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 1^st and 2^nd line managers.
• Besides bonus, equity and culture – plan for 10% attrition. In your industry, this may be the norm.

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