Bonus Measures, Special Treatment for IT / Hiring to get Business - CompDoctor April 1999

Q: We are thinking of establishing an annual bonus plan for our executives and are wondering what types of measures other organizations use to establish bonuses? What do other companies use? R.S.

CompDoctor: Are you telling me R. S. that somehow you got into business without a business plan? Or that your business plan did not identify the key criteria for your success? Do you mean that you have no idea what makes your company successful? Well, as they say, if you don't know where you are going, any path will take you there.

What you need to do is make sure that you are measuring the key indicators of your business. Sometimes those will be financial (profits, sales, etc.) and some may be operational (such as orders, new customers, etc). In any event, there are probably 2-5 measures that really tell you if you are a going concern. These should be your measures.

But R. S., if you really want to know, here are the top six factors that are used by companies to establish all or part of their bonuses: profits, sales revenue, productivity, project milestones, quality and cost reduction. But don't just hop on one or more of these, take a look at your business and find the business drivers. It may be none of the above, or it may be some combination of these and others. What ever you do, it is important to pick the correct threshold that needs to be reached before you pay out any bonuses. Where do you get the threshold? Either by looking at historical information like the last 3-5 years, or by sound judgement. Actually, what most companies do is this. They look at historical information to get a sense of how stable the number is, determine why it may have changed in the last few years, look into the future and project what they will need to do to reach a reasonable target and then decide what it is worth to them if they get there. In the end, a good bonus measure is both reachable, yet not without some concerted effort, is linked directly to what makes your business successful, and is so simple that anyone can calculate it in a mater of minutes.

Oh, I know, you have probably read the Harvard business review and don't see any mention of the balanced scorecard. If you don't know what the balanced score card is, essentially it divides your business into four areas that target success: financial, operational, quality and market share. Then you develop a measure or measures for each of these broad areas. The concept is that if you are succeeding on all of these areas, you are a successful company. The problem with this for you RS is that the balanced score card is better for companies that have been in the bonus paying game for a while. If you are just getting into it now, I would rather have you go very simple at first, and once you have some experience, then move into a system that is more encompassing of your entire business. But to start off, the balanced score card is a pretty good paradigm to organize your thinking.

Q: I've just about had it. Just when we thought we had a solution to retaining our information system employees, now our operations people are complaining that they shouldn't be getting any special favors, especially when none of the systems they are working on are on time or even remotely workable when they do say they are finished. Now what do I do? I can't keep moving salaries and benefits up for every group that cries foul or threatens to leave. Help. D. J.

CompDoctor: Slow down D.J. You're jumping to conclusions before you have had a chance to look at the problem. At this speed, you will be raising pay about every 3 months, until you are out of business. Then, you won't have these problems any more. Is that what you want? I didn't think so. Now, lie down on the couch over there and let's see if we can't figure out a solution to your current problem. (Believe me, this may be the current problem with IS professionals, but if you look back into history a ways, it has also crept into the ranks of engineers, marketing and sales, finance, and even secretaries. It's just a problem of supply and demand of labor, and over time, it works itself out.)

As I see it you did a knee jerk reaction to IS people leaving. A quick solution was to raise pay and expand benefits. Unfortunately, this may have been only half-right. While it is a quick solution, the problem that you ran into is an issue of fairness with the other employees. You singled out the IS employees and gave them something extra that everyone else believes should have been the same for all employees, like more vacation, extra time off, extra training courses, and extra pay.

How do you get out of this cycle? First, you need to do some investigation. Are you paying your employees at competitive market wages? If not, then any additional pay to any unique group of employees is going to look like favoritism. Second, take a look internally. What is the climate of work? What is the work cycle and schedule of work? Do they enjoy their work? Do they like working for their boss? Are they working on challenging projects? Are they working on the latest technology or with the latest tools? Have you empowered them to make a difference in your business?

In every situation that I have seen, money is important, but organizational climate, a chance to work with the best tools and an opportunity to have direct, significant input over the project direction and outcome are very powerful organizational issues. If you don't address these, then none of the favoritism that you may have experienced will be any good in the end.

What this means DJ, is that you can keep your IS people and keep them happy by attending to the things that make it a good environment to work in. That won't cost you lot, but it will take a lot of effort. And better yet, it will not be giving them anything that is special to them, and not everyone else in the company.

Will this solve all your problems? No, but it sure beats the alternative mentioned above. Sitting on the beach because you worked yourself right out of business is not my idea of making it.

Q: We are a small company and are having a real problem finding qualified people in our business for a reasonable salary. If we hire experienced people, they are very expensive, something that our business may not be able to afford and at the same time, we have to train them into our unique business. But if we hire recent graduates, their salary demands are way up there as well, and we have to train them even longer. Is there a solution to this dilemma? A.N.

CompDoctor: And the question is do you add staff before you can handle it or do you add staff after you get there? AND, there is only one way to do it. To compete in this competitive world, you have to add the senior people before you can afford them. The senior people are the ones that are going to get you the business that will allow you to afford them. You can't grow that business from hiring less experienced people because you can't train them in all they need to know. They will get that from other companies, which is why they are experienced. After all, one of the benefits of hiring new people is that they bring new ideas. It would get pretty boring if they were all clones of everything that you knew.

First, make sure that the person you are going to hire is actually qualified to do the work. Take them through a series of interviews, which probes every aspect of their work. If you don't have the experience in doing this, find someone who can. Hiring a person is like buying a new house. You want to make sure that all the systems work and anything if any thing doesn't work, this is cause for a reduction in the pay you offer them.

Second, there are ways that you can hire senior people that will reduce the risk and increase your likelihood of success. One way is to put them on a short-term performance plan. For example, establish performance targets for every quarter (or month) if your business permits. Establish a cash bonus for hitting each of the targets. In the early months, you may need to reward them for positive activities, as opposed to actually bringing in new business since new business will usually takes longer. But each quarter, the targets should be focusing more and more on actual bottom line results.

Another way is to hire them on as a contractor. If the situation permits, you can try them out before you make them an offer. This is like hiring interns from the local college. You get a chance to see them operate under a variety of conditions, and they get a chance to try you out as well. If they are worth a full time commitment, then you will know if they are worth the extra money by the time that the trial period is over.

Third, do not hesitate to unload them if they do not meet their performance targets. Since money is dear, you can ill afford to keep someone on that is not pulling their weight. If you have found the right person, they will be worth the extra money that you paid for them up front.

Finally, use the power of money to motivate. Keep short term targets in front of them and reward them with extra money if they get there. If you work it right, you will have a fixed salary cost that you can afford, and if the performance warrants it, you will have the extra money to pay their bonus.

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