The BonusRight Solution
Example #2: $77 Million Revenue Warehousing and Logistics Company, 350 employees
“We’ve benefited from our profit sharing approach to bonuses. But we now operate three different divisions. Some managers believe they can take their businesses to a new level. Others seem content to participate in the overall company profitability. As a result, I’ve got high enthusiasm from some people and complacency from others. I don’t want to lose the ‘team concept’ but I want to light a fire under some people who have the talent, but not the attitude.”
Existing Compensation Structure
- Salary (targeted at 40-50th percentile of market)
- Annual Bonus (high targets tied solely to profits)
- There is a lack of a pay philosophy that emphasizes both short and long-term results.
- There is no differentiation in the components of the bonus allocation.
- There is not enough downside exposure and upside opportunity in the overall pay design (weak shareholder alignment).
Establish an annual incentive plan for management that is tied to both company and division results in a balanced fashion. Senior managers participate in the company results alone. Divisional managers participate in division results for up to 60% of their value, with 40% tied to company performance. Results are analyzed and forecasted quarterly to keep all managers apprised of the current status. In addition, adopt a long-term incentive plan (phantom stock) to reward and retain based on sustained company performance.
Number of Participants: 40
Plan Purposes: Key Employee Performance Alignment (link pay to company profitability goals), Focused Accountability (division performance component), Value Sharing (share Value with those who create it)
The plan is weighted towards both company-wide profitability and division-specific goals. This allows the CEO to encourage attention to the unique elements of each division. The establishment of baseline requirements for any payout to be made raises expectations for those who assume bonuses will be paid each year. The total award opportunities are carefully budgeted to represent a growing percentage of profits at each performance level. The phantom stock program will serve as a companion reward opportunity by allowing for share redemptions beginning in four years.
Department KPIs (Key Performance Indicators)
Each of the three divisions has been assigned two unique metrics. In each case, division “contribution” is weighted 50%. The other factor can vary year-by-year. Customer retention, cost management, and new customer acquisition are the metrics selected for year one.
Plan payouts do not vary based on individual perfor
mance. The company’s merit program has been revised to reflect individual contributions.
“We finally have a balance between short and long-term performance as well as both a company and division focus. One of the best things we did was to use BonusRight’s communication tools to make sure all employees understood exactly what had to happen to optimize bonus payments. And there doesn’t seem to be any way for them to selfishly manipulate results. We seem more unified.”