What Works: Eyes On The Prize

The right bonus program can unlock your company's growth

The 30 employees of Rockwood Retaining Walls in Rochester, Minn., are on a mission. "Everyone is talking about a common goal, which is growth," says Brian Price, who owns the company with his two brothers. Price expects this year's sales to total more than $5 million, a sizable jump from last year's $4 million.

It didn't take expensive consultants or wholesale firings to get the company on the right track. Rather, Price instituted a well-designed bonus program in 2004, tying employees' pay directly to their performance and to the company's profitability. "I think it's fantastic," says Cathy Haggerty, a nine-year front-office and call-center manager for Rockwood. "If I do my job and stay on budget and inspire people to do theirs, I have a direct effect on the money I receive."

While there's no "bonus fairy" to give entrepreneurs a bit extra this holiday season, it's worth considering a bonus program for your employees. Sure, bonuses foster good will, but they can also be good business, encouraging workers to think beyond their own jobs and toward a larger goal, says David Krueger, CEO of MentorPath.com, a coaching firm in Houston. In most cases, that bigger goal is a fatter bottom line.

To make that happen, you'll need to go beyond free turkeys and holiday parties. They're not true incentive programs, because they're usually enjoyed by standouts and laggards alike. Instead, bonuses have to be tied to the right achievements by the right people.

To do that, start by figuring out each employee's specific contribution to profitability, then hold them to measurable performance standards. Each employee should know what the incentives are for everyone else, says Nick Rucker, a business coach at Team Empowerment-Action International in Lakewood, Colo. While annual bonuses are traditional, awarding them on a quarterly basis ties bonuses more closely to performance.

Price's program has three tiers, each of which ties bonuses to a key responsibility. For salespeople, it's simple: Each receives a 10% commission on any sales above the total sold in the same month the previous year. The company's call-center and administrative employees, who phone potential customers and send out product information, get bonuses based on the year-over-year increase in square footage sold. Price says basing the bonus on product sold rather than a sales figure better focuses employees. "If the bonus was tied to a percentage of sales, people would be saying: 'Where's my cut?"' he says. "But you can rally around square footage." Managers' bonuses, which range from 10% to 30% of salary, are based half on revenue growth and half on sticking to budget.

Price says he is "absolutely thrilled" with the program so far. Even better, his employees are, too.

By Virginia Munger Kahn

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