August 14, 2024
There’s a version of this that plays out in companies all over the country and it drives me absolutely crazy every time I hear about it.
An owner puts together a bonus plan. The team hits the target — maybe they were going to hit it anyway, maybe the market was strong, maybe it was just a good month. The bonus pays out. The owner writes the checks. And the team’s performance looks basically the same as it did before the plan was put in place.
The plan didn’t change behavior. It just codified a payout that was going to happen regardless.
That’s the worst possible outcome: all the cost, none of the benefit.
This is what I mean when I say a bad pay plan can cost you just as much as a good one — it just doesn’t deliver anything in return. You’ve already committed to the expense. The question is whether that expense actually moves your people to perform differently. With a well-designed plan, every bonus dollar you pay out is a direct return on improved behavior. With a poorly designed one, you’re essentially just raising baseline compensation with no accountability attached.
How does this happen? Usually in one of two ways.
The first is vague rewards. An owner gets up at a company meeting and says something like “if you guys have a great year, I’m going to take care of you at the end.” Trust me, I understand the intention there. The owner means it sincerely. But what does the dispatcher do differently on Tuesday morning because of that promise? What specific behavior does it change? The honest answer is almost nothing, because the reward isn’t tied to anything the employee can see or measure or act on.
The second is misaligned incentives — paying on things employees can’t actually influence. I’ve seen companies bonus dispatch managers on net profit. Does the dispatch manager control rent, or parts costs, or the salary of the service manager? Of course not. So what exactly is the plan asking them to change about their daily behavior? Nothing. They’ll watch the month play out the same way you watch a football game you bet on — hoping for the best, but unable to affect the outcome.
When the bonus hits anyway, everyone gets paid. When it doesn’t, morale drops. Either way, you haven’t created a high-performance environment. You’ve just added financial uncertainty on top of the same baseline behavior.
The fix starts with asking one question before you finalize any pay plan: what specific behavior am I trying to change, and does this plan make it obvious to the employee exactly what they need to do differently to earn more?
If you can’t answer that cleanly, your plan isn’t ready. Keep working on it until the answer is obvious — not to you, but to the person who has to execute it.
You’re going to spend the money either way. Make sure you get something for it.