PERFORMANCE EXPECTATIONS VS. BONUS PAY

Steven Cesare, Ph.D.

An intriguing business owner from Virginia called me the other day to discuss his company’s performance management system, compensation plan, and organizational culture, viewed interdependently through the lens of improving individual and collective accountability. The business owner clearly understands human resources is a synergistic equation involving myriad, dynamic components focused on a business goal, rather than simply looking at a human resource element (e.g., employee handbook, training, safety) in stark isolation, bereft of impact on other aspects of the company.

This is when we rise to our feet and applaud!

I love the sound of those trumpets blaring enlightened energy to the rest of the green industry!

As we addressed the company compensation plan, the owner deftly outlined the derivative relationship between the company’s business goals, followed by specific departmental objectives, and finally employee (e.g., Field Director, Manager, Foreman) performance expectations. Textbook architecture; great job!

But then, when he progressed to actual compensation, he frequently stated that attainment of a goal would necessarily lead to a bonus to the employee who achieved that goal. Wrong textbook.

While cynics utter semantic indifference, capitalists understand strategic nuance.

In general, a bonus is a form of compensation when extra pay is given to an employee for exceptional performance (i.e., exceeding the standard performance expectation). For example, the company can offer a $1,000 bonus to a Foreman if his/her job is completed with a gross margin at an agreed upon level (i.e., 53%), in excess of the expected performance level (i.e., 50%).

At the risk of being circular, a performance expectation is the expected performance that an employee must demonstrate to maintain a satisfactory level of performance. By meeting performance expectations, the employee is likely to receive a merit pay increase at the time of his/her annual performance review.

At the risk of being redundant, bonus pay is given when an employee achieves a performance level at or beyond a performance expectation; achieving a threshold (i.e., goal) that adds value to the company. Once that “goal” threshold is attained, the employee will be rewarded with a pre-stipulated sum of money.

At the risk of being rhetorical, should employees receive bonus pay for coming to work on time, wearing their uniform, or taking their meal period every day? No. Those are performance expectations. They are not goals; they are not indicative of exceptional performance worthy of receiving bonus pay.

Despite yuppie folklore, every player does not get a trophy; every student does not receive a scholarship; and you know what? Not every employee gets a bonus for meeting performance expectations. Do you know why? Because not every employee demonstrates exceptional performance that achieves a stated threshold that adds value to the company.

As I continued with the business owner, I suggested he be more clear when discussing compensation issues to this team. In specific, he should be detailed by distinguishing performance expectations (i.e., merit) from bonus-eligible goals, that have exceptional performance thresholds significantly greater than stated performance expectations, capable of receiving extra compensation when attained.

Achievement is the essence of business success. If every employee met all of his/her performance expectations, the business owner would be thrilled and the company would be undeniably successful.

Now compare that condition to the company in which every employee demonstrated exceptional performance by achieving stated goal thresholds that added value to the company, resulting in every employee receiving well-deserved bonus pay.

That’s when you would really hear the trumpets blare enlightened energy to the entire company!

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