The BonusRight Solution
Example #1: $3.5 Million Revenue Financial Services Firm, 16 employees
“Our employees treat the bonus plan payments as an entitlement. They have no sense of how our profits fluctuate from year-to-year, and how risky that is for the company. Our salaries are already above market. I’m not sure we should even have a bonus plan.”
Existing Compensation Structure
- Salary (targeted at 60th percentile of market)
- Annual Bonus (discretionary)
- The company lacks a pay philosophy that describes the relationship between company profitability and variable pay.
- The discretionary bonus plan lacks a pay-for-performance foundation.
- The overall value proposition lacks alignment between shareholders and key employees.
Create an annual incentive plan that eliminates over-reliance on discretion, communicates clear performance metrics and eliminates the entitlement mentality.
Number of Participants: 13
Plan Purposes: Partnership Reinforcement (get employees to think and act like owners), Team Building (attract and retain premier talent), Increase Accountability for Profits (link pay to company performance).
BonusRight Subscription Type
The plan is tied to the achievement of a single goal—Year-over-year Operating Income growth. The firm sets three annual thresholds of achievement—Base, Target, Superior. The incentive is designed to avoid any payouts if profitability falls below a minimum benchmark but to pay more than 100% of targeted benefits for exceptional annual performance. Base level results produce a bonus pool that rewards employees at slightly below market standards. At target results the company will share approximately 25% of operating income. Superior results lead to values that are twice the market standards. There is no top-end “cap” on the bonus opportunity.
Department KPIs (Key Performance Indicators)
The plan does not reflect departmental differences. Company-wide profits are the sole determinant of pool size.
Plan payouts do not vary based on individual performance. The plan philosophy reflects a team-based concept that unifies employees around a celebration of high achievement.
“For the first time, my employees have come to respect what it takes to operate a profitable firm. I’m observing greater concern for expenses and an increased focused on client retention. Several employees have expressed that they feel like owners by virtue of their participation in profits. They seem quite grateful to know what to expect now. They’ve had two reactions. First, they want to make sure we do whatever is necessary to exceed ‘base’ results. Second, they focus on what they can do as a team to strive for superior achievement without jeopardizing our firm’s reputation or the satisfaction of our clients. I’m feeling like they’re finally thinking about the business the same way I do.”