Well-crafted bonus plans pay dividends

Anaheim Developing a well-thought-out bonus program can go a long way to increase employee productivity and retain qualified workers, business coach John O'Connor said Oct. 25 at the Plumbing-Heating-Cooling Contractors Network '07 conference here. We can't come up with a cookie-cutter way to bonus, O'Connor said. O'Connor, a business coach for the Quality Service Contractors, told contractors to

Anaheim — Developing a well-thought-out bonus program can go a long way to increase employee productivity and retain qualified workers, business coach John O'Connor said Oct. 25 at the Plumbing-Heating-Cooling Contractors Network '07 conference here.

“We can't come up with a cookie-cutter way to bonus,” O'Connor said. O'Connor, a business coach for the Quality Service Contractors, told contractors to take their time before adding to or changing their compensation programs for employees. He advised contractors to have others look at their ideas first in order to design a bonus program that rewards the type of employee behavior they want to achieve. It also is necessary to track the results of any bonus plan and to communicate consistently and often with workers about the plan's benefits, he said.

O'Connor added that contractors need to think of payroll as more of an investment than an expense.

“Most contractors look at payroll as nothing more than a cost,” he said.

An important aspect of successful bonus programs, O'Connor said, is that they can dramatically increase job performance. He cited a recent Cornell study that found bonuses actually boost performance 10 times more than merit raises.

“Looking into a bonus program is a great idea for contractors,” he said. “You can really increase your productivity.”

Bonus and incentive plans have the additional advantage of helping to retain experienced workers and reduce often-costly employee turnover, O'Connor said. Ernst and Young calculated the cost of replacing an experienced employee at up to 150% of the individual's salary, he said.

O'Connor said effective bonus plans will encourage employees to think more like owners and remain with firms for longer periods. He cited a recent survey by Fortune Magazine, which said that while 26% of workers leave their jobs for better compensation and benefits, 23% also leave for a better career opportunity, and 22% depart for a new experience. The survey concluded that the potential for added responsibility and the opportunity to grow are becoming major motivators for employees.

“If your environment does not allow your employees to have a sense of control over their situation or the ability to improve their knowledge, you will have higher employee turnover,” O'Connor said.

While incentives and bonuses are ways a company can improve its retention rate, O'Connor recommended contractors tailor such plans specifically for their businesses.

He said employers must base bonus programs on very specific goals that they can measure, adding that such programs must be simple to calculate and easy to understand.

Before creating a new bonus plan, however, contractors should review and list their current incentives, benefits and bonus programs, O'Connor said. He encouraged firms to routinely inform employees about the company's incentives and benefits.

O'Connor suggested mailing information and explanations about a company's total benefits package and how it works to employees' homes twice a year.

Once they have evaluated their current plans, business owners should develop a wish list of incentives, benefits and bonus programs that they would consider adding, O'Connor said, reminding contractors to think creatively.

“When you do things that other companies don't do, it elevates you in the employees' minds,” he said.

As an example, he listed some of the perks Google offers its employees, including unlimited sick days, five onsite doctors with free office visits, an annual ski trip and onsite car washes and oil changes.

O'Connor said some perks that cost little or nothing can boost morale in a significant way. Group activities, such as lunches and cookouts, give everyone a chance to bond, he said.

“People don't leave jobs if that's where all their friends are,” he said.

Employers also can offer “lunch and learn” sessions in which an instructor teaches employees new skills during a free lunch, O'Connor said.

In addition to their own ideas, O'Connor encouraged contractors to seek suggestions from employees for training and certification programs, product or service quality initiatives and productivity improvement programs.

“There's a lot of talent out in the field,” he said. “They may be able to give you some ideas you never thought of.”