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Year End Bonus

Year End Bonus

Year End Bonus

(OP)
I own a small civil practice. I give out bonuses and unfortunatley they are subjective based on how I think each staff member contributed to the company, how hard they worked, attitude, etc. I would like to enact a more qualitative incentive type system but do not know quite where to start. I want to get some feedback from both employers and employees on what you like and don't like. It is a New Years resolution of mine to get this right for next year. Thanks

RE: Year End Bonus

I think you always want to leave in a bonus system some room for the subjective.

One company I worked for had a very exotic system based on profit that included enormous tables of data to figure out your quarterly bonuses.  Sort of took the mystery out of the bonus but also bred contempt and cynicism.

For a small company, you may have the best ability to weigh individuals efforts and effectiveness for the company based on your personal knowledge vs. some formulaic system.

RE: Year End Bonus

I think you can build an objective "formula" to encompass the subjectivity your looking for.  Years of service.  How well they meet their objectives.  How well they get along with team memmbers and interface with the customer. How well the firm does.  Within each category there is obviously subjectivity, but it is itself structured and unambiguous as to what the expectations are.  This way at least a person can learn his/her strengths and weaknesses.  Plus, it covers you from accusations of unethical compensation practices.  

Aaron A. Spearin
ASQ CSSBB
Engineering Six-S'$
www.Engineering6ss.com

"The only constant in life is change." -Bruce Lee

RE: Year End Bonus

Bonuses are never "fair" in the minds of the staff.  The most effective bonus I ever got was the first full quarter after a merger--the new VP looked at profits and announced a $1,000/employee after-tax bonus.  People were singing his praises for years.  The formulaic ones always result in some amount of dissatisfaction (after the first year they become an entitlement and everything goes downhill from there).  Bonuses are much like raises--the people you treat best are happy for days and everyone else is pissed off forever.

The most common formula for bonuses (everybody gets the same percentage of their base salary) is absolutely the least motivating.  The issue always comes up "why do the people making the most already get the biggest bonus?"  A better technique is to take the whole pot and divide it by the number of employees.  If you have 100 employees and $100,000 bonus budget, then you can be certain that $1,000 will mean more to the lowest paid workers than $3,000 would have meant to the highest paid workers (they're often simply keeping score anyway).

If you really want to motivate your folks through a bonus, make it after tax (i.e., provide tax makeup on their W2 so a $700 bonus shows up as $1,000 and you deposited the other $300 with the IRS).  People really appreciate after tax money even when it is only a shell game.

David

RE: Year End Bonus

Demming had some wise words about merit pay/appraisals etc

He regarded them as destructive.

Cheers

Greg Locock

Please see FAQ731-376: Eng-Tips.com Forum Policies for tips on how to make the best use of Eng-Tips.

RE: Year End Bonus

Have you set any specific goals for the staff and used that as a measure of performance?  That seems to be a reasonable method- discuss the goals at the beginning of each year, revisit them halfway through the year, and then set bonuses based on achievement of the agreed-to goals.  But as others have said- the bonus becomes an entitlement, and if circumstances beyond your control (global economy, etc.) affect your profit, while the staff have indeed met their goals, then what do you do?

RE: Year End Bonus

(OP)
GMcD

That is a good idea. What kind of goals do you suggest?

RE: Year End Bonus

The problem with bonus formulas is that you get the performance you reward, but it is turely difficult to develop a formula to model the perfect manager. Wall Street is Rife with executives that got huge bomnuses based on formulas that rewarded actions that were actually dermential to the company. As a related example, a huge coperation that was (for a time) involved in contracting, outsourced its estimating and proposal preperation to an outside firm, which they paid on a per job basis. They also paid the firm a substantial bonus if the corperation got the project. Very shortly after implementing this system, the corperation had an abundence of work, all of which was too cheap to be profitable, and they owed the proposal firm a ton of money. It was not long before the corepration exited the construction business. I beleive you know who performed well and who did not. subjective bonuses in the end are the most effective.

RE: Year End Bonus

(OP)
DRC1
Yes you are correct. But I would like to have the goals set and evaluate their results and then make a subjective decision. I at least want them to have some sort of goals that are written down on paper. My problem is I dont know how to make the goals.

RE: Year End Bonus

Goals set at the beginning of the year often are meaningless by the middle of the year - things change.

Instead of a "year end" bonus, how about project bonus?

If the team hits the target for a project, they get a bonus of a fixed amount, even if they come under the target (this eliminates some "monkeying" of the data).

From personal experience, I usually feel that I can not control the factors that my bonus is based on. Therefore, I really don't factor them in when I look at my compensation. As I am usually a contractor, I go after my rate (yes, sometimes contractors also qualify for bonuses - usually project bonuses). A bonus is just that - gravy at the end of the day.

"Do not worry about your problems with mathematics, I assure you mine are far greater."   
Albert Einstein
Have you read FAQ731-376: Eng-Tips.com Forum Policies to make the best use of Eng-Tips Forums?

RE: Year End Bonus

Listen, I've been with firms that provide all sorts of goals, bonus guidelines, etc.  I don't see it working very well.

The key to a bonus is that the employee wants to be

1.  Held to a high standard (they get a sense that they are improving).

2.  Noticed and regarded in the firm as important to the firm

3.  Are seen by their higher-ups as having a high potential to grow and gain in leadership

4.  Can see that the firm pursues them.

(all of this presumes the employee is a good employee of course.)

So the bonus is a way to say that we notice you, we want to challenge you, we want you to grow here, and we are offering this bonus as a means to sincerity of these views.

This "stuff" I'm talking about is locked up in personal leadership of your employees.  If you try to use a mechanical bonus system based on (as Ashereng states) factors you can't control, define well, or correctly weigh, you'll just make for cynical employees.



 

RE: Year End Bonus

(OP)
Ashreng states "If the team hits the target for a project, they get a bonus of a fixed amount, even if they come under the target (this eliminates some "monkeying" of the data)."

Could you please give an example. How would one "monky with the data"?

RE: Year End Bonus

I see that there are two types of bonuses, Christmas/Holiday bonuses and Merit bonuses.

Christmas/holiday bonuses are different than merit bonuses. I see the Christmas bonus as socialist, while the periodic merit bonus as capitalist. You should share the Christmas bonus equally among all employees, thus providing the most "help" during the holidays to the person that may need it the most, your least paid employee, regardless of their contribution to the company. These bonuses therefore are generally not very much.

Merit bonuses on the other hand are subjective by their very nature. If i do a good job and you want me to stay happy, because I am earning a lot of money for your company then throw me a bone. I don't necessarily expect it. But you want me to stay happy, and billing lots of hours, keeping the customer happy at the same time. Regardless of what people may think of this, I evaluate my worth within the company, not based on the really cool projects that I get, but instead on the amount of financial remuneration that receive.

This year I got $600 in Christmas bonus, so did the custodial staff, the worst employee in the company, and the CEO. A couple of weeks prior I got a $3K merit bonus. I'm sure some may have gotten more, and many got none. For that I worked my butt off, and am grateful that my hard work was appreciated.

just an opinion

Wes C.
------------------------------
No trees were killed in the sending of this message, but a large number of electrons were terribly inconvenienced.

RE: Year End Bonus

I've seen a company that had a very progressive way to do bonuses:
(1) employee was educated/trained on how to set their own goals.  Goals reviewed/modified/agreed with supervisor.  Goals went from peer-review of performance to achievement of activities with quantitative measures.  I was pleasantly surprised to see a real effort to eliminate the "subjective" part of a performance review.
(2) goals adjusted throughout year as required or as projects were completed/killed off.  I never did quite understand how this plus-minus activity was managed during the course of twelve months.  But there was a minimum of a quarterly review and reset of goals for each employee.
(3) employee was allowed to be kept up to date on their status constantly through computerized system, so they knew their score
(4) part of performance goals was a "stretch" goal agreed to by employee/supervisor.  Wasn't impossible to reach, but you really had to hustle hard to achieve it.  I was told that about 25% were able to achieve their stretch goal.
(5) bonus money was serious, not some piddly $1000 or $4000, but $25000 to $40000.
(6) this company also was a team-based production environment and the employees were empowered to run their own teams.  Part of the performance criteria was team performance.  If a team member didn't hustle for the team, the team "voted him off the island".

The results that I saw were a very well run production company.  Employees were highly motivated and actually running on the factory floor.  The lesson I got from this observation:  if you clearly define goals and empower the employee to set those goals, and empower them to actually direct their activities to achieve those goals, and keep them informed as to their status, then they will achieve.  And they should be rewarded appropriately.  For those production workers, the self-empowered chance to double their salary was a very powerful motivator to superior performance for the company.

TygerDawg
Blue Technik LLC
Advanced Robotics & Automation Engineering
www.bluetechnik.com

RE: Year End Bonus

Surcharged:  Goals:  well, as some have mentioned above, have individuals set their own goals, along with you setting some company/business goals for them for the year.  Some examples of individual's goals might be:

Education- take at least 3-4 self-improvement buisness related courses during the year.  More points if they do some of that on their own time without taking company time.  

Business related:  bring one or more new steady clients to the firm;  show "x"% profit on the majority of the workload (if that employee is in a position to effect production efficiencies);  develope business related efficiencies- improved software, improved office design standards, improved office admin. functions, etc,

Personal Habits:  Are there any personal habits the employee would like to improve and can they do it and keep it done?  (attitude, language, desk organization, etc.)

Check with some Human Resources information and just look around at your staff and see what you'd like to see improved in the business.

RE: Year End Bonus

Interesting that none of those are core engineering functions. Those are nice-to-haves. If you reward those, that is what people will concentrate on.

Cheers

Greg Locock

Please see FAQ731-376: Eng-Tips.com Forum Policies for tips on how to make the best use of Eng-Tips.

RE: Year End Bonus

Our firm bases it on a couple of things.  All production oriented, and depending on how you did you are recommended by your supervisor for one of three bonus pools.

Pool 1 is for the slacker type who is just going through the motions every day and watching the clock etc...

Pool 2 is for the people who do a good job, look out for the firm, play well with others and are generally good employees.

Pool 3 is for the superstars who score high on the goals established for them and are the potential leaders of tomorrow for the firm.

Any employee can be in any one of these three pools.  For the most part it is up to the employee on how they score.

The goals that are looked at are how productive you were for the year.  (How many actual billable production hours you worked for the year that the company can bill a client for, verses how many hours you were at work).  Most of the production staff in our firm is in the 80 and 90 percent range.

Another item viewed is how much extra effort you did for the firm for that year.  (Did you put in your 40 hours and leave or did you stay late when the project depended on it).

Do you play well with others.  Are you really a team player and willing to help out another employee who may not be on your project team.

Do you look for opportunities for the firm even if you aren't a project manager or if you are in Architecture and the project is for Civil do you pass the lead on to your Civil team.

We get occasional bonuses through out the year if the firm is doing really well.  At the end of the year we get what is called a Year End Bonus, not related to any Holidays and it's never a for sure thing.  It is all based on how well the firm did that year.

RE: Year End Bonus

I'd make the bonus purely subjective as that way your staff will ever be beholdent to you and grovel in your wake. Make sure you say that it is based purely on merit even though everyone will know it will go to the younger ones who can leave and find better pay, and those who thought your idea of 'rolling out leverage on lean concepts' was the most intelligent and comprehensive idea they'd ever heard. You'll find it will keep your staff in check on a regular basis. You can also use the same principles for training dogs too.  

corus

RE: Year End Bonus

Surcharged,

For example, if the budget is $100,000.00 and you get a bonus based on how much under budget you come in, people may come in very low under budget, but at the expense of say long term quality and operability.

If the bonus is say $10,000 to the team, regardless of how far under budget you are, then it is more likely that the project will come under, but not grossly under (at the expense of other things).

Savy?

"Do not worry about your problems with mathematics, I assure you mine are far greater."   
Albert Einstein
Have you read FAQ731-376: Eng-Tips.com Forum Policies to make the best use of Eng-Tips Forums?

RE: Year End Bonus

As you all know, first prize is a Cadillac Eldorado. Anybody want to see second prize? Second prize is a set of steak knives. Third prize is you're fired.

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