I got a call yesterday asking advice on giving bonuses; when, how much, etc. That call, and prior problems for me in that area, led me to an article by Michael Fertik. The following are highlights (in italics) of that article: (my comments are not italics)
Bonuses, particularly performance bonuses, negotiated up-front, are standard and reasonable fare in established businesses. Some smart people think they're a good idea in start-ups, too. The basic argument is the same for start-ups as it is for other companies: incentives focus and motivate managers and individual contributors alike; tying compensation to goals stimulates performance. I'm all for profit-sharing, but only when there's a handsome-enough profit to share. Until your company is generating a bonanza, you shouldn't consider doing anything other than reinvesting the cream in your growth. And I think cash bonuses are a particularly bad idea when your start-up is losing money.
The chief economic reason your team should be at the start-up is the long-term upside, the equity, the Shangri-La over the mountain. Rewarding people with cash payouts dilutes the mission. Connecting individual performance to that stock value — with initial and even additional "bonus" grants, for example — is a terrific motivator consistent with your message. Cash bonuses do nothing for esprit de corps. An emphasis on equity, by contrast, reinforces the understanding that we are all in this together, that our successes and failures have mutually felt impact.
I am especially opposed to cash bonuses for senior management in loss-making start-ups. Even among top, high-integrity professionals, upcoming cash bonuses become short-term focuses for executives and their families. They come to plan on the anticipated income. They tend to work hard toward their individual measured objectives so that can get the cash. Drucker-style management by objectives — what economists would call a "non-cooperative game" — works reasonably well in large corporations.
But giving incentives for self-interested behavior kills small companies. You need your executives to benefit from a "cooperative game" that focuses them both on themselves and on the good of their tribe. Individual executive performance cash bonuses directly undermine this cooperation objective.
While periodic performance cash bonuses can be bad in start-ups, other forms of bonuses can be useful. These include:
Sales commissions. Sales teams should always be motivated by performance; most of the best salespeople are highly focused on quarterly commission checks. (You have to be careful to not over-pay on commissions. Commissions need to be relevant to other aspects of your sales strategy. For instance; are your commissions the driving "competitive advantage" for attracking your sales force, or do you have othe "competitive advantages" that will allow you to pay less commissions.)
Spot bonuses for killer team members who have excelled at their jobs or overcome huge hurdles. These should generally be small, on the order of $1,000 to $3,000. (Be very careful that you have defined "killer team members." Too often, the killer team member is not a team player and his/her behavior is draining other resourses. Behavioral patterns in these type people, and the people the managers/owners that think so much of them, are too emotional in nature.)
Mini "gifts" for team members who have worked especially long hours. Think of an Amazon gift card of $50 to $100 to send the message that their efforts are appreciated.
Goal-related bonuses for engineering only. (I believe this goes for sales types also, but the goal has to cause them to stretch to achieve....don't pay bonuses for business you are going to get anyway.)
Referral bonuses for good hires. Excellent people are always hard to find, but hiring is especially difficult during tough economies for loss-making start-ups, because candidates are more averse to risk than usual. Offer your employees bounties for bringing in great additional hires. It's a huge savings over recruiter fees.
To that end.....
No comments:
Post a Comment