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What’s in a Bonus?

At the hilarious climax of the holiday classic, Christmas Vacation, Clark Griswold finally receives his long-anticipated Christmas bonus.  The whole extended family eagerly awaits his report of a large cash bonus.  The deflated Clark realizes his swimming pool dreams are shot when he gets a one-year subscription to the Jelly of the Month Club.  To which, a thrilled Cousin Eddie replies, “Clark, that’s the gift that keeps on giving the whole year.” 

Have you ever felt like Clark when you received a bonus? How about like Cousin Eddie? There have been times in my career when I could relate to the way each of them felt. Why was I so disappointed about the $3,000 cash bonus, and so excited about the $40 jacket?

What are the factors that control how your team members feel about their bonus?  You just spent hours building that cool, geeked-out bonus spreadsheet.  Your managers went through the time-consuming process of filling it out.  The spreadsheet then spat out a bonus for everyone that you tweaked until it felt right.  You then gave the spreadsheet to payroll and a bonus check was cut. You felt like you were being generous, but how do your team members feel?  You received a few thank yous, but that generous bonus seems to have been forgotten as soon as it was deposited.  We decided to change our system to make it more than a check.  We spent months developing a bonus system based on the factors that we felt were most important:

  1. Aligned expectations between leadership and team members
  2. Individual control over the bonus amount
  3. Method transparency

Our employees love the system.  Not one of our team members has ever suggested we go back to the spreadsheet method.

How do you align your firm’s expectations about your bonus program?  Maj. Gen. Michael Williams of the Marine Corps. said: “Leadership is the art of having people do what you want them to do and go in a direction that you set, willingly or unwillingly. Willingly is leadership. Unwillingly is coercion.”  If you do “X” then you get “Y”.  If the projects you manage earn $40,000 in profits, then you get $2,000 is the type of expectation we set.  We also taught that your profits will go up if you do the following:

  1. Think like an owner. Be 100% responsible
  2. Proactively manage your projects
  3. Perform business development
  4. Embrace leadership roles

Why is it important for a team member to feel like they are in control of how big their bonus could be? Ownership. Imagine what you can accomplish if your team members are all thinking like owners. You can read more about building a culture around thinking like an owner here. Work harder, take a bigger role, win a project, or make more profit on your projects and you will receive a larger bonus. When your team members know that their efforts control the bonus amount, they are much more likely to do the hard things.

Can your team members tell you exactly what goes into the bonuses they receive? One of Dave Ramsey’s frequently used quotes is “To be unclear is to be unkind.” This even applies to paying out bonuses. Each of our team members knows what goes into calculating their bonus.  They know what they need to do to get a larger bonus.  Not all do it though.  Those who do are driven to do more each time.

Would your team members take on more responsibility if they knew their bonus depended on it? If your bonus increased as your profits increased, would you find ways to be more profitable? Our team members did and took home twice as much in bonus payments in 2019 as they did in 2018!

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