How do I bonus my team at year end?

Some Insights on an Effective Bonus System

It’s that time of year when business owners are thinking about ‘how do I reward my team’ or ‘they are expecting a bonus … what do I do?’

I am a believer in sharing the financial rewards with your team. AND I believe it is important that there is some structure and education in place or else it can and usually does lead to entitlement or a misunderstanding what the ‘bonus’ is for.

Here are the key points to ‘Bonusing’

  • Profit Share vs Bonus. Profit sharing should be based on how the company does financially. Bonusing can be more subjective and less effective. Lots of profit, lots of sharing. No profit, no sharing. We are all in this together.
  • Be sure people understand what has to happen in order for the company to have lots of profits. Education is key. And make it transparent so they have the power to impact the result.
  • Keep your formula simple. I like x% over a certain amount of profit (remember to keep enough profit in the company to finance growth and reward shareholders) goes into a pool. That pool is then divided up equally or divided up based on salary levels.

It may be too late this year to put a structured system in place and do the education necessary. If that is the case for you then certainly bonus but make sure you position that moving forward you will be developing a system so everyone can have an effect on how much they get at the end of next year. Managing expectations is very important.

The points I’ve outlined above really are just the high level things to consider. For a details understanding of what I believe to be the best, simplest and most effect system read Brad Hams “Ownership Thinking”

The simplest form of leverage

Focus on What’s Important For Your Business

When Clive wanted more time to be able to work on growing his business what he was really looking for was better leverage. That is ‘get more growth with less of his time invested’. He was currently under leveraged from a time perspective. I asked him this one question …

“What activities do you do now that take up more than 10% of your time that could be done by someone else?”

It took him less than 5 seconds to say “scheduling”. Next question …

“What would have to happen to get scheduling off your plate?”

In the 5 minutes following that question Clive had laid out a 5 step plan that was going to free up approximately 15hrs per week. In reality it took about 6 weeks to get 80% of the bugs ironed out of the delegation process and get others up to speed with training. The payoff – aside from the extra initial 15hrs – is a new mode of thinking that has allowed Clive to free up even more time by asking himself similar pattern breaking questions in other areas of the business.

And so it goes; the well-known, and largely underutilized, principle called the 80/20 rule or Pareto’s Principle is one most of us probably should revisit. In this context the rule states:

80% of your results come from 20% of your activities.

The question is “how much of our time is spent on those 80% activities”. From what I’ve seen with most business owners, it is usually not enough. Despite my awareness of this I still catch myself doing things someone else can be doing at the expense of time invested in higher value activities.

To implement 80/20 thinking relative to your own time ask yourself this question …

“If I could only spend 20hrs per week working and my business had to achieve the goals I have in place, how would I do it?”

This question forces you into a new mode of thinking. Don’t expect the heavens to open on the first attempt at answering this question. If you stick with this question for 90-days and each day write down the answers that come to your mind, you’ll be amazed at the options available to you.

Achieving bigger goals requires bigger thinking …

The Business Hostage – How did it happen??

Is it possible to have a hostage situation in business. Probably. It might be a big really important customer that makes you feel that way or the government or your own business.

The hostage situation I’m talking about is when you as the owner feel hostage to a member of your team. This is the situation where you have an employee that brings a lot of value to the business (usually through skill set or tenure) but has a hidden agenda, or does not fit in with the rest of the team, or perhaps who behavior makes your skin crawl. Yet you don’t feel you can do anything about them because they would leave a gaping hole in your business. There is always the fear around loss of revenue or profitability if you ‘rock the boat’.

How do you fix it?

Step one is to realize that the only person that can make you feel like a hostage is you. This situation is all about perspective. As soon as you feel like anyone has power of you they do. You always have options in every situation and this one is no different. The truth is, when this situation is rectified you will see your business grow in both efficiency and profitability

Have you ever tried to change someone’s attitude? After trying this several times myself I’ve decided eating sand is more fun. Changing someone’s attitude is one of the toughest things to do because it is outside of your control. Simply said, if they don’t want it to change then guess what … it won’t change. Trying to do so is also a huge drain on your energy … energy that could be more valuable used elsewhere.

OK, so you’ve got this employee whose attitude sucks and it’s affecting the rest of your team, so what do you do? There are 2 options:

  • Give them a good reason for it to change or
  • Help them to realize your business and them are not a good fit

While those 2 options might seem logical, they can be quite challenging to execute on. There are emotions and fears involved that prevent most owners from taking the necessary steps. I’d say this situation can be one of the bigger leadership challenges for small business owners.

Here the way I coach my clients through it:

  • Firstly you have to have a clear idea of the desired behavior. I coach my clients to document the ‘Rules of the Game’ (ROTG). What are the core values that you as a team choose to uphold and are willing to be held accountable to. If the expectations are not clear then it is very hard for someone to know if they are on track or not. It is a good idea to get your key players involved in this process to create buy in.
  • There must be agreement for accountability on the ROTG. So the ‘trouble person’ needs to agree this is the standard. If they don’t want to agree to that then it is time to take some more drastic action. Before making any rush moves here make sure you are aware on the labour laws in your country and always act within them. Long and the short is this person needs to go.
  • When the individual’s behavior is outside the ROTG, it must be addressed immediately. The conversation must be assertive and delivered from a point of respect. Your mindset needs to be “I’m helping this person to be a good fit for our company and their role. If they can come into line then they will excel in their position”
  • Keep this kind of pressure on. The driving force of the conversations is alignment with the culture of the business. The conversations may start to take the tone of “I’m not willing to compromise on the ROTG. You need to make a choice if this place is for you”.
  • The outcome of the process will be either a behavior shift or they will leave. The key is to keep the pressure on. And this process should not be a drawn out one. The degree of non compliant behavior will dictate the degree of pressure asserted.

Human behavior will only change when there is pressure. If the person receiving the pressure does not want to change they will find an environment that does not have pressure.

This process is not the most enjoyable part of leadership but can be the most rewarding. A huge part of leadership is to expect more from your people and continually be ‘raising the bar’, keeping positive pressure on them to improve. The process described above is simply an intense version of that positive pressure.

When you have a team of people who all share in the same core values and work to uphold them, you’ll start to see that small problems disappear and are replaced by pro-activity. Profitability will improve, sick days go down, customer satisfaction goes up, turnover is reduced and numerous other measure will all improve.

At the end of the day your business is your people. If you don’t have the people you want then you don’t have the business you want. And your customers are not getting the experience they deserve with drives down the value of your business.

So take control and have some fun!