Employee Bonuses, How Much is TOO MUCH?
00:00:00 - Performance Bonuses
00:00:15 - The Challenge of Scaling Bonuses
00:00:58 - Setting Agency Goals
00:01:30 - Individual Goals and Team Collaboration
00:02:35 - Weighted Bonus System
00:03:06 - Profitability-Based Bonuses for Project Managers
00:04:00 - Coaching for Goal Achievement
How do you calculate your employees’ bonuses? Do you base it on the agency’s results over the entire year or maybe consider longevity as a factor?
Designing an effective employee bonus structure requires careful consideration of both short-term rewards and long-term sustainability. The best performance bonuses change every year because the business will likely change from year to year.
While it might be tempting to offer generous bonuses during profitable years with a small team, this approach can become problematic as your agency grows. What's feasible for a team of three could become unsustainable with twenty employees, and scaling back bonuses in subsequent years could harm morale.
A more strategic approach is to tie compensation directly to both quarterly and yearly agency goals. Each department should establish specific, measurable objectives that align with the organization's overall targets. For example, a head of delivery might aim to improve profitability by 50% and client satisfaction by 30%. Achievement of these predetermined goals directly influences compensation.
What if a department hit their goals but the business did not? In that case, they don’t get a bonus. However, it's crucial to emphasize team achievement over individual success.
You could also refine your bonus structure through a weighted system, wherein 90% of the bonus would be based on performance and 10% would be based on longevity. How long have they been with your agency? Three years and more would get the full 10%, while those with two year would get 5% and one year 2%.
With the right systems in place, you could also pay project managers based on profitability. If a project exceeds its 30% profit target by reaching 40%, the excess can be shared with the team responsible for the success.
By empowering teams to set their own goals within the framework of agency objectives, leaders create a sense of ownership and accountability. The leader's role then shifts from dictating targets to facilitating achievement, asking "How can I help you reach these goals?" This collaborative approach not only drives performance and profitability but also fosters a unified company culture where everyone is invested in the organization's success.
