The MBO Bonus – Definition, Tips, and Considerations

Blog
Jan 05, 2021
5 min read
An MBO bonus is a performance-based reward an employee earns when completing the goals laid out in their MBO program. Learn how you can use it effectively to motivate reps and drive performance.

What is an MBO Bonus?

An MBO (Management by Objectives) bonus is a performance-based reward an employee earns when completing the goals stated in their MBO program. These bonuses and objectives are set as a result of discussions held between management and employees which stem directly from higher-level organizational targets.

Because they are a product of collaboration, and based on each employee’s individual tasks, MBO bonuses are visible from the day they are set, and thus highly motivating. Employees should be well aware of what exactly needs to be achieved in order for their bonuses to be received.

4 MBO Bonus Best Practices

1. Take a Simple Approach

One of the most valuable aspects of the MBO bonus lies in its transparency. Because employees are highly involved in goal setting, these incentives can be extremely motivating. A down payment on a car, or perhaps an engagement ring? A nice chunk to put towards paying off a credit card? With employees themselves contributing to the process, they know exactly what’s expected of their performance.

Employees can then visualize themselves achieving set goals and receiving the attached bonuses in return. Given all of that, you don’t need to go overboard with objectives and related MBO bonuses. Setting around three major goals per quarter is an optimal amount.

2. Align Corporate Goals to Individual Objectives

While it’s important for MBO bonuses to be tied to individual tasks, it’s also crucial that employees recieve rewards for achievements that are aligned with corporate objectives, too. 

Research from Harvard Business Review reveals a surprising statistic: 95 percent of employees don’t understand their company’s goals and strategies. This is where an MBO is really helpful. It also gives them a sense of contribution—what they're doing is making an impact on the business’ success.

Think of it like a system of individual funnels, with employee goals constructed to fill a big bucket of your organizational goals at the bottom. There is no way that the main bucket gets filled if the personal employee funnels above it are pooled or misaligned. Sure you might be successful at filling individual funnels, but you’ll eventually have water all over the place, and very little in the main bucket.

3. Practice Clear and Continuous Communication

When it comes to goal setting, you hear this a lot: it should never be a set-it-and-forget-it activity. If you are going through the process of setting goals with your people, you must also take the required steps of checking in on those targets before the deadlines. Reinforcements and reminders keep employee minds fresh and focused on the task at hand, and nudges them back on track to achieving their MBO bonuses.

Check in on plan performance on a regular basis. This allows you to stay prioritized and make any necessary changes and eliminate roadblocks to stay on track.

4. Embrace Technology

To be clear, we aren’t talking about spreadsheets or word processing documents. Yes, they are on a computer, but they aren’t the best technology for managing MBO bonuses. Employee Performance Management or MBO software like Xactly Objectives™ allows for flexibility, goal organization, and visibility.

According to a new study from Dell Technologies, 89 percent of organizations say the pandemic has shown a need for more agile and scalable technology. Digital transformation is now an imperative due to its ability to give employees and leadership the transparency and capacity to optimize plans in real-time they need to successfully achieve corporate goals. 

Management by Objectives software, specifically, allows for far more engagement than a manual, spreadsheet-based option with zero flexibility or error-checking capabilities. An automated system is all about providing employees with visibility into plan progress which facilitates a culture of friendly competition, where striving for success and completing objectives is the norm.

Having a strong, automated plan is a must for keeping employees engaged across all sectors. Without it, you run the risk of employee aims not being in line with company goals, and you miss out on the power of transparency to motivate and inspire performance.

A Few Other Things to Consider

Maintain Balance

No matter how good your MBO program is, or the amount and quality of communication you have around it all, goals and bonuses will always invoke pressure. So, it’s important you dial back the pressure when it comes to meeting goals, and turn up the balance between achieving those objectives and achieving them in a manner you’d be proud of.

Specifically, goals shouldn’t be presented as “by any means” necessary. You should push employees to meet their targets but also be mindful of work-life balance. This means understanding that employees don’t work 80+ hour weeks. Set realistically achievable goals that will encourage your workforce to achieve them. 

Another easy way to ease pressure is to break goals down into smaller chunks. For example, an employee missing one out of three or four smaller targets isn’t as big of a financial deal as missing one large goal making up the majority of the bonus. This way your employees don’t have to risk burning themselves out or neglect other work to achieve one overly-ambitious goal. 

Prioritize The Human Part of Business
Improving employee morale is an additional benefit of ensuring goal alignment. CEB HR Leadership Council found that organizations that effectively convey to employees how their individual role impacts the overall business experience a 21percent higher total shareholder return over three years. One can speculate that this is because such communication gives employees purpose and identity as a team member tasked with shouldering their share of the load. This greatly improves the odds of your people being engaged and happy in the workplace. 

Keep Goals Within Reach of the Individual

MBO bonuses, by nature, are individual goals and should be controlled (or at least mostly) by the individual, without having to heavily rely on others.

Of course, there are very few tasks that can be completed in a vacuum. Just be sure to not set an individual goal like “increase sales in region XYZ by 20 percent” if the region’s total sales are made up by multiple individuals. If a sales rep increases his sales by 20 percent, but the others fall short, so does the goal, which isn’t fair to that individual rep. To help increase your employee engagement, here are some industry MBO examples to kickstart your objective planning. 

Again, Follow Through is Key

No matter the technology used, any goal that is simply stated and then not revisited until review time is bound to fail.

We are all too familiar with setting big resolutions in January, going hard at them for a week or so, and then letting them fade. But, haven’t you found that when you hold yourself accountable, put together means of keeping track of progress, host regular check-ins with yourself, and celebrate the small victories, you see progress? You should adopt the same attitude when it comes to the goals and MBO bonuses you set for your employees.

Unfortunately, even if you’re good 80 percent of the time, but fail to follow through with that last 20 percent, you’ll have nothing to show for it except frustration. While the examples above center around sales primarily, MBO bonuses can work for any employee in any industry. 

Want to learn more about setting objectives and goals? Check out our recent guide, “The Complete Sales Planning Handbook” to help your organization prepare for 2021 plans.

  • Incentive Compensation
  • Sales Coaching and Motivation
Author
Emily-Jahn
Emily Jahn
,
Content Marketing Manager

Emily Jahn is a Content Marketing Manager at Xactly. She earned a degree in advertising from The University of Colorado - Boulder and has experience in copywriting, social media, and digital marketing.