I think employee bonus programs are fantastic and every business should have one.  I also think poorly designed bonus programs are bad for business.  What I see, more often than not, are discretionary bonuses that are paid annually, usually around Christmas.

Here’s the main thing I cannot stand about the traditional Christmas bonus program: Employees who EXPECT a bonus.  To me, a bonus is, well, a bonus.  Bonuses are given to those who deserve them.  But, the problem is not with the employees.  Most of the time, they’ve just been conditioned (like Pavlov’s dog) to receive a bonus once a year whether they deserve it or not.

How do you set up a program that works for your business?  It depends on your business, of course, but here are some things to consider:

• The budget: The bonus pool should be budgeted at the beginning of the period.  This way, you can separate cash funds to pay the bonuses throughout the year.
• The profit goals of the company: I believe if the company doesn’t achieve profitability, NO ONE gets a bonus.  Each person in the business has an impact on the bottom line.  Don’t believe me? I’ve spent YEARS tying every employee’s salary back to the bottom line.  Trust me, everyone can impact the success of the company.  (If you don’t think it’s true, I’d love to chat with you.)  You should determine what, if any, bonus gets paid when you don’t reach your profitability target.  On the flip side, will there will be additional money in the bonus pool if you exceed the target?
• Individual goals: At the beginning of the bonus period, each employee should have goals in place.  These need to be clear, measurable, achievable goals.  Achieve the goals, get the bonus.
• Teamwork: Bonus programs should promote teamwork.  The goal of a profitable company means everyone needs to work together.  Even employees who don’t work in a team should have a teamwork component in their goals (they are on the company team!).  For employees who work in teams, you may want to have team bonuses or have a portion of the bonus based on team performance.
• Timing: Pay bonuses frequently or at least provide feedback, so they know how much has been earned.
  • It’s really hard to stay motivated and on task if you only receive feedback once a year.  Paying more frequently helps keep the troops motivated and let’s the underachievers feel the pain of not doing their part.  I think it’s best to let employees know regularly how much is in the bonus pool (I think a monthly chart updated as financials are completed would be excellent).  That way, they can determine what their piece of the pie is if they meet their goals.  Ideally, payments would be made quarterly.
  • Frequent payments also help solve the “what have you done for me lately?” problem.  Managers will have a difficult time assessing the work of employees if they only take inventory once a year.  If someone is having an off month in December, their whole year of good performance could be overlooked due to current perceptions.  The opposite is true as well, a poor performer who suddenly has a great month can be unjustly overcompensated.  Either of these situations will cause morale problems amongst your employees.
• The formula:  Care should be taken with the formula.  You’ll want to create a formula that pays for performance, but also keeps the bonus in line with salaries.  Entry level employees with less impact on the results should not receive the same level of bonus compensation as a top manager.  You’ll likely want to establish bonus targets for each class of employee.  If they achieve all goals and the company achieves the profitability goal, they get the target bonus.

There are many things to think about when designing your employee bonus program.  It’s critical to make sure the program not only motivates employees, but also keeps the company objectives and culture in mind.

~Kelly

I once worked with a small, growing business that had a couple of magnetic poetry kits on the refrigerator.  Employees would make funny sentences on the refrigerator for all to enjoy.  All was well and good until the company grew to a point that it needed a human resources manager.

Within a week of the new h.r. manager arriving, one word disappeared from the poetry set.  It was the S-E-X word.  This word never caused a problem with any of the employees.  This particular group of employees was not known to be crude and I don’t believe that word was ever even used in a sentence.  Apparently, the new human resources manager was afraid that it might cause a problem or tension and thought it best to just discreetly toss the word.

I’m a little more laid back in my h.r. approach.  I think there are very definitely business cultures where this particular word shouldn’t be displayed in the break room, but there are instances where a it’s not a big deal.  The thing is, you have to know what your business culture is and what is or is not appropriate.  This business was young, fun, and funky.  It was a hip environment where even if the word was used it would have been funny, not insulting.  Let’s face it, it can be a pretty funny word.

The beauty of small business is you don’t need to have office bureaucracy. Yes, you need to follow the law and certainly sexual harassment cannot be tolerated, but is the word “sex” by itself harassment?  I think not (feel free to disagree).  Here’s how I would handle the situation… If it’s in keeping with the culture and I didn’t think it would offend anyone, I would keep the word on the fridge.  Of course, if someone complained, I would immediately remove the word.  If someone dared to make an inappropriate statement with that, or any other word, then I would deal with it.

How would I deal with it?  Straight up and matter of fact. It’s just like parenting kids… here’s what happened, it was wrong, here’s why it’s wrong.  Now I have to remove this word (or maybe put the whole poetry set on time out ).  I hope we’ve learned our lesson here.  You can’t avoid every potential problem, so why not have some fun and embrace the opportunity to teach lessons when things go wrong?

~Kelly

In my career, I have often held the accounting/human resources/everything else no one wants to deal with position.  So, I’ve been faced with quite a few fun scenarios.  Here are a few…

2) Naked Lady Cake - Once upon a time I worked in a manufacturing environment.  The shop was 99% male (only myself and one other female employee).  One day, I came to work and found a naked lady cake on the breakroom table.  CLASSY!  I don’t know about anyone else, but I think that’s a pretty clear cut sexual harassment issue waiting to happen.  Mind you, I understood those guys and it was all meant to be in good fun (and was actually brought in by the other female).  However, we did have customers and vendors who would happen by the shop.  So, I did it.  I was the mean HR lady who made them cut up the cake, so the shape was no longer recognizable.  At least I didn’t just toss the cake!

3) Adult videos for Christmas – At the same classy establishment, we had annual holiday parties.  I was in charge of setting it up and getting our vendors to give us items to raffle off at the party.  My dear boss liked to have his porn delivered to the office (did I say classy?)…well, it was always packaged so you could only see the return address, but I’m not a moron.  I would put it in his mail and never ever mentioned it.  Well, one day, just before the party, said boss opened his mail at the desk next to me.  One happened to be an "adult" video.  He promptly tossed it on my desk and declared "give that away at the Christmas party".  I don’t remember my exact response, but it was a HR lecture of sorts and the video was promptly returned.  (the lesson – DO NOT have that mail delivered to your office and certainly DO NOT present it to an employee!)

4) Discriminatory hiring practices – I once left a position and hired my own replacement before I left.  A couple of months later, I got an email from the employer stating that the new person didn’t work out and asking if I would help him find someone else.  The email went on to say: "This time, let’s find a man for the job.  Nothing against you, but women are nurturers and men are hunters.  I need someone with the hunter instinct."  Never in my life have I seen someone so boldly discriminate against women…in writing!  And he asked me to participate!  Are you kidding me?  Which is pretty much what my reply email said: "I cannot believe you are asking me to help you break employment laws and discriminate in hiring for this position.  Furthermore, not only is this illegal, it’s now in writing!"  Bad move.  You better dispose of this email quickly and hope don’t get sued if you do hire a man.  He, of course, never responded to my message.  I heard through the grapevine that he had previously been sued for sexual harassment and my response really scared him.  GOOD!  It should!  Please become familiar with illegal hiring practices before you set out to hire employees.  There are always shades of gray, but this was not one of those situations.  This was blatant discrimination.  And even if the issue you are dealing with is a shade of gray, be careful what you put in writing.  It may come back to haunt you.

Note: Please don’t get the wrong impression.  I do understand there are practical realities and sometimes the gray area is a lot wider than we would like.  I try very hard to always give alternative solutions, to think outside of the box and find solutions that will solve the problem and stay within the scope of the law.  It’s always up to the owner to decide what to do, but I also have the option of not participating when my ethical or moral standards don’t line up with the decision.  Most of the time, we’re able to find a great solution.  The most interesting stories, however, tend to be the extremes.

~Kelly Totten, www.acclaroaccounting.com

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Steve Potestio at 52ltd has a great blog post about hiring and corporate culture.  I think he is "right on the money": http://52ltd.com/blog/.

When I worked at XPLANE, we worked very hard at building our corporate culture and this did make negotiations less money-centric. 

I think it’s important for managers to remember the best resume isn’t always the best culture fit.  It’s important to build your culture and define the type of employees you want to have.  If you’re hiring the person who appreciates what you have built, negotiations will be less about money.

The flip side is, don’t hire the best resume, hire the best culture fit with the right skills.  I’ve often said, I’ll take a good culture fit even if the candidate requires more training.  You need to keep your current employees happy too and that means taking the time to find the best fit from all perspectives.

~Kelly

I recently read the book “Fire Someone Today” and I found it to be a great resource for tactical managment advice.  The title will prohibit the book from being displayed in your work library ( unless that’s your style of management…), but it provides good insight nonetheless. 

A couple of my favorites from the book:

Don’t Fly Blind – Build a Dashboard: A Profit & Loss statement is not a dashboard. A monthly report is not a dashboard. These financial statements tell you what happened in the past; a dashboard tells you what is happening now. A dashboard can even tell you what is going to happen next.

Cash is King:  If there was a book of business poetry it would be full of odes to cash.

Cash is the only life and death issue for your business. There are lots of important things you can worry about–people, products, service–but they are important because they impact cash. Businesses with cash live. Businesses without cash die.

Profit is important, and it is the reason businesses exist, but it is not more important than cash. If you have the cash you can run an unprofitable company for years. Many companies in fields like bioscience have long research and development cycles and have yet to sell a product. There are a number of dot-com companies still in business today that have never earned a profit. They are all in business because they have cash in the bank.

(Note: My favorite saying is: “Cash is Cash, Only Cash is Cash & Only Cash Will Ever be Cash”…if you ever work with me, you’ll undoubtedly hear this phrase a few times)

Nobody Needs an Optimistic Accountant: You should be optimistic about your business. Your salespeople should be optimistic about your business. Your parents, your children, your vendors, and your employees should be optimistic about your business. You do not want any negative, pessimistic, whining, cry-baby Chicken Littles on your team. Except for your accountant.

Your accountant, controller, bookkeeper, CFO–whoever it is that counts your money–should be a pessimist. Your accountant should not be the kind of person who thinks things are always going to get better. Your accountant should be the kind of person who thinks things are always going to get worse. Your accountant should be the kind of person who, when you say, “Good morning,” responds, “We’ll see.”

Finally, it’s okay to be a pessimist!  I like to call it “realistic”, but the fact is your accountant has to reign in your optimism.  It’s their job.  You need that balance to ensure your business is successful.

If you’re looking for a management theory book, this isn’t it.  If you’re looking for a book with tangible advice you can begin practicing in your business operations immediately, this is the book for you. 

~Kelly

I’d like to take a moment to explain what the IRS business mileage rate means to small business owners.  It’s quite simple really…it’s the maximum amount per mile you can deduct from taxes if you’re reimbursing using the mileage method.  If you reimburse employees more than this rate, the overage is taxable to them (known as a taxable fringe benefit).  On the flip side, you don’t HAVE to reimburse this amount.  It’s the MAXIMUM deductible amount, not the required amount (unless you’re in California, everything is different there!).

So, if you’re like many of the small businesses I work with and the thought of reimbursing 50.5 cents/mile for a trip to the post office is something you can’t handle, it’s okay.  It’s nice to reimburse at the IRS rate, it’s a good thing to do, but you don’t have to.  Sure, your employees will complain because all of their ill-informed friends have told them they are mistreated.  You can simply tell them that the IRS sets the maximum tax deductible amount and they can consult with their tax preparer about the possibility of deducting the rest.  The IRS certainly doesn’t know how to manage your business!

-Kelly