Changing an employee bonus system

[Talay]

A business I took over a while ago has an antiquated bonus system which rewards only the manager for work done on site and does nothing to reflect the sales staff and their input. In fact, the customer facing staff do not receive any benefit from any upselling or generating an increase in sales.

I want to revamp it from absolute work processed to reflect actual sales and bring the sales staff into the bonus pool. However, I need to do this without pissing the managers off.

Obviously the safe option is to make sure that the average bonus under the new scheme for the same level of work would result in the same bonus for management going forward. Any increase would benefit them directly. However, that means an additional cost for the sales staff bonus with no increase in sales unless I set a hurdle at the current sales levels.

Any thoughts ?

 

[OvcaX]

We use this system:
- At start of every year we set a benchmark of sales
- Every month the benchmarks is raised 1%
- 10% of everything over the benchmark is divided between employees.

Sales also gets some percent per every job secured over this benchmark.

 

[Newchodge]

Is the current bonus scheme contractual?

 

[Talay]

We use this system:
- At start of every year we set a benchmark of sales
- Every month the benchmarks is raised 1%
- 10% of everything over the benchmark is divided between employees.

Sales also gets some percent per every job secured over this benchmark.

If you raise benchmarks 1% per month, you need to ensure 12.7% growth per annum or you quickly erode all potential of bonus as your hurdle gets way in front of your sales.

How have you thought about that potential scenario ?

 

[Talay]

Is the current bonus scheme contractual?

It is in the contract for the managers but there is no bonus mentioned in the contracts for other employees, including sales.

Pay is currently weekly which will need to move to monthly and it is a good time to revisit all contracts and change the outdated bonus system. However, I need to protect the current levels of income to ensure staff do not feel they are losing out. I can prove that running a new system against historic payments for instance.

 

[OvcaX]

If you raise benchmarks 1% per month, you need to ensure 12.7% growth per annum or you quickly erode all potential of bonus as your hurdle gets way in front of your sales.

How have you thought about that potential scenario ?

Thats the point.
If the company is stagnating what's the purpose of bonuses?

We manage to get about 20% growth per year until now.

 

[Talay]

Thats the point.
If the company is stagnating what's the purpose of bonuses?

We manage to get about 20% growth per year until now.

Our like for like growth won't get near those levels, moving in the 0-10% range.

What happens if you fail to hit a target and then that target is stretched further away which makes hitting it harder and harder until it is impossible ? Not saying you will face this but how have you thought about overcoming that problem ?

In my situation, I need to introduce a system based on sales volume and not simply a function of production. Ideally the same system should cover both managers and sales staff.

I am also concerned that if I set a new hurdle and then introduce new machinery which produces more sales then I will need to revisit the hurdle again and the more change there is, the more unsettling it is for staff.

 

[OvcaX]

Our like for like growth won't get near those levels, moving in the 0-10% range.

What happens if you fail to hit a target and then that target is stretched further away which makes hitting it harder and harder until it is impossible ? Not saying you will face this but how have you thought about overcoming that problem ?

In my situation, I need to introduce a system based on sales volume and not simply a function of production. Ideally the same system should cover both managers and sales staff.

I am also concerned that if I set a new hurdle and then introduce new machinery which produces more sales then I will need to revisit the hurdle again and the more change there is, the more unsettling it is for staff.

It depends on the company. You can try to change the metric, maybe closed bussines, projects done...

I'm a true beliver that employees will push forward if they have the right tools and motivation.