Performance Bonuses

     Performance bonuses in the workplace sound like a good thing and can be, but be careful that they are not abused or manipulated.  Performance bonuses can be a great motivator, but remember compensation is only one motivator. 

     When I was a plant manager for a recreational vehicle company, I needed double production in a very short time period.  I initiated a bonus plan, paid weekly, to all hourly employees.  This performance bonus worked very well.  The hourly employees, management, and corporate were all very happy with the results.  When I first mentioned the plan, corporate did not recommend implementation, but after it worked so well, I had to go to other company plants to implement the system. 

     A performance bonus must be realistic and meet the needs of the employees affected.  Don’t make the mistake of thinking the only factor is financial compensation.  In the above-mentioned situation, the plant was running 10 to 12 hour days six days a week and I wanted to double production.  I realized that most of the hourly employees liked the overtime, but their free time was even more important to them.  The plan offered an opportunity of making almost the same money in a 40-hour week with no Saturdays.  It worked.  The employees made it work. 

     The quotas and goals for any performance bonus must be realistic or it is worthless.  I know of retail business that sells a high-dollar product, and the sales staff is paid a salary plus commission.  In order to earn any commission, the store and the individual must both reach the goals for the month.  An individual can achieve their individual goal, but if the store does not reach its goal, no commission is paid. 

     I know of one store that was very successful and had some excellent sales people.  Every year the goals were raised an optimistic 30% or more. Then an additional store was opened in a neighboring town that was accounting for 60% of the store’s business, and the goals were not adjusted.  There was no way for the store to now reach its goal, and no way for the sales personnel to earn any commission. 

     The basic plan was okay, but with unrealistic numbers, it was terrible management.  As a result, the best sales people left for other opportunities.  This is a great example of top management not having any idea of what is happening in the field. 

     Another big problem in business is when upper management sets the criteria for their own bonuses.  This leads to manipulation of the books and short-term management decisions that increase bonuses, but are bad for the company long-term.  We have seen many examples of this in recent years in the financial industry.  The government and the taxpayer had to bail out many companies and upper management still paid themselves large bonuses in many cases.

     Performance bonuses in the public sector can also be good or be abused.  I support education, and I believe in rewarding good teachers.  I know of one situation were federal funds were given to the states to reward excellence in teaching.  In some states, teacher’s unions decided to distribute these funds to all teachers based on seniority.  Seniority does not necessarily mean excellence.  These government funds did not achieve their objective. 

     The Veterans Administration and VA Health Care hospitals have been getting some publicity lately because of hospital administrators allegedly delaying or denying health care to veterans.  Computerized patient records were modified or deleted in order to improve management performance ratings and bonuses.  As a result, veterans did not receive needed care and some actually died.   This is more than bad management in my opinion and those people involved should face criminal charges. 

     I am not implying this problem is widespread in the VA Health Care system.  I have used the VA for health care and have personally found the service and care to be excellent. 

     Government abuse of performance bonuses is not restricted to the VA.  The IRS is another example.  We know individuals and groups have been targeted for political reasons.  The people responsible not only go unpunished, but are given bonuses and even promoted. 

     If you implement a performance bonus in your business, make sure the criteria are realistic and the plan achieves the intended objective.  In the public sector, the political elite does not want us to know the facts.  We must become informed and correct the problem when we vote.