I’ve been working on a bonus system for years but it’s been very difficult. After reading the “Great Game of Business” by Jack Stack about 10 times I decided to try to create an Excel sheet which uses our actual financial performance to determine bonuses.
Basically, we set a low target (in Precision’s case, 6% profit margin which is typical for our industry) and a high target (I figured triple industry average is a decent high goal = 18% profit margin). We do not issue bonuses if we meet the low target (or come in under it). We issue bonuses quarterly if we achieve a profit margin above our low target. If we reach our high target (18% profit margin) we issue bonuses in the amount specified for each position in our table (between +13% to +18%) of an employee’s pay. The bonus is staggered and can roll over between each quarter, ie. 10% of the bonus is available in Q1, 20% in Q2, 30% in Q3 and 40% in Q4 (for a total of 100% over the year). So, if we miss our Q1 target, we roll the bonus over and 30% of it is available in Q2. The purpose of this is to increase the stakes as the year progresses (imagine, we miss targets on Q1, Q2, and Q3 but somehow make it in Q4; that would be 100% of an additional +13% to +18% of each qualifying employee’s wage!).
It took a while to figure out how to share this so you could play with it. I transferred my Excel document with the formulas over to a Google Sheet (which is basically Excel but shared via the cloud). Here’s the link with the table:
1. What do you think about this, does it make sense?
2. Would I be crazy to implement this in my company?
3. Do you think this is an accurate interpretation of the “Skip the Praise, Give us the Raise” bonus system described in GGOB?
3. People should be paid wages in line with the industry average for industry performance. It is imperative to keep payroll costs down to keep jobs secure in tough times. When times are good and employees perform above industry standards, they should be rewarded with a “stake in the game.” In other words, above industry performance equals above industry pay. Discuss.