Paying staff a bonus or other incentive is a well tested method of improving their commitment to the business’s management goals.  How to Do Staff Bonus Plans examines ways of doing this that have worked in practice. Yellow Belt

There seems to be ample evidence that a well designed bonus scheme can incentivise staff to be more productive, work safer or whatever other aspect of the business operation the owner wants to focus attention upon.

The bonus goal is a statement that these company goals are so important, we will pay you to focus on them,.

It is a mantra in business that people will focus on whatever is measured which is why having the right metrics is so important and, in this instance, the point is made even more clear by paying staff to head down that path.
Go to the article: Importance of Metrics for Profit

A bonus scheme can be used to;

They may have problems when;

The characteristics of a successful bonus scheme include;

An Example

Let’s say that increasing profit is a goal.  For a business owner, this has two payoffs; they get more income and the value of their business (which is usually a 3-5 time multiple of their operating profit before tax and interest [EBITDA] ) also goes up.

The plan chosen is:

Jack Stack Approach

In his book referenced in Resources below and on the website, Stack has developed a bonus scheme as part of a wider “open book” management approach that shares accounting and other management data very widely throughout the staff owned company.  The bonus discussion begins in Chapter 7.

If you are thinking of an all inclusive approach to your business this is a very good text to get you started.  If you had invested $1,000 in his  open book business SRC in 1983, it would be worth $3.4 million today (2013).  By way of comparison, the same amount invested in Warren Buffet’s Berkshire Hathaway would be worth $113,000.  Stack clearly has some serious street creds!

Resources

The Great Game of Business: the only sensible way to run a business by Jack Stack is devoted to an ‘open book’ approach to management whereby all company financial and production data is shared with everyone.  If you had invested $1,000 in his  open book business SRC in 1983, it would be worth $3.4 million today (2013).  By way of comparison, the same amount invested in Warren Buffet’s Berkshire Hathaway would be worth $113,000.  Stack clearly has some serious street creds!

See more in Great Business Books Menu

Leave a Reply

error: Content is protected !!