Cold turkey

Year-end bonus time is just around the corner and high performers want to know, “what’s in my wallet?” I worked for a firm that, for many years, gave out a turkey to each family. Appreciated in context but not altogether well-received, the frozen fowl were generally underwhelming as a motivational tool.

Getting compensation, incentives and employee appreciation right in any economy requires more than just a giveaway. It requires a systematic approach, consistent execution, objective distribution and a lot of finesse.

During a booming economy like the one we’re in now, when competition for salaries is high, and recruiting and retaining top talent is costly, we often overpay to close the deal on a high-performing candidate. When growth slows, wages may have to be cut or employees may need to be terminated in order to control costs. Both extremes are awkward and detrimental to workplace morale and can be avoided if a flexible program is in place. Here are a few options:

Informal rewards.

One-time bonuses around specific projects or goals are an effective way to thank employees for their contributions.

As one of the biggest happiness drivers in your company, a bonus that celebrates a successful outcome lets your employees know they’ve contributed to the greater good and you’ve noticed.

Balanced scorecards.

A scorecard program linking pay to performance makes financial rewards more relevant for employees and more economically balanced for your company. The scorecard is a form of “at-risk compensation” based on hitting performance targets tied to company success. This is paid when performance is high in a good economy and can be adjusted to market conditions when it’s not.

A scorecard for an account manager, for example, would have a set of measures that include financial and operational targets, such as use of technology and innovation, meeting customer satisfaction goals, retention guidelines, service improvement activities and other drivers of financial performance. In the case of an excellent performance score, an account manager might receive 20 percent (or whatever percent you choose), a lesser percent for target performance and a lower amount for minimum performance. If the targets were based on gross margin performance, retention percent and enhancement sales, they would receive a percentage based on how they performed. Scorecard measures are tied to company objectives. If they hit their targets, your company is more likely to hit its targets. If not, they share the pain.

Signing bonuses.

Keeping costs in line during an overheated economy, without jeopardizing the opportunity to close a hiring deal on a top candidate, is difficult when there’s a lot of competition for hard-to-fill positions. While a signing bonus can be a powerful recruiting tool, it can also be tied to a larger time frame for retention. When calculating costs to hire, know how much is too much; offer the right wage and a signing bonus to close the gap.

Year-end bonuses.

A year-end bonus program based on company performance is popular but often arbitrary. Companies pick random percentages of profit and do not have a protection if profits are borderline.

For example, an acceptable percentage for return on assets to maintain a healthy company is about 20 percent. This number is a better and more consistent approach than setting an arbitrary net profit percentage. If you were to set this as a profit level necessary to remain a healthy company, then you could set a minimum profit of 20 percent of assets as the level needed to be achieved for profit-sharing to kick in. There should be a minimum level of profit to pay out bonuses and it should be communicated to the eligible employees as something privileged to strive for, not something they’re entitled to.

Tailor it to roles and responsibilities.

Compensation programs need to be motivational and tailored to determine which reward system works best for which role and responsibility within your company. Different types of performance criteria and context apply for employees who improve customer service and retention, contribute to technology and innovation, improve market position, positively influence workplace culture or have a direct role in making profits, for example. Salespeople are usually rewarded with commission. Making commission a larger part of their total compensation helps them to share the risk when sales lag due to market conditions.

Year-end bonus time is coming up soon for most companies. Take this time to ensure that your employees are motivated by the right goals and targets to ensure that your incentive program isn’t perceived to be a turkey.

Bruce Wilson is principal of green industry consulting firm Bruce Wilson & Company.