In our company we wanted to be able to give more to our team when we do better. When it comes to bonus rewards I’m very hesitant. I know both from literature and from personal experience it doesn’t aid motivation, and can be detrimental to it even.
I’ve worked in a company where there was a bonus system which on paper worked both for collective results and individual results but which ultimately was mostly geared to individual results. The current status of your individual bonus was presented in weekly spreadsheets which I ultimately loathed. To me it felt like it increased and emphasized differences and inequality in the company. Also, the company’s owners, as they worked in their company much as I and my partners do, participated in the system, and being the most active and experienced took home most of what was available for bonuses. That struck me as odd, because whatever the company made in profit would go to them anyway.
At the same time, I do think that if we’re doing well, better than needed, or better than expected, that everyone in the company should share in that additional result.
In late 2019 we discussed how we could approach it and came up with a way of establishing who would get what. For 2020 we then initiated the system.
The key elements we planned for at the start were:
- We will collectively set yearly goals and quarterly goals derived from them. But those goals will not be financial, and goals are not targets. The goals are mostly qualitative and relevance, quality and development focused. Financial results will follow as a result from choosing and doing our work well.
- The first type of collective reward is that we’ll celebrate if we achieve our (quarterly) goals as a team. How we celebrate is up for discussion at the same time as we set a goal. If we achieve 70% of our goal, we’ll celebrate modestly, if we achieve more, we’ll celebrate more extensively. All of us participate in this.
- The second type of collective reward is financial. If our turnover grows beyond what we budget as break even point, 10% of the additional turnover for the first extra 100k, and up to 25% of additional turnover beyond that will be reserved for individual bonus payments, and partly for additonal ‘celebrations’ budget.
- The individual bonuses are only for employees. Additional profit will flow to partners ultimately anyway, so we don’t participate in this part of the system.
- I’ve incorporated this into the company budget. As we discuss the financial situation of the company transparantly with the entire team every month, there will be regular feedback on where we stand.
- We assume that everyone contributes to the company’s results (if not, it will be part of reviews, and it has no bearing on the bonus system), and therefore all employees share on the same basis in the bonus system: the number of months of the year they were employed in the company. E.g. this year two colleagues were there the full year, one colleague 4 months, so the total bonus sum was divided through 28 months, and two received 12/28, and one 4/28. In 2021 there will likely be 3*12 plus 6 or so (if we find someone), equals 42 months as the basis for dividing the available bonus.
Of course the pandemic turned 2020 into a very different year from mid-March onwards. Many of our original goals became less relevant, team mental and physical wellbeing became much more relevant, or rather the prime concern. Due to the pandemic restrictions there wasn’t much opportunity to celebrate as a team either. Though we did grab the moments where we could, having a team lunch (sitting at a distance) al fresco, going for team walks (at a distance) etc. Business however was good in 2020, not in the least because we worked closely together as a team, much more so than we would have under the previous conditions when we would have been much more spread out at client offices. In the end we did much better than 2019. I regard it as validation of our principle of focusing on the relevance, quality and development of our work, and not on the financials. Those financials of course do matter, introduce potential constraints and opportunities, but are foremost a consequence of doing the right things well, not how we decide what doing the right things well is.
With the 2020 result, getting close to what I thought would be a stretch when I drafted the 2020 budget, we were able to grow our financial buffers as originally planned and provide our three employees with a nice additional pay day.
These weeks we’ve been formulating our 2021 goals. In the coming 11 months we’ll find out if the good result of 2020 was a fluke, or whether we think our system and its underlying assumptions hold water.
Unrelated, at the end of 2020 we also had a change of partnership structure. M offered his shares to us, as he has been busy with a different venture, and we invited J to join us as partner. We opted to keep a percentage of shares inside the company as well, with an eye of possibly making them employee owned in a next step.