John Hughes must at some point in his life have been a part of a terrible bonus plan, or he never would have been able to write National Lampoon’s Christmas Vacation. And people who never participated in a bad bonus plan can never fully appreciate
Most employee bonus plans are disappointing to business owners because they don’t motivate, they aren’t appreciated, and they quickly become entitlements. Most bonus plans disappoint employees because they’re a mystery, they’re unpredictable, and they’re never, ever enough.
Think about it. What was the premise of Christmas Vacation?
Clark Griswold was digging a hole for a pool he could not afford, based on a bonus he wasn’t sure he’d get. Whoa! Who would do that? Apparently, everyone, if you look at US consumer debt.
The fact is, most bonus plans suck.
So many are discretionary or too complex. Some pit people against one another.
A few are impossible for employees to understand.
The worst one ever? The lotto bonus. When an owner has taken great pride in designing the ultimate bonus plan, but employees believe the odds are against them. And every day, they come to work, keep “scratching the tickets,” but feel deep down that there is no way they’re ever gonna get it.
Which one is yours?
Through the years, many pursued The Great Game of Business because they heard about the power of a bonus plan as a legendary “killer app”—something that would solve all their problems. But a bonus plan simply won’t do that. Bonuses alone don’t drive improved performance—people do. A bonus plan can help improve results only if people clearly understand what (and why) improvements are needed, how they can make a difference, and what they stand to gain.
From our experience, if any of these components are missing in your bonus plan, you might as well give out memberships to the “Jelly of the Month Club” and hope for the best.
Let's talk about a Stake in the Outcome. It’s one of the most evolved forms of capitalism. A Stake in the Outcome is an equitable system that connects the people who create the numbers and the results in the business with the rewards and recognition they deserve—while eliminating entitlement and resentment. When the team wins, the company wins.
Imagine a self-funding, progressive payout bonus program in which every employee could forecast their take each week after the all-team Huddle.
That is what a true Stake in the Outcome bonus plan is all about:
- a plan in which we protect the company’s long-term sustainability first,
- put the rewards as close as possible to the behavior that earned the reward (to reinforce that winning behavior),
- and never pay a reward we have not yet earned.
While the concept of good bonus plans may seem simple, design and execution require some real work. Here are the most important design and implementation rules that embody The Great Game of Business philosophy on bonus plans.
The order in which you design a bonus plan is vital to its effectiveness. Think of these building blocks as if you were constructing a building. Let’s begin with a strong foundation and work our way up.