Question about performance bonus

[JTO]

Hi Everyone,
I need to know what is considered convention for awarding performance bonuses to employees that make a significant contribution to a business. For example, if a unique idea allows a company to avoid spending $4 million on some equipment, how should the person be compensated for the idea and developement work?
Thanks for your thoughts,
Troy

[BlueSkyJaunte]

Two years ago my performance review credited me with having a direct hand in saving the corporation over $380 million in capital expenditures.

I got a 4% raise.

That's how big corps work.

[JTO]

BSK,
I know in some industries like those where R&D and innovation are key, bonuses can be tied to a percentage of the avoided costs or whatever. Ever hear of this?
Thanks,
Troy

[Superman]

Different things motivate different people. Some folks just want the money. And money does make recognition seem more sincere. But the recognition is the biggest part.

Ever hear of the Golden Banana award? According to rumor, an HP manager scrambled to come up with a spur-of-the-moment recognition for a worker whose extra effort achieved an important breakthrough. All he had was a banana left over from his lunch. It became the coveted award at HP.

Be very clear and public about the recognition. Tell everyone the story, and why it is a story worthy of recognition. And again, money adds sincerity. I don't expect management to hand over profits, or even percents of profits, to workers.

Give the worker an awesome parking space. Take the worker and spouse out to a real nice dinner. Recognize him or her in front of others. Include that person in more significant strategic discussions. These would thrill me more. But some folks are not motivated by that. Managers should know what individual workers prize, and play to those needs. Sincerely.

[Neilk]

Originally posted by Superman

Ever hear of the Golden Banana award? According to rumor, an HP manager scrambled to come up with a spur-of-the-moment recognition for a worker whose extra effort achieved an important breakthrough. All he had was a banana left over from his lunch. It became the coveted award at HP.

That's obviously not the same reward/bonus that Thom mentioned getting several years ago from HP....

[Superman]

No, it's not the only recognition that HP has given, but it is a noteworthy award in terms of motivation analysis. While some workers are only interested in money, that is not the norm. In fact, money ranks poorly in the greater scheme of workplace motivators.

If I were the recipient, I would be more excited by an invitation to participate in loftier decision-making. I'd rather have a promotion, or at least feel like I'm under consideration for a promotion, than a fistful of cash. (of course, a couple hundred thousand dollars would be a nice gesture)

[azasadny]

A few years ago, the company I worked for took my wife and I to a "fancy" dinner and insisted on champagne, lobster, caviar, etc... all the while telling my wife what a great guy I was and how much I did for the company. My wife was impressed and still mentions this event to me on occasion. It was a memorable event and I really appreciated their effort.

[on-ramp]

Troy,

Do you work for the company to get rich? News flash: if they made you rich, you wouldn't work there.
they need your labor.
when they pay you 50K a year, they make 500 Million a year.

that's how it works, to put it simply.

[singpilot]

I think Troy is the one that should have gotten the bonus, not the one that is trying to figure out what the bonus should be for some other employee......

[pbs911]

My great grandfather invented the underwater telecommunication cable during his employment. Ma Bell made billions. My great grandfather never saw a dime.

[masraum]

I've heard of companies that offered large bonuses for large affects on bottom line, and I've heard of companies that had a fixed set of bonuses that stopped at some ridiculously low amount. Usually the reward seems inadequate, but it just depends upon the company.

[red-beard]

You need to have a consistent policy. If you hand the guy $4 or whatever, you need to reward others consistently. You need to have consistent and rigorous criteria, so that it doesn't get abused.

At GE, just as I left, I had to come up with $1 Million in savings to justify a $1K award to one of our engineers.

At Solar, we had a yearly bonus based on multiple factors and was payed out as a percentage of income. Everyone got the same bonus, by percent. In addition, we had a project bonus program with well defined structure. It had a sliding scale, with a Maximum of $100K (split between team members, project leader, project champion, etc) for a Project worth over $8M (true bottom line, after tax savings or revenue).

Just understand one thing. Once you publish, people will 'game' the system. That is generally the doom of bonus programs. Make sure you drive the right behavior.

[M.D. Holloway]

its part of the job - a bonus is a gift, like a $5 bill from granny or $5000 from Dad - either way you have to relish the thought and get past the "they owe me".

[competentone]

Originally posted by JTO
I need to know what is considered convention for awarding performance bonuses to employees that make a significant contribution to a business. For example, if a unique idea allows a company to avoid spending $4 million on some equipment, how should the person be compensated for the idea and developement work?
Thanks for your thoughts,
Troy

So are you looking to give a bonus or wondering about receiving one?

You say you're looking for what is considered "convention" in performance bonuses, but I don't think there really is a convention.

Like LubeMaster comments, a bonus is a "gift," but I would add, that while "saving the company money" should be part of every employee's job, a company should want to reward extra-ordinary behavior if they want to keep good employees and encourage all employees to give their best. (A lot of companies don't have enlightened enough owners/managers to understand that idea.)

If you're the employee and are not satisfied with a bonus received, I would suggest looking for another job where your skills and talents would be more appreciated.

If you're the business owner looking to give out the bonus, I'd say give something generous, but not too extreme that it might create unreasonable expectations for other employees if they come up with a great idea.

If it's a small business, consider what the employee might want and how important he/she is to the business; is this someone who would want to be a part owner in the business? Few things motivate people better than when they have an interest in the business they're working for, but there are some who just prefer the 9-5 routine, a paycheck and no headaches about the job when they leave each day.

[Vipergrün]

Originally posted by Neilk
That's obviously not the same reward/bonus that Thom mentioned getting several years ago from HP....

Nope, but IIRC, it was similarly shaped

I agree about recognition part, and some sort of *spot* bonus would probably be in order as well. Send him and his family on a nice trip. The amount should be worth-while, otherwise, could be perceived as an insult.

[campbellcj]

I recall that in my dealings with HP in the late 90's, their 'convention' for profit-sharing was around 10% of annual salary.

Personally I think an extra paycheck/year for average or somewhat above-average performance is pretty darn nice! Anything more is gravy for a strong year; anything less means you probably won't be working there for long unless things change...

These days I don't think there is a 'convention'. Maybe there really never was! There will always be the people who get 7 -digit 'bonuses'; those who get 6-digits, exotic cars, houses, etcs.; those who get a juicy (to you and me) 4-5 digits; and those who get a gift cert for a turkey or a fruit basket, and then those who get a pink-slip and an invitation to go on permanent unpaid vacation. It's the way our system and "American Dream" operates.

[RickM]

The closest to a convention is what is standard for your particular organization (or sometimes industry). If this isn't documented in your employment contract you rely on luck.

Here's a relatively common formula:

Some orgs will bonus a percentage of an employees salary at the end of the year. The higher up the employee the higher the percentage. For instance, a VP may be eligible to receive 20% of his/her $200K salary if Corp X reaches it's goal of $100 million in revenue.

So, if the corp reaches 100% of their projected revenue the employees are entitled to 100% of there bonus percentage. So, the VP above will receive a bonus of $40K. If Corp X doesn't attain it's goal the amount is reduced accordingly.

[JTO]

Thanks everyone. I am looking to provide bonuses to extraordinary performers. Since there really is no convention out there, I will try to establish a rationale for awarding them and see if it sticks.

Thanks again,
Troy

[Rick Lee]

Well, my company had a great 2005 and exceeded its already ambitious revenue goals by a good 10%. I am the #1 or #2 producer here in any given month (commissioned sales), regularly double or triple my monthly revenue quotas and each December I get a $50 Amex gift check. That's it. Other than that, I have never worked anywhere that gave me a bonus check. My job has lots of perks and my boss and clients sing my praises, but that stuff don't pay da bills. I want money! I don't care about recognition at the annual sales conference. I don't care about a window office. I want what pays for guns, booze and Porsches.

[JTO]

There ya go! I would say that speaks for the folks I work with too.
Troy