop creative solutions. The bottom line is that it is more than money!
An effective bonus program must have a bias toward performance – the metric is key. Be careful about the way you create metrics and incentives and be wary of unintended consequences.
Pay special attention to the quality and skills of your 1st and 2nd line managers.
Besides bonus, equity and culture – plan for 10% attrition. In your industry, this may be the norm.
Situation: A CEO wants the sales and marketing ream to generate higher quality leads. The company already uses referrals and networking. The CEO wants to know how other companies qualify leads before passing them on to sales. How do you generate high quality leads?
Advice from the CEOs:
The first step in a good lead generation campaign is to have a clear idea of who your customers and prospects are. Who are the current customers? How do you categorize them? Can you divide them into distinct groups?
Once you have divided your customers into distinct groups, develop a detailed profile for each group, concentrating on the most promising groups first. The profile will include demographics, potential purchase value, buying behavior, social media usage and preferred social media channels. Envision each group. Create a picture that represents the buyer and their personality profile. This is an important exercise because it shifts your focus from customers as lists to customers as people, and will boost the effectiveness of both your marketing and sales efforts.
After you develop customer profiles, rank them in terms of revenue potential to the company. Pre-qualify the high end buyer, not the low end. Target the decision-makers who can make a significant purchase.
Within each profile group, establish your own criteria for a good customer. Create questions which will help you to identify this customer.
Through social media and email campaigns, develop brief questionnaires and simple contests to help you to identify potential customers based on the criteria which you have developed. Develop a more detailed questionnaire turn leads into prospects.
Once a lead responds to your social media or email outreach have a sales person go through the detailed questionnaire with the lead prior to scheduling or going out on a face-to-face call.
You want to have well-qualified people making these calls.
Situation: A company pays employees based on skill level. Raises are given as an employee learns additional skills. In some cases, when they give an employee a raise, productivity drops. The company has tried other approaches including bonus systems and profit sharing but did not find these effective. How do you effectively motivate hourly employees?
Advice from the CEOs:
Before trying a new motivation scheme, find out what matters to your employees. It may not be either bonuses or profit sharing.
Develop and send out a questionnaire listing different factors – revenue sharing, bonuses, creativity, doing quality work – ask what matters to you? Get their feedback.
People work for respect – many studies have shown that as long as the payment offered is fair, salary is secondary.
Hire an advocate for your employees – a part-time HR person. An important role for this individual will be to determine what motivates employees, what they want from their jobs, and how improvements in both processes and the working environment can boost productivity.
What is the real issue: employee motivation, employee productivity or cost reduction?
If material waste is more expensive that labor – create metrics and rewards to reduce waste.
At companies that use the Toyota Production System employees receive points for process improvements. At the end of the year they receive a cash payout based on the points earned during the year.
Employees are rewarded publicly. The incentives are cash, recognition and respect. These companies find that recognition and respect trumps cash.
Depending upon your cost structure, it may be more productive to focus on scrap reduction. Bring in someone with experience who can find the sources of scrap. The effort will pay for itself rapidly.
During the hiring process, require educational attainment as evidence of the individual’s commitment.
Look for skills experience – machinist, etc. Match skills and experience to your needs. This will lead to faster learning curves and will help to reduce waste.
Situation: A company allocates 10% of pre-tax profit to a Bonus Pool. Employees qualify for quarterly bonuses based on company and group performance, and for semiannual bonuses based on individual performance. Last year not all funds were paid out of the pool because some employees failed to hit performance targets. What’s the best and fairest way to allocate the excess funds in the pool?
Advice from the CEOs:
Why not let the pool be the pool? Employees will or will not qualify for bonus participation based on individual and group performance. The company determines who qualifies at each level and these individuals become the pool participants, splitting the full pool in proportion to their level of qualification and their salary.
Not all companies will do this based on pay and bonus level policies. For these companies there are options on what to do with unpaid bonus funds in the pool:
Leave the funds in the pool for future distribution;
Shift unpaid bonus to Retained Earnings; or
Retain a percent of the funds in the pool and shift the rest Retained Earnings.
Another consideration is whether to use discretionary or metric criteria to determine bonuses. Some companies use only or primarily metric criteria, others use discretionary criteria, and some use a blend of metrics for one portion of the bonus with the remaining portion discretionary. The rationale behind discretionary criteria is to give managers the opportunity to recognize extraordinary contributions that fall outside the normal metrics.