Text 11 Feb 2 notes The HARD Lessons Learned Developing Bonus Plans

Hi I need your help through something, but it will start with 3 years of lessons I’ve learned in giving out bonuses. I write this up as therapy.  There are stories in here I have wanted to tell for years, and after this years bonus round I felt the time was right.  I needed to get this down on paper and get it out.  I needed to show other people in the position to give out bonuses, how your greatest intentions can blow up on you before you know it, and to save you from the mistakes I have made and how bonuses also give you an opportunity to create the right kind of culture.  I hope the stories and insights help you, and at the end I hope you leave me ideas on how to overcome my next big problem. I applaud Whole Foods for their transparency in pay decisions and also how they post everyone’s salary to the company intranet.

So here is something SEER believes in…sharing in the success of this company with the people who create it and have shown commitment to SEER. That is a CORE belief that will never change. But I am also a complete hard ass, I expect success, I expect people to live up to their promises, and I fire quick as hell for those who don’t fit the mold.

Our bonus program has taken many shapes over 3 years and I have learned a LOT over the years and figured I’d share the ups and downs.

I also believe in being transparent with people in the company about what this company is making. So every quarter we go over our bottom line profitability with our company. Everyone knows what we’re making and how that funnels into our bonus pool. The way our bonus program is structured is that there is net growth hurdle, once we hit that hurdle (probably set way too low) then every dollar that comes into the company 50 cents goes to the company and 50 cents goes into the pool. That bonus pool is divided up amongst everyone (except me).

Lets go through a history of our programs, trials, tribulations, and successes…

BONUS PROGRAM YEAR 1

The structure was this, if you’ve been at SEER for 2 years, whatever is in the bonus pool gets divided up amongst everyone eligible, unlimited.  This was the ultimate in transparency.  Everyone knew what was in the pool, and everyone knew who was eligible. People want transparency and I wanted to give that to them. Unfortunately this completely blew up on us, I was way naive, and didn’t see the big issue here, so if this sounds like a good idea to you let me show you why it is not.

Problems

The numbers were huge, people who had only been with us 2 years were eligible for checks well over 15k. 

I knew that was freaking NUTS - especially given that most people who were eligible were receiving 1-2 double digit raises per year (at that time).

How I reacted:

I had a simple choice, go back on my word (since the bonuses were insane) or give them out.

My decision…Give them out, learn from the “mistake” and move on.

Outcome:

Gave my team the PROOF that Wil is a man of his word.  

The upside: People paid off student loans, all credit card debt, bought cars, you name it.  I’ve always wanted my bonuses to my biggest contributors to be large enough to allow them to leapfrog to do something that might take them a year or more to save towards.

My Hope: The hope that my team realized that even when a lot of the increase came from my decisions to speak more, travel more, and to raise rates, that we win as a team and lose as a team and that I wasn’t going to start dividing up contributions. This would be changed in our third year, so stay tuned.

But I had to reflect, how did this happen?

How did we absolutely DESTROY the bonus hurdle to get bonuses this large?  I realized that I was under charging (one of the problems of LOVING what you do). So while we all celebrated in the victory, I knew that 65% of that bonus pool came from me making one decision, increase rates. If the increase came from people upselling, or going to conferences to bring in new clients that would have been one thing, but it wasn’t…I think 65% of the growth came from speaking gigs and raising rates and 35% came from our team’s ability to just kill it for clients, and get referrals and retain them.

The changes:

2 years is too short of a timeframe to be giving out checks like that unless the direct contributions warrant it (which I can do with side bonuses all day) but not for bonuses that were expected. We also were looking strong on retention - we werent losing anyone, meaning the pool just got divided up more and more and bonuses would get smaller and smaller. YIKES!

I shifted the bonus pool eligibility to 3 years, I realized that if we continued to double our team almost every year and not lose hardly anyone, the folks who had been here the longest, would get their bonuses CRUSHED by newbies flooding the pool.  All of a sudden someone who’s been here for 5 years sees us add employees and goes, wow that is GREAT, but wait a second…I’ve been here for 5 years and this person who’s been here for 2 gets the same exact bonus as me, even though I am their manager.  This had to change, I had created a DISINCENTIVE for my tenured employees. This resulted in some newbies not being too happy with me. That brings me to the next problem.

Outcome: 90% of the people who would be impacted for the most part understood, and even though they knew that this would set them back a year.

A few people who were there for 1 year and got nothing (because you had to be there for 2 years) got upset when I said we need to shift this out to 3 years. Ok upset is an understatement. They were young, so was I, but I always tell our team that I am trying to do what is right, but I am doing a lot of on the job learning and will make mistakes.  I always figured it was better to work at a company that PROVED they were trying to share and do what was right than one that does not, but that was not the case. I listened and heard them out one by one on how they were disappointed.  Deep down I was pissed. 

Reaction: I listened, but I didn’t change the policy, I knew I had to create a higher threshold.  Heck I stayed at a job I didn’t like for 3.5 years.  So we could also create an incentive whereby people stayed to have the shot at getting these big bonuses. I’m impulsive as hell so I wonder if those 2 people knew that I had decided to fire them that day?  Luckily someone talked me out of it.  I looked at it like this… 1 - you are not KILLING it, you have been here for 1 year and are just doing your job, so even having a CHANCE to get a bonus should have been great.  

Am I wrong in this thinking?  Should I have fired them both right then and there?

Learnings:

I learned that when you are THAT transparent you can create haves and have nots, so on one side of the room you have the I got a huge bonus people, and on the other you have the we got nothing and wil’s just pushed out my 10k+ check out 1 more year.  That is how it was perceived, there was less perception around…what can we do to improve, upsell, grow the company together.  I saw something ugly…I saw the outcome of haves and have nots, and the outcome of expected bonuses. People were thinking “Next year I would have gotten a 10k+ check, Wil took that away from me”.  With no regard that the company had to hit milestones and do certain things that we’d all have to work our assess off for. Its amazing to see that when you are THAT transparent, how people don’t make the connection of what THEY can do to get us to that point, they just think its gonna happen again.

It piles on…The most pissed I’ve ever been EVER…

I am a dude who believes in doing the right thing. So I had a stellar employee who was leaving the company for a family issue at the end of December. They left Dec 20th.  When bonuses were calculated I realized I had another employee who was contributing their ass off but was not eligible. I had to figure out how to rectify an employee leaving who was helpful in getting us to that point and an employee who was going to miss by a few weeks.

The decision

I IM’ed the employee who had left about 6 weeks after their departure.  I called with Good news (so I thought) - I said…look, I know you don’t work here anymore and will be staying home for the foreseeable future, but as a token of my appreciation, I want to give you a third of the bonus (which was a HUGE bonus) because over the past few years you CONTRIBUTED to getting us to where we are, check has already been deposited. There was a pause.

I waited

and waited

and waited 

(now I am thinking, damn, “thank you” doesn’t take that long to type up on IM)

They read me the riot act 

Someone who had left (on GREAT terms) was upset that they didn’t get the full bonus.  But they voluntarily decided to quit!!

This was one of the biggest lessons I learned about fairness and how perceptions are all that matters.  I was an ASSHOLE in that persons eyes, in my eyes I was a SAINT.  I did what NO company I know ever does (on their own) give an employee who voluntarily left a bonus between 5-10k after their departure date.

I was thinking hey, we’re transparent, we’re giving a bonus to someone who quit, this is a GOOD thing right? WRONG.

The next day was the only day in my life that I didn’t feel like seeing anyone at the office, I’ve never felt that way in my life.  The day after telling people we would move out bonuses 1 more year (was 3 years really THAT much to ask) combined with the above issue, I wanted to stay home and punch holes in walls over and over and over again, fire someone and use 5% of their bonus to fix my walls. I wanted to get rid of the bonus pool and the transparency and give HUGE spot bonuses out at my own discretion.

But I didn’t, the CORE of the company was about transparency and sharing in the success, going to a system like that would be to turn my back on one of those beliefs, and I don’t believe a company should change policy for 1 or 2 people who piss you off when 25 of them are thinking you are doing a great job, fire the 1-2 people and find the RIGHT people.

One person knew I was just having a tough time and that I was getting shit from all angles and since we talk about things in the open as a company they also knew that a lot of others were giving me a hard time too. He told me at his old company, he didn’t know the numbers, and didn’t get a bonus and that he was just happy to be somewhere where he saw that at the CORE the company had beliefs about sharing with people and doing what was right.  That was the ray of light that shined through at a VERY dark time for me.  You know who you are and for that I will be forever grateful.  I dusted myself off and trudged forward, lets keep growing this thing!!

BONUS PROGRAM YEAR 2

Ahhh we fixed it… 3 years for eligibility.  Some how I thought that would solve the problem, boy was I wrong. Another year came and went and we again we CRUSHED it, checks were divvied out, and we were even able to give the “have nots” a bonus since we killed it. All was right in the world.

WRONG!

Problem. 

3 years was the wrong amount of time still.  There was no cap.  I had to finally realize this is NOT some utopia at SEER, being here for 3 years was NOT equal for all people.

Yet giving out equal bonuses was not right. The idea that how long you’ve been here directly correlates to your impact is crazy.  (The beauty is that for people who were not eligible, but were working as hard or harder than the people who were, I could spot bonus them).  But what we were communicating to the company is that if you are here for 3 years, YOU get the same bonus as others who have been here for 3 years.  It doesn’t matter that one is a manager responsible for a division that does a million dollars and that one person does not.  Again I could see the dis-incentive there.  I could see my senior leaders saying, so I work my ass off to grow a division or retain my clients and my team and I get the same bonus as someone else who does a great job but doesn’t have those responsibilities. No one said that to me, but I realized that would be a problem and had to fix it.

Outcome:

We gave out equal bonuses again, but something still didn’t feel right. So I didn’t have the people drama, but I could still see that given our team member growth and our retention of team members that the DIS-INCENTIVE was still there.  We implemented bonus caps…. You would receive up to a % of your salary instead of this unlimited tenure based bonus.

BONUS PROGRAM YEAR 3

ALMOST THERE, now we got a new issue.

  • We kept the bonus pool concept (sharing in the success)
  • We kept the 3 year eligibility requirement (with discretionary bonuses for people under 3 years)
  • We kept the transparency (quarterly meetings with the team to share numbers)
  • We kept being…US

The beauty of keeping the bonus based on a % of salary is that it made it somewhat more private. Minimizing the “they just all got 1k, 3k, 5k,10k finger pointing.

Last year we KILLED it again.  But since there were caps now on the max a person could receive we had a new problem…

Problem: There was a lot more in the bonus pool than we expected, so what do we do?

Solution: We bump everyone, so we gave all employees who worked hard a higher percentage than they were eligible for.

WE still had a lot left over, so we bonused people who had been here for 3 months, 1 year, 2 years, you name it.  All discretionary.  People were pumped.  Well NOT REALLY.

New Problem: There was an entirely new dynamic we have to battle…expectations.

We had people who had been here for a 3-4 months who got small bonuses - and they reacted with more gratitude than some of our people who had 10x or 15x more money in their bonuses.  I mean its crazy to give someone a 3 figure bonus and someone else a 4-5 figure bonus and watch person after person after person who got a symbolic 3 digit bonus leave the meeting ecstatic saying things like I’ve never gotten a bonus EVER, or I can go by X with that now, thank you, and then watch those who expect it to come shrug, give a thanks and walk out.

I understand that of course bonuses become expected (especially the way we have set them up) - how could they not? 

And that is my challenge for you all to help me with.  Hopefully I have helped you up to this point giving you ideas.  Now tell me…

1 - Should I shut up and just say - Wil that comes with the territory. Get back to work.

or

2 - Here is a way to keep your core values and still make the bonuses something that doesn’t become expected.

Lessons for bonus givers: No matter how often you tell your team bonuses are likely to change, since we are feeling this out, every change brings about some level of negativity. That is OK, shoulder that, if your real goal is to improve your bonus program you gotta listen to people (only listen to the ones you really want to retain, b/c everyone will have an opinion) and let people know you are trying to do what is right.

Lessons for bonus recipients: Don’t be a brown noser in bonus meetings like “OMG you are the bestest boss ever, no really ever, ever”. But acting like its expected, doesn’t really encourage someone to do it again next year.

The next years

In 2013 we will develop a phantom stock plan where we set up the facility for people to have an ownership stake in SEER, I don’t know if anyone is going to get any in 2013, but the system will be put in place that will allow me to do it, its going to take a lot of time and money, but again I hope this communicates to our team where this company is going and that we will be creating wealth for people here, its my goal.  I know some people will feel they deserve to own a piece of the company, and they won’t get it and will leave, and now that I’ve grown, I’m OK with that.

With the lessons I have learned I’ll be VERY cautious about how to share in that, but I’ll be PUMPED to give the ultimate THANK YOU (ownership) to people on my team in 2013, 14, and beyond! I’ll chronicle that process here too.

Now what Wil?

There are even more challenges ahead.  The biggest one was brought up by one of my mentors…lets say I decide to make a BIG move, one that is costly, like buying out a company, or buying our building, something major like that. Well a BIG expense like that costs the company a LOT of money, and my decision that year to increase expenses can hurt our bonus pool and hurt everyone’s bonus as a result.  

I don’t think it is entirely right to have 100% of someone bonus potentially impacted based on me making a decision that costs the company a LOT of money right?

So something I am going to work on in years 4-5 of our bonus plan is trying to tie closer the incentive plan to peoples sphere of influence.  If you don’t have influence over expenses, then why should your bonus potentially be significantly for something you can’t control, right?

That will be the next challenge in a VERY evolutionary process, and again if you have suggestions on how to keep bonuses from becoming “expected” I am all ears. As I understand it is natural, so a creative solution is likely needed.

  1. wilreynolds posted this

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