This is a post that presents a problem business owners face…and no clear solution. Yeah, I know, very helpful.
I’ve been in touch recently with a friend, “Karen”, who also owns a small business, over the topic of key-employee compensation. It’s always on a business owner’s mind: how do I reward the people who make my business successful? It often isn’t even an issue of “motivation” – it’s clear to me now that there are some people in the world who simply give 100% every day and a performance-related bonus plan may have the undesired effect of making them think they aren’t trying hard enough.
So it comes down to wanting to say “thank you” and also to dissuade them from moving on.
Karen and I emailed back and forth about (1) discretionary bonuses; (2) bonuses linked to performance; and (3) share ownership.
There is a list of pros and cons to each method. For me, the most appealing approach is a cash bonus that is discretionary, based on the contribution made by the person for the preceding year. I like the immediacy of the reward (cash in the bank) and the flexibility that it gives me to take an employee’s unique factors into consideration.
For Karen, it is important to tie compensation to results so she rewards key team members for meeting or exceeding sales goals above a certain mark, but she also reserves discretion to pay out more if the bonus is not triggered or not sufficient in her opinion.
At this point in our respective businesses, share ownership to employees is not where we want to go. Although it sounds appealing, it is important to be really sure about the implications, such as the new shareholders having different opinions about big decisions and of course the financial outcome when the business is sold. On the other hand, for a key employee with an entrepreneurial drive, having his or her own shares would be hugely motivating.
Like I said, no answers in the back of the book, or the end of the post.
PS – the cookbook is now available for pre-orders…and every book ordered before the release date means you get a free 6-pack of minis and also some recipes from the book before it is out. So if you are into it, order ahead and get the freebies…