Established Case 2: Justifying Bonus Compensation

Established Case 2: Justifying Bonus Compensation

Scenario

At the end of every year, the management team would lock themselves up in a cabin in the woods and managers would fight for their employees to get them into the top-performer percentile.  The company had rank-and-yank workflow/structure, which was anything but transparent.  Almost all employees felt deeply dissatisfied with their bonuses and quickly burned out causing significant churn in the company.

Deployment

  • 10% of gross profits allocated towards bonus compensation (no change from previous size)
  • 360 FairImpact monthly expectation-based performance evaluation
  • Vesting: 2 years
  • Divesting: 6 months

Impact

  • Improved Employee Retention: while the size of bonuses did not improve, transparency and mathematical rigor lead to employees feeling that bonus calculation was fair.
  • Less Management: regular 360 evaluations reduced management load allowing for mid-level managers to get more involved in front-line operations.
  • Light Touch Performance: before performance management involved a “score card” and was done every 6 months.  Switching to monthly single-question evaluations forced improved communication of expectations.  Some started doing bi-weekly evaluations to ensure constant feedback between management and front-line employees.
  • Early Problem Detection: transparency of missed expectations lead to management becoming aware of potential problems early thus giving them a chance to assist before minor issues develop into crises.
  • Improved Morale: because everyone had a voice and felt that management was trying to be transparently fair, culture significantly improved.

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