The BonusRight Solution
Example #3: $600 Million Plumbing Supply Distribution Company, 1,800 employees
“I think our total compensation package is pretty rich for our executives. We don’t have trouble attracting top talent in our industry. But the bonus plan is a hassle. Everyone has an opinion about how to fix it. Each year it seems to become more complicated. This year we ‘redesigned’ the plan but it turned out to be pretty much the same as the one we had about five or six years ago. Talk about reinventing the wheel! By the end of year, everyone is looking for an exception that gets them a higher payout. It’s very frustrating for me.”
Existing Compensation Structure
- Salary (targeted 50th percentile of market)
- Annual Bonus (7-10 metrics)
- Deferred Compensation program for senior executives
- Stock Options for executives
- The bonus plan has too many metrics—some of which are inducing the counter-productive behaviors.
- Target payout opportunities are not clearly communicated to participants.
- The plan operational standards are not clearly defined and aren’t communicated consistently.
Create an annual executive incentive plan that draws attention to two or three crucial business strategies and fits the company’s overall total rewards standards. Clarify performance responsibilities for the team members and set clear standards for achieving each award tranche. Use BonusRight’s update reports to apprise executives throughout the year about how the plan is tracking.
Number of Participants: 250
Plan Purposes: Key Employee Performance Alignment (with profitability goals), Treat Executives as Partners (by linking payments to shareholder value creation)
The plan is tied to the achievement of a single goal—achieving organizational productivity profit goals (Operating Income less return on capital value target). Executives are positioned within three groups. Each group has a clearly defined bonus opportunity at baseline, budget, and superior results levels. As performance standards rise, the opportunity increases dramatically (to a value of 200% of salary for the top tier). The board retains a 20% budgeted reserve to be used for recognizing exceptional performance—either for the overall team or individual contributors.
Department KPIs (Key Performance Indicators)
The plan does not reflect departmental differences.
Plan payouts do not vary based on individual performance. However, the company employs spot bonuses and end-of-year discretionary payments.
“We’ve considered using a single-factor, profit-driven plan in the past. But it seemed like it lacked flexibility. Now we have the best of both worlds—a simple formula that’s translated to clear values for each person and a budgeted capability to recognize strong performers.”