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1An Employee Owned Company
A Stake in the Outcome: Designing a Great Bonus Program
Presented by:
Rich ArmstrongThe Great Game of Business | SRC Holdings Corp.Springfield, MO417.425.0705rarmsgtrong@ggob.com
"The whole concept of The Great Game of Business is beautiful – consistency, alignment, and transparency, infused
with core values and brought to life with powerful mechanisms. It is inspired and inspiring."
Good To Great author Jim Collins
2An Employee Owned Company
• They are discretionary. aka ‘The Santa Bonus’
• They are too complex. aka ‘Rocket Science Bonus’
• They create silos. aka ‘The Dog Fight Bonus’
• No buy-in on the goal. aka ‘The Lotto Bonus’
• No communication. aka ‘What Bonus’
Why Bonus Plans Fail
3An Employee Owned Company
The Secret to Creating
a Great Bonus Plan:
$9,000,000.00
People SupportWhat They
Help Create
Incentive plans, alone, won’t improve performance.
An incentive plan can help, if …
• people know the company’s most important goals
• people are enthusiastic about those goals
• people can see how they can support those goals
• people feel empowered to work towards those goals
• people understand what they stand to gain if they reach
those goals
People Support What They Help Create
4An Employee Owned Company
Accelerator Picture
Educate(Think like an Owner)
Empower(Act like an Owner)
Engage(Feel like an Owner)
5An Employee Owned Company
Know & Teach the RulesFinancial Transparency & EducationHigh Involvement PlanningThe Critical Number
Follow the Action & Keep ScoreKeep Score ‐ ScoreboardsFollow the Action ‐HuddlesForward Forecasting
Provide a Stake in the OutcomeRewards & RecognitionMiniGamesOwnership
SELF-FUNDEDEnsure the Company’s Financial Security & Improved Value, FIRST
GAIN-SHARE
Provide a Significant Portion of the Gain
WHAT’S YOUR CRITICAL NUMBER?
Rally People Around a Common Goal
CREATE WINSGive People a chance to Win Early and Win Often
Communicate, Communicate, Communicate.
LINE-OF-SIGHTUse the Bonus to Teach
People the Business
Always Celebrate the Win and Recognize
the Players
Building Blocks of an Effective Bonus Plan
• Ensure Long-Term Financial Security, FIRST!
• Self-funded: “Gain share” not “Profit share”
• Minimum performance = the profit/cash needed for continued growth and sustainability
• Mindful of the real payoff: the generation of wealth in the form of equity
• Watch cash flow and business fluctuations
• Test the Plan
SELF
-FU
ND
ED
6An Employee Owned Company
Where do all the profits go?
Back into the business
• Inventory
• Fixed Assets
• Accounts Receivable
• Pay Down Debt
• Save
To the Shareholders
• Dividends
• Buyout
SELF
-FU
ND
ED
Return on Sales
3%4%to5%
6%
DyingSurviving
Thriving
Establishing your baseline (or minimum performance)Ask yourself what cash investments you plan to make in the plan year that are not included in your profit and loss statement?
For example:
Plan Profit before tax = $250,000
Taxes ($100,000)Add back depreciation $ 50,000Change in accounts receivables ($ 25,000)Change in inventory $ 25,000Capital expenditures ($ 75,000)Debt payments (principle only) ($ 50,000)Owners draw (i.e. dividends) ($ 25,000)Savings (cash in the bank) ($ 25,000)
What’s left? $ 25,000
Required ‘minimum’ performance = $225,000
SELF
-FU
ND
ED
7An Employee Owned Company
• Provide a Significant Portion of the Gain
• Long term success for the company and long term success for the people
• Minimum of 50% of the additional profits generated above our required “minimum” performance
• Target 10% to 20% of salary – one to two months additional pay!
• Enhances their standard of living
10% of Pay = 5.2 weeks of extra pay!20% of Pay = 10.4 weeks of extra pay!
GA
IN-S
HA
RE
Rally People Around a Common Goal
• Ensure that everybody remains focused on the same goals - we either win together or we don’t win at all
• Stick to One or Two Critically Important Goals
• Buy-in “People tend to support what they help create”
What’s your Critical Number?
8An Employee Owned Company
Use the Bonus to Teach People About the Business
• Your bonus plan may be the most effective educational tool you have
• Create “Line-of-Sight”
• Learn to “check the entitlement attitude at the door”
• Put the “what’s in it for me?” (WIIFM) in the right perspective
Give People a Chance to Win Early and Win Often
• What gets people motivated? Winning!
• Start with small, frequent bonus payouts and let them grow as performance continues to improve
• Earn a bonus every three months
• Potential payouts increase each quarter
• Incremental payout levels range from 1% to 20% of salary
• Small Wins Add Up to Big Wins - MiniGames
Give People a Chance to Win Early and Win Often
9An Employee Owned Company
Create an Early Win
Hourly BONUS PLAN
Q1 Q2 Q3 Q4 BONUS ADDITIONAL ADDITIONAL ADDITIONAL
LEVEL TARGET TARGET TARGET TARGET POOL % OF PAY DAYS PAY HOURS PAY
▼ ▼ ▼ ▼ ▼ ▼ ▼ ▼ ▼
Plan 162,500 325,000 487,500 650,000 ‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐
Threshold 150,000 300,000 450,000 600,000 ‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐
1 152,420 307,260 464,520 624,200 12,100 1.00% 2.6 20.8
2 154,840 314,520 479,040 648,400 24,200 2.00% 5.2 41.6
3 157,260 321,780 493,560 672,600 36,300 3.00% 7.8 62.4
4 159,680 329,040 508,080 696,800 48,400 4.00% 10.4 83.2
5 162,100 336,300 522,600 721,000 60,500 5.00% 13.0 104.0
6 164,520 343,560 537,120 745,200 72,600 6.00% 15.6 124.8
7 166,940 350,820 551,640 769,400 84,700 7.00% 18.2 145.6
8 169,360 358,080 566,160 793,600 96,800 8.00% 20.8 166.4
9 171,780 365,340 580,680 817,800 108,900 9.00% 23.4 187.2
10 174,200 372,600 595,200 842,000 121,000 10.00% 26.0 208.0
Quarterly Payout % 10% 20% 30% 40%
Progressive Payout % 10% 30% 60% 100%
CRITICAL NUMBER: PROFIT BEFORE TAX
( Base Pay x Level % x Progressive Payout % ) ‐ ( Previous Payout )
Example Payout $30,000 Projected Wages
By Quarter Q1 Q2 Q3 Q4
Level Achieved Level 6 Level 8 Level 6 Level 5
% of Wages 6% 8% 6% 5%
Projected Annual Payout $1,800 $2,400 $1,800 $1,500
Progressive Payment 10% 30% 60% 100%
YTD Cash Payout $180 $720 $1,080 $1,500
Less Payouts Received $0 $180 $720 $1,080
Quarterly Cash Payout $180 $540 $360 $420
10An Employee Owned Company
Employee Payout Calculator $ 30,000
By Quarter Q1 Q2 Q3 Q4
Level Achieved ‐ % 6% 8% 6% 5%
Projected Annual Payout $1,800 $2,400 $1,800 $1,500
Cumulative Quarterly Payout % 10% 30% 60% 100%
YTD Cash Payout $180 $720 $1,080 $1,500
Less Payouts Received $0 $180 $720 $1,080
Quarterly Cash Payout $180 $540 $360 $420
Quarterly Days Paid 1.6 4.7 3.1 3.6
Quarterly Hours Paid 12.5 37.4 25.0 29.1
Estimated Taxes
Social Security 6.20% $11 $33 $22 $26
Medicare 1.45% $3 $8 $5 $6
401K 5.00% $9 $27 $18 $21
Federal Tax (Gross Wages ‐ 401k) 25.00% $45 $135 $90 $105
State Tax (Gross Wages ‐ 401k) 6.00% $11 $32 $22 $25
Net Pay $79 $236 $157 $183
Projected Annual Wages:
11An Employee Owned Company
Communicate, Communicate, Communicate
• Poor communication is by far the main reason most bonus plans fail
• Take the time to educate your team on the plan
• Weekly Huddles – communicating by the numbers
• Forward Forecast
12An Employee Owned Company
13An Employee Owned Company
14An Employee Owned Company
Tetris Wall
Tetris Wall
15An Employee Owned Company
Tetris Wall
Tetris Wall
Tetris Wall
16An Employee Owned Company
Tetris Wall
Always Celebrate the Win and Recognize the Players
• Don’t underestimate the simple act of recognition
• It’s not all about the pay – all payouts should be accompanied with a handshake and a personal, sincere thank you
• Have a little fun and CELEBRATE THE WIN!
17An Employee Owned Company
18An Employee Owned Company
Total rewards
Adding it all up at SRC….
COMPENSATION
BENEFITS
WORK-LIFE
DEVELOPMENT & CAREER OPPORTUNITIES
PERFORMANCE & RECOGNITION
compensationBase Wages
Salary Pay
Hourly Pay
Premium Pay
Skill-Based Pay
Variable Pay
Bonus Programs
Incentive Pay
Short-term Profit Sharing
Individual Performance Based Incentives
BENEFITS
Legally Required/Mandated
Unemployment Insurance
Worker’s Compensation Insurance
Social Security Insurance
Medicare
Leave of Absence
Healthcare Benefits
Medical Plan
Dental Plan
Prescription Drug Plan
Flexible Spending Accounts (FSAs)
Life InsuranceSpouse/Dependent Life Insurance
AD&D Insurance
Short-Term/Long-Term Disability Insurance
Retirement Employee Stock Ownership Plan401(k)
Pay for Time Not Worked
Vacation
Holidays
Bereavement Leave
19An Employee Owned Company
WORK-LIFEWorkplace Flexibility/Alternative Work
Flex-Time
Compressed Workweeks
Community Involvement
Community Volunteer ProgramsMatching Gift Programs
Sponsorships
Donations
Employee Discounts
Health Care Discount Program
Financial Support
Financial Planning
ScholarshipsJob Sharing Part-time Employment
Health and Wellness
EAPOn-site Fitness Facilities
Discounted Fitness Club RatesWeight Management Programs
Smoking Cessation Assistance
Stress Management ProgramsVoluntary Immunization Clinics
Health Screenings
Nutritional Counseling
On-Site Nurse
Return to Work ProgramsReproductive Health/Pregnancy Programs
DEVELOPMENT & CAREER OPPORTUNITIES
Learning Opportunities
Tuition Reimbursement
Corporate Training
New Technology TrainingOn-the-Job Learning
Conferences
Webinars
Self-Development Tools
Coaching/Mentoring
Leadership Training
Access to Information Networks
Formal or Informal Mentoring Programs
Advancement OpportunitiesInternships
Overseas Assignments
Internal Job Postings
Job Advancement/Promotion
Job Rotations
Succession Planning
Education Incentive
GGOB
PERFORMANCE & RECOGNITION
Performance1:1 MeetingsPerformance Reviews
Project Completion/Team Evaluations
Performance Planning/Goal Setting SessionsRecognition
Service Awards Retirement Awards
Peer Recognition Awards
Spot Awards
Managerial Recognition Programs
Organization-wide Recognition Programs
Exceeding Performance Awards
Employee of the Month/Year Awards
Appreciation Luncheons, Outings, Formal Events
Employee Suggestion Programs
Goal-Specific Awards (Quality, Efficiency, Cost-Savings, Productivity, Safety)
20An Employee Owned Company
Accelerator Picture
Incentive plans, alone, won’t improve performance.
An incentive plan can help, if …
• people know the company’s most important goals
• people are enthusiastic about those goals
• people can see how they can support those goals
• people feel empowered to work towards those goals
• people understand what they stand to gain if they reach
those goals
People Support What They Help Create
Educate(Think like an Owner)
Empower(Act like an Owner)
Engage(Feel like an Owner)
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