Bonus Program Outline
Steven Cesare, Ph.D.
A business owner from Texas called me the other day to talk about his plan to implement a bonus program for his Enhancements Foremen. This is common practice across the green industry premised on the fact that Foremen should have a financial incentive for completing high-quality work in fewer hours than budgeted, thereby creating surplus gross margin dollars from their jobs/portfolio; a portion of which is returned to the Foremen as a non-discretionary performance bonus.
While the concept is standard practice, the manner in which such bonus programs are stipulated and communicated to the employees usually lacks detail; a fact that frequently produces disagreement, hurt feelings, and longstanding damage to the organizational culture.
Here is the standard bonus program outline I shared with the Texas business owner.
- Eligibility: This section determines who can receive a bonus. For example, the employee is bonus eligible if s/he has worked with the company for at least six months; or the Foreman has serviced a given job for the past three months; or the bonus program applies only to billable work (e.g., enhancements, tree trimming, irrigation repairs or upgrades, color replacement, plant fill-ins, plant health care), not services contained within the customer’s maintenance job contract; or the bonus is only paid to those jobs that have a ratio of at least 40% of monthly enhancements revenue to the monthly contract value.
- Goals: This section defines the performance standard that must be achieved to receive the bonus. First, ensure the bonus program timeframe is well stated (e.g., weekly, monthly, quarterly, annually) and that the performance goals will be reset accordingly (e.g., weekly, monthly, quarterly, annually). Second, general performance standards include: a quarterly cumulative gross margin of 51%; or an increase in job/portfolio gross margin of 2% year-over-year; or an increase in overall job quality scores of at least 5% for a given calendar quarter; or perfect attendance by an entire work crew for an entire month. Third, never use safety incident rate as a performance goal since that metric is illegal according to OSHA regulations in that it ostensibly rewards employees for not reporting job-related injuries.
- Pay: This section specifies the potential bonus payout for achieving the stated performance goals. This section is clearly based on the accuracy of the company’s estimating process for the work to be performed, enabling a lucrative enough bonus to motivate field employees to exert sufficient effort to achieve the goal. Regarding the size of the bonus pay, a broad generalization equates to approximately a 10% increase in annual income for non-exempt field employees (e.g., Foremen, Irrigators, PHC Technicians). Thus, a hypothetical Foreman making $25/hour (i.e., $1,000 per week), should have a bonus potential of $100 per week. Parenthetically, remember that non-discretionary bonuses to non-exempt employees necessarily inflate their regular rate of pay which increases their overtime rate for that bonus period.
- Payment: This section clarifies when the bonus payouts will be distributed to worthy recipients. For example, bonus payments are usually distributed by the end of the first month immediately following the performance bonus month; or the quarterly bonus will be paid before the end of the first month following the end of a performance bonus quarter.
- Disqualifiers: This section presents those factors that can eliminate an employee from receiving a performance bonus. Common disqualifiers include: achieving desired gross margin goals while not simultaneously meeting related job quality standards; jobs that incur any overtime hours; or all completed irrigation work orders were not turned into the main office within one day of service; any job that incurs water penalties; if a Foreman experiences any lost job during the stated bonus timeframe; or any customer complaint or reworked services.
Money changes people. So, take the time to outline the details of the bonus program before you roll it out to your employees to prevent any financial “misinterpretations” that can damage a work relationship.
If you have any questions or comments about this topic or anything else related to human resources, simply call me at (760) 685-3800.
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