A disgruntled employee once described his company’s bonus plan this way – “at the end of the year, the boss comes out of the office carrying all the money we made… he throws it up in the air and whatever lands on the ground is his… and whatever stays up in the air is ours”.
Unfortunately, variations of that explanation are repeated time and time again. Perception of your variable comp plan, bonus, incentives, may be more important then the reality. Our experience has been that the vast majority of strategies are well intentioned, but many are technically flawed and poorly executed.
There is a fundamental three part test to a well designed and executed variable comp, bonus, incentive, gain sharing plan – 1) Is it absolutely, positively linked to improvements in financial performance? Really? 2) Is it integrated into the fabric of the operating plan? 3) Is it really changing the way your employees think and act every day?
There are more tests, but this is where the diagnostics start.
It was an interesting week on multiple fronts. We completed an intense review/refresher of an Equishare System™ we had designed and implemented two years ago for a billion dollar, multi-location business. We also began a review for a 100 million dollar privately held company with one location. Their Equishare program has been in effect for 7 years.
Although they are completely different businesses, there are a few interesting common denominators. In both cases, they had recognized the critical importance of keeping their employees fully engage and that linking employee compensation to company performance was an integral part of that strategy. This requires the discipline to actively maintain the systems that enable this. Their leadership teams share a desire to do this.