Paying Bonuses

Paying Bonuses
December 3, 2016 Gary Shotton

Bonuses applied correctly can be a strong asset but applied incorrectly can cause harm.  #000007

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Paying Bonuses

By Gary Shotton

This text is in Extreme Rough draft and will be edited in the near future.

Wow, am I happy to be with you on this marketplace talks. I’m Gary Shotton and today I’m going to talk about paying bonuses how to pay bonuses, how to keep from getting in trouble paying a bonus, how to bless your people when you can on a bonus, and so I hope this is helpful to you. Just to give you a little background you probably know a bit about me, but I’m 45 years in the business world. I’m 35 years in ownership. I did work ten years for the big corporation where they paid me a bonus and I’ll talk a little bit about that, and you know, I will tell you today several stories about my experiences in paying bonus, trying to pay a bonus, mistakes I made, thinking I was helping and it really didn’t help out in some cases, and what I do currently in bonus pay, when I talk about bonuses I’m talking about you know, you’ve done, you’ve got your regular paycheck, and it’s done and so here’s extra. It’ll kind of bleed over to some discussion on people that are paid by commission, I’m not against that but there’s some inherent problems with that also if it’s not done properly. Now to give you a bit of background, if you watch me for long, you know that I own a moving and storage company, that’s where I move furniture like this table or full households, and I did that and owned that business for 17 years and had 50, basically, 50 to 75 employees in that environment with trucks going all over the United States. Currently, I own a machine shop with currently only 45 employees. We’ve been as high as 65, we’re on a little bit of a slow down, it’s all going to be fine, and my people are right inside my building at all times and we’re delivering completed parts and over the years I’ve paid all kinds of ways, and in many cases I wanted to give a bonus above and beyond what their normal pay was. So, I’m going to give two or three or four examples here of situations we faced, and I’m going to suggest that sometimes, if we’re not careful we can cause harm to our overall plan if we start paying a bonus without thinking it through. Again, I’m not against paying a bonus, and I’m not against blessing my workers I just think you need to think about it. Case number one, I’m from a farm and ranch, that’s long before I started my first business in the trucking even before I had my first job with the oil company I was raised on a farm and ranch, I still have holdings and we have a family farm corporation, and we have someone managing that and in the process this manager meant good, did good, we had a wonderful year one time, it’s been a back a Few years and the person, one person helping on the farm worked extra hours, worked extra hard, and you know, at the end of that, came time for Christmas time they the manager of this rightfully got it cleared with us as the stockholders and said let’s pay them a bonus and they did. And you know what happened? The next year wasn’t quite as good, the exterior didn’t warrant the bonus. But that employee came knocking on the door and asked the manager said “Listen, what went wrong? Last year you paid me a nice bonus at Christmas time, aren’t I working as hard as before? Why aren’t you paying me a bonus now? I’m ready to quit.” and we scrambled because we needed this person, but you know what the lesson learned there is be careful when you set a bonus don’t set a precedence, don’t create a habit that every single time it was truly a bonus, it’s above and beyond their fair pay, don’t create something that would be detrimental in the long run. Lesson number two, my bank friend, I just happened to talk with him a few weeks ago, and I was talking about this subject and he gave a situations appropriate to talk about. In their case they had a previous employee, had worked for them for nine or ten years, and decided to go work for a different bank. No problem, my friend is not upset this friend is still a friend of my banker, and they had lunch together. But they knew, the employee that now is working for the other bank brought up the subject and said “You know, I’m so happy because I get paid a bonus.” Well my friend that owns the bank said, “Well tell me more.” The employee says “Wow well I got this nice bonus, it’s hinged upon this particular format at this different formula,” and then my my banker friend said to the employee, said “Well, you know that’s interesting I noticed that your bank is not doing that well.” In banking they have to report this it’s a public matter, and the friend, the person that’s an employee made a critical statement. This person said “You know, I really don’t care. I’m making my bonus.” Wow, that’s a problem. If the employees, the people working inside the company are not making every effort possible for the company to succeed and be profitable, then that personal bonus has created a problem. Lesson learned there, you must avoid the individual that would prefer their personal gain over the gain of the team. Well, those are three good lessons. I want to talk about how I pay bonus at my company with 45 employees. First of all, we have two bonus arrangements, one is called a bonus based on scrap. In other words, we make parts, sometimes we have problems with the parts, you’re going to have some problems with the parts, and we call that a scrapped out part. Well, when you make a part that you can’t sell, instead of selling it for like oh maybe a hundred dollars a pound, you’re selling it for four cents a pound. So that’s scrap, we lose that. So it makes sense to me to pay a bonus that if we hit a mark that’s an acceptable scrap level, expected scrap level, and we as a company have less scrap than what was expected, I’m going to actually give you that money. I’m going to give you that money. The other form of bonus we have is a production and sales bonus. Now my staff is not, I’m the only sales person in the company, so it’s not a Salesman, Salespersons bonus, it’s bonus based on sales not on profit. You see if I paid a bonus based on profit, then I can manipulate profit fairly easily, because I could put in an extra expense here, and nobody would know it and they don’t have access to all my finances, and I wouldn’t have trust, my people wouldn’t trust that their bonus is being fair, because I can manipulate the numbers to them and report something kind of unethically and reduce their bonus. So we basically base it on a sales level when we have a sales volume then here’s the bonus that goes with that, and we post that in advance and give some incentive for working towards this. Now in my case, the key to this lesson I think, and the key to me suggesting bonus is that we don’t pay individuals differently based on what they’ve done on the job. Well even if they did they’re the best employee, they do not get a bigger bonus. If they had the best job on anything they did, they had the least amount of scrap. We’ve come to determine that if we can’t get all paid, and I say we it’s me, the same amount because we’re in this as a team, so when I pay a bonus I have, yesterday I handed out $25 gift cards to everyone in the company, everyone gets $25, because we benefited from lower scrap, lower damage on our parts, than was expected. Everybody got $25. I got $25, the plant manager got $25, the guy that swept the floor got $25. When we post and we exceed a certain sales level, which I have no control on the numbers, somebody else enters that data, everyone gets the same. There’s a time when I wasn’t able to give raises for a while and lieu of raises I was very generous with my bonuses. There was one month every single person in the company got a $500 bonus. The guy that swept the floor got 500, the plant manager got 500, it cost me about, in that particular case, $35,000 for that one months bonus. Wow, that’s a lot of money. Why didn’t you do it all the same? I’m telling you if you start identifying you did this so you get more bonus, you did lesser you get less bonus, you’re opening up a big bunch of problems, you’re opening up an administration problem, and you’re most likely not creating a team effort. I tell people that if you all were to win the Super Bowl or the World Series or, now individual players in sports are paid differently. My workers are paid differently. They’re paid according to their skill level. But the bonus is shared equally, we found it helpful to share our bonus equally. I hope this helps, I hope you’ll share these videos on Marketplace talks, I sure enjoy talking with you. Till we see you again, thanks. Up next
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Gary Shotton
Founder | IBBTalks.com
The founder of IBBTalks.com which was formed to "Inspire Better Business."
As an astute businessman, he is passionate about helping others in the business world achieve maximum profits. He has a keen interest in international business. www.InspiringBetterBusiness.com

2 Comments

  1. Adam 5 years ago

    I agree that using bonuses to improve overall team performance and not just personal gain is very important. It is a very wise to build a team culture and not a “me first” culture.

  2. Tim Rovenstine 5 years ago

    Never thought of it like this. His experience is very valuable.

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