The following is a great post from Leigh Davis of Davis+Delaney (shared with permission):
The biggest mistake most owners and managers make with their Employee Bonus Plan actually happens before they even start to create the plan. Before they ever put a pen to paper or a fingertip to calculator.
I’m talking about the motivation to create an Employee Bonus Plan. You see, most of us typically create such a plan with the wrong motives.
It’s not a tool to stop employees from quitting. It’s not a tool to pit one employee against another (with the hope of making all employees better).
Here’s the secret: An Employee Bonus Plan should only ever have one clear directive…to reward great work!
It’s that simple. If your plan is designed to make your employees stop doing something detrimental it will not be well-received. Employees are smart and they’ll find a way to game the system. You always get more flies with honey than vinegar.
When your bonus plan rewards great work and performance, all the pieces fall into place. Good work means greater profits. Greater profits means more free cash to give raises or bonuses — which means happier employees who stay with your company.
If you need help creating an Employee Bonus Plan that rewards employees who do the right thing, I can help (www.DavisDelany.com).