How a Bonus Program Saved My Company
Allen Noll
Allen is the sole shareholder of PRFUSA, Inc./The Payroll Factory, a full-service, payroll-check-writing company that helps clients update processes, systems and technology to improve productivity and reduce overall labor costs. You can e-mail him at [email protected].
I am a big believer in productivity-based bonus programs. So much so that half of my production staff’s annual income comes from a production bonus. Not one of them could live on their base salaries— they have to earn bonuses to survive. Sounds harsh, huh? On the contrary!
Eight years ago, I had a situation where my company could not get all of its work done on a quarterly basis. As a result, I was required to hire temporary help. In the payroll business, we have double the production that needs to be completed in April, July and October, due to the filing of quarterly reports and the payment of corresponding taxes. I needed a solution to increase productivity without breaking the budget.
After some deliberation with my team, I chose to implement a productivity-based bonus program. The goal was to encourage my staff with additional incentives without running them into the ground. Before I developed the program, I asked myself the following questions:
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What am I willing to pay for the specific production?
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Can my budget support an increase in labor costs?
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Are there enough incentives for the additional work?
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How will I track the production?
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When is the bonus paid?
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Will the production compensation reduce their normal work output?
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How will I implement the new pay structure?
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What are the federal, state and local employment laws to consider?
Once I found the answers to these questions, I got the ball rolling. I started by encouraging my staff to give extra effort when meeting set goals during the high-pressure months. The results were immediate. During the first year, we never missed a target date, our clients were happier and there was a lot less stress on my staff.
Eventually, I changed the bonus program from team goals to individual production earnings and made the decision to pay the production staff to increase sales. Soon, my employees were competing with each other to see who could do the most production. I never asked them to work more hours, but they did anyway. They knew that if they wanted to earn more, they had to produce more.
Over the next two years, the "work harder" mantra turned into "work smarter." Our work became cleaner, my staff designed systems to become more productive and there was less to clean up or correct during the quarterly months. I even had some pleasant surprises. First, I was told to stop helping, as my productivity took away from my staff’s bonuses. This allowed me to work on my company instead of in it. Next, my employees began to treat our clients better, going the extra mile and really paying attention to the little things. My staff continues to create and maintain better relationships with our clients.
Why make the extra effort with our customers? Because when a client quits, the staff loses the ability to earn bonuses on that productivity. It’s not just the shareholder’s income that is reduced, but also the staff’s income. The more clients we have, the more money they make.
I am always improving and adding to our incentive program. There are still challenges when it comes to hiring the right people, as our culture depends on great people to achieve great results. And while it takes time to implement, track and maintain the system, I wouldn’t have it any other way. Implementing a bonus program was one of the smartest business decisions I’ve ever made.
