I own a small independent general store, with about 14 employees.  The majority of my employees are teenage females, and the majority of the work is of a minimally skilled type.  This is our third year in business, and we are doing well enough that I wish to reward my employees with a small quarterly bonus.  Only three of my employees make more than $12.00 an hour, and while I am happy with the success of the business, it is not paying the owners yet.  It could, but I choose to reinvest my salary / rent payments back into the business to continue the growth.

Two questions:

1) how do I make the employees realize that the bonus is tied to the success of the business, and is a gift, not something they should take for granted.

2) how do I break down the bonus check among the employees.  I was planning to base the employees individual bonus percentage 50 % on their pay checks, and 50 % on how productive I believe they are.  This would make the math simple for me, wages off of quick books, and the individual score I give them.

Any suggestions would be appreciated, thanks.

Whatever you do please know that they will compare what each received and that may be an issue or it may not....I would simply call it profit sharing and pay them a % based on their individual pay. Since they are already at different pay rates it may make the most sense.

This^^^

You can even tell them that the amount of their bonus is strictly confidential and that they are not to discuss it within anyone else; they will still do it.

I you wish to give them each a bonus amount based upon their productivity then you need to be having regular "performance evaluations" with them to ensure they know how/where they are lacking and they know to pick it up. Once they realize that the amount of their bonus reflects their performance you may get better performance out of the others. The critical factor is that they must know how they lack and how they can improve. It is partially your responsibility to help them to improve. If you do not fulfill this, and you only give them a bonus that reflects their performance you can expect issues to arise; jealousy is a powerful emotion and you should be careful with it. At my place of employment we have semi-annual performance reviews and at the end of the year review we are told how much our bonus will be and how much our raise for next year will be. Doing things this way we are given multiple chances to "perform better or else" in a sort of way and at the end of the year it's a "hey, you did great at this but you could really use improvement here, as a result you're going to get a bonus but it's not going to be as much as some of the others".

IMHO, anybody that cannot handle being told how they didn't meet expectations doesn't deserve to be an employee.

Why are you giving out the bonuses in the first place? You must have hit some sort of milestone you felt comfortable with to make your decision. That milestone should be clear.

"We hit all of our sales metrics" or "our customer satisfaction levels exceeded metrics."

To avoid all this next year I would add some predefined measure so they know where they need to be.

Not an easy thing to do.  Just remember that if you have a bad quarter and stick with the bonus out of the kindness of your heart, it'll be considered "normal" compensation in their eyes eventually.

Yep, I would be transparent with them and let them know how much profit (I know you said you reinvest it, but could have profit if you wanted) the store made this year. Profit sharing based on a percentage of that number and how many hours they worked seems fair.



I had a performance eval yesterday and that is how bonuses were explained by the owners. I was prepared for a smaller bonus when I heard that, but it turns out that I doubled the amount of rentals we had, and we flipped almost 3.5x as many houses this year than we did in 2014. Got to walk away with a bonus that ended up being 26% my annual salary, and I appreciated the straight numbers and formula it was based on.

I understand where you are coming from but I would HIGHLY recommend against this.  Never ever ever let anyone take a peak at your bottom line.  That information can only be used against you and in SO many ways.

There are other ways to accomplish the same thing though using less sensitive metrics.

I would agree with this.

Until recently we paid based on profit but we did not disclose it to any of the managers other than myself and the owner and the bookkeeper that does the records. Basically it was a "we did good, bad, decent, w/e, here is your check. I dont feel comfortable showing p/l to anyone else.

The biggest problem i see is that its easy for an employee to see a million in profit and think they are getting screwed. Little do they know that the million dollar profit has to pay 1.1 million in debt during that period. You can be cash flow negative, barely keeping the doors open and they think you're rolling in dough.

THis is why I did not recommend profit as a metric. Your employees don't really have control over "profit." THey do have some control over profit conversion rate or quality control.

My company doesn't give a Christmas bonus, but they do give a yearly bonus.  You are eligible for x% of your pay based on your level in the company.  Of that x% 20% is based on you accomplishing your defined goals at the beginning of the year, 40% based on hitting a set EBITDA number and 40% based on profit a set number.  Based on how things go you can get 0-150% of each category.  The EBITDA and Profit numbers are clearly communicated to everyone and updates on where we are occur quarterly if not more frequent.  I don't know of anyone who thinks the company is making too much money.  Like this year, profit is looking really good and they are buying some nice to have things to make employee lives easier.

And employees absolutely have some control over profit.  If they are assholes to the customers, people won't come back.  They can help profit by offering excellent service and getting people to come back and spread praise through word of mouth.  They can help EDITDA by not screwing things up, being efficient, and not spending company money on "nice to have" needs.

ETA:  Full Disclosure - A lot of us are class B shareholders in the company.

From experience this will be not be viewed as a reward for anything.  It will be considered normal compensation and if you don't do it for a quarter "the company/you"  will be cheating them out of "their" money.  

I have had my own business nearly ten years. Bonuses are tricky. Once you start giving them people expect them.

I am a contractor of sorts and actually like the bonuses. Instead of giving hourly pay raises I give bonuses frequently and often. I have $10/hr guys that got nearly 5k in bonuses last year. What I like about bonuses instead of raises is I can give them when the jobs go smooth and don't have to if a job goes bad. It gets tied to performance really quickly in everyone's minds. We travel for work and have a lot of expenses for motels, meals, etc.  If we finish a job one day ahead of schedule it could save me thousands in what I would down on fuel, motels, meals, wages, etc so I give that to the employees as a bonus because I would have spent it anyway based on my estimate. Conversely if the job takes too long I could lose money and in this case I give no bonus and I am not stuck paying high wages for subpar performance. Also if the crew fucks up something that costs a lot to fix they know they are not getting a bonus. They are very careful about things because they know it directly affects the money in their pockets. Hell we have done jobs where they kicked ass and their bonus on that one job was more than their hourly pay.

I don't know how I would apply this to your scenario but all I can think of is maybe a small monthly bonus based off of your business performance each month. They need to understand that their actions have an impact on the bonus amount.

this, this, this.

Bonuses need to be tied to some sort of rigid, but logical, performance metric. I don't think it's a problem if things have gone well, and everyone has done a good job to go ahead and give a one time bonus, but if you expect to continue with a bonus process it needs to be tied to logical metrics.

Especially with younger folks, once the bonuses start coming, they are expected as typical compensation and when they stop coming in morale typically declines as will company performance (usually). If you can create measurable metrics that are logical to the business and post a monthly scorecard you have the most likelihood of the bonus process being successful as a motivation tool.

As an example - we currently have a scorecard consisting of 4 metrics for hourly workers. The bonus amount is based off of sales and for each metric they miss it is reduced by 1/4. Safety, efficiency, production goal, and quality. Each individual employee's bonus is calculated based upon hours worked by employee/total hours worked by all employees.

You should not be handing out discretionary employee bonuses without the approval of your equity investors.  You are essentially using cash that would otherwise be retained earnings attributable to your equity holders.  They may disagree with you that paying out bonuses is a good "investment" back into the business.  If I was an investor in your business I would absolutely disagree with using retained earnings in that manner without a reasonably well-defined formula for incentive performance bonuses, unless the total amount of incentive pay was less than $500.

You are certainly entitled to make that decision as management of the firm, but you should be very transparent about that with shareholders.

Also, you should wait, design a simple performance incentive formula and communicate it to all employee's before paying out any discretionary incentive pay.  WIth the explanation that bonuses are absolutely and completely discretionary and you reserve the right to modify your incentive performance awards without notice at any time. (e.g. you choose in invest in a piece of equipment that's a better investment of the cash than paying out discretionary bonuses).

Make sure that each employee has an annual (or more frequent) review so that they are not surprised by how much or little they make.  You can also invest in professional development or other benefits.  Since most employees are part time / first jobs, they should appreciate resume writing workshops, sales, customer sevice or other training. The small biz I worked at many years ago took us all out to a nice dinner and to race go karts.   This should also help attract decent talent as word spreads that it's a good place to work.

ETA: Congratulations on your success!

Suggestions:
1. An honest email to each employees explaining the situation should suffice.
2. Your formula is fine.  You could do it anyway you want as the owner.  Ask them to rate themselves as well and identify 3 areas they excellent at and 3 that they need to work on.  If you have senior employees, they can help review their subordinates.

Do you discuss timeframe targets with employees  before a job starts? I have been toying with a bonus structure for my Landscape business.

This, and be very clear that it is not a guaranteed thing.  My company started doing this back in 2010, and we were growing rapidly, so 90% of our employees have just assumed this was par for the course.  Last year when oil tanked, we had to remove most of it, and the employees felt that an entitlement had been taken away and their pay had been cut.  It is hard to manage how they feel about it, but do your best, or the second you have to turn off the tap, you'll lose talented employees.

Agree.  What does your shareholders agreement say on the matter?  For all you know this action, and I am assuming the dollar amount to be trivial, would require a board vote.

Tell them to take a close look at how much taxes are taken out of their "Bonus Money" because the IRS taxes that higher than regular income.

Ive never had a bonus listed as supplemental income and dont know anyone that has. Technically that is correct but ive never seen it. Ymmv.

40 percent of my income is bonus income.

when the business doesn't meet it's goals don't give them a bonus



 

Create simple metrics that they can work towards and depending on how many are met, give out the same bonus to all employees.

Example… 5 metrics: 1) 95% accurate record keeping 2) 95% housekeeping log complete 3) ??? 4)?? 5)? [obviously you could come up with better ones, as I don't know how one would measure the success of a general store]

For every metric reached, they all earn $100. Easy to understand, gives your team something to work towards, and hopefully improves your business success.

Source: big company manufacturing plant

Not a small business owner, but I'd just give them all the same bonus based on their position. That way people with the same titles and responsibilities have the same bonus and it doesn't breed jealousy. You can give different positions, such as managers, more. In fact you can give them whatever you want, obviously but this is probably how I would do it. They will definitely talk about it.

We'll be getting our STIP pay next month and it's definitely taxed higher than my regular salary.