A Bonus Plan That’s Right on Target
Matthew Kinney is executive vice president for Research & Development at BWSI, a Phoenix-based staffing software company. As a company with some long-term employees on staff, BWSI has structured its bonus plan accordingly.
Erik Charles, Xactly’s Principal Incentives Strategist, sees such longevity as a plus. In his blog post, Retain and motivate your long-time performers with incentive compensation, he writes that it’s worth trying to hang on to team members who have been around the longest. “Maintaining a retention strategy targeted toward them can help keep them and their valuable, time-tested experience,” he says. “It also avoids the cost of turnover.”
BWSI’s incentive compensation plan is also in line with Charles’ recommendation that an employee retention plan should keep pay mix in mind.
“If you’re constantly increasing salary with tenure, your incentive compensation plan could lose effectiveness,” he says. “When you give rewards for results, you’ll motivate continued success.”
Here’s Kinney on BWSI’s bonus plan:
I think we hit the bonus issue right in the bullseye, and I would hazard that our employees agree, considering average tenure. In my over 15 years as an equity partner here, we have had only three employees leave for what they thought were greener pastures. We have had a few layoffs, but we think we have found the sweet spot on our staffing and labor costs.
At BWSI, we set aside a significant portion of our gross profit and divide it up among the employees every quarter. We escrow part of the bonus each quarter in case we have a bad quarter (we haven’t yet since we started this) and pay out the escrowed amount with the Christmas bonus.
We generally don’t give raises outside of the first couple of years’ evaluations unless an employee takes on significantly more responsibility. But every quarter they get a bonus based on how well the company does, because they are a huge part of it.
BWSI also fully pays the employee’s share of benefits, so our single employees have zero out-of-pocket costs for their medical plan. We have absorbed every cost increase for the past 10 years. For a small company, this is a huge hit on our bottom line, but one we feel is important.
By using bonuses to control labor costs, we keep our fixed overhead down. Some of our employees have been with us 10 and 12 years, and you can’t keep giving raises just for longevity. The ownership mantra here is that when the company does well, we all do well. And when the company doesn’t do well, we don’t have to worry about a reduction in force, furloughs, or cutting salaries.
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