(Editor’s note: Joseph Schmitt died Dec. 1, 2004. The following is the last column that he wrote for CONTRACTOR. His obituary appears on pg. 5.)
EVEN IF YOU think you are a super businessperson, you really can’t do it alone. You must have a few good middle and top executives to help you carry the flag. They should be well paid, and they should have a very clearly defined incentive program stating how they can earn bonuses. The simpler, the better.
Bonuses should not be discretionary where you, the owner, walk around like the big omnipotent eagle pooping discretionary money without any visible rule other than a strong suspicion that the more times you say “yes” the higher your bonus. Some call it “playing God.”
I have always liked programs that involve paying people a living wage and a bonus based upon their performance. The ratio varies based upon the situation, but 75% base and 25% bonus has worked well over the years. The 25% can be earned based upon several objectives. The best measures are numeric but, at times, they will involve a subjective evaluation of the individual’s performance.
I like a provision in the agreement that states that the individual is expected to perform his duties for the good of the company. The company reserves the right to withhold any and all bonus payments when the individual has done something contrary to the good of the company. In other words, tried to “game” the bonus plan.
It is just as important that you don’t become greedy. When you set up a good, fair incentive program you may find that your team works harder than ever and generates surprisingly large (by historical measures) incentive payments.
If you have set the program properly, it will work this way: Every time they make more money, you make more money. Since you established the program, it is always more generous to you than to them.
Your incentive program should always recognize excellence and reward fairly. If the team is really a team then they are all playing with the same rules. It is good and proper that the team know the size of the bonuses that the company is willing to pay and, in fact, is currently paying. Where branch locations are set up as separate profit centers, I see no downside to telling everybody the size of the bonuses being paid and encouraging people to perform at higher levels and to deserve those bonuses.
As I have discussed before, have signed non-compete agreements in a safe, off-premises location. It is surprising how often non-compete contracts kept in desk drawers disappear just when they are most urgently needed.
In building compensation programs, do not use phony numbers to “game” the system. The smart employees you have hired will know when you start to cheat. Those who are honest will resent your efforts and it will damage your relationship. Those who have a dishonest streak will learn from what you have done and sometimes use it to cheat you back. This can be the worst of all worlds. When you go to look into the cookie jar you may find that it is empty.
Share your prosperity with the community. You can’t support everything so pick one or two favorite charities or activities, then support them so that you are important to those groups. I think it best to focus on your business’ success, then contribute financially rather than by volunteering to lead the organization for a year because the one “year” often becomes three or four.
Over the years, I have seen many owners lose control of their business because they enjoyed the limelight and glory that they found in their charity work. Your best value to local charitable and civic organizations is as a source for support funds rather than a source of leadership energy. Go for the gold, not the glory.
Finally, remember that success is the most powerful aphrodisiac. The more money you have, the more power you have in the community, the more attractive you’ll become to the opposite sex. It’s the size of your bank account that matters to a surprising number of people.
Discourage office romances. As a starter, discourage office romances by not having one yourself. Make the rule and be sure you set the example. Discourage employees and supervisors living together, married or unmarried, male or female and in any combination of the above. These he/she, she/she, he/he couplings are all the same as far as I’m concerned and almost never have a happy ending as far as the business is concerned. Every time you fire one person you are actually firing two people or at least making two people very angry with you.
Absolutely do not become involved personally in an office romance. If you will not take my I word for this, check back on Fox TV’s leading commentator Bill O’Reilly’s adventures in October 2004. We will never know how much money changed hands, but his office romance cost him big bucks, hurt his reputation, and cost his employer cash and competitive market position.
Over the years, I have found that lady luck smiles more often on those companies that pay fairly, share in their success and where the owners personally set a high standard for how the company is run.