If I had a dollar for every bad business incentive or bonus plan that I have seen, or have helped to unwind, I would have, well, a nice bonus for myself for Christmas. Incentives, including year end bonuses are not designed, or taken, as gifts. Some business owners may argue this point, but I have yet to experience the employee who receives a Christmas bonus one year, and is not disappointed or even angry if that bonus is not the same or greater the next year. After the first gesture you make, a year end bonus becomes an expected part of the employee's pay.
As I write this blog, it seems to be the good start of a cynical and negative message at a time when everyone is gearing up for a month of holiday festivities. It is exactly the opposite. A well thought out and properly structured employee bonus plan can actually become the most important component of a business looking to find a way to consistently reward their employees, while benefitting or enhancing the good of the company itself. When done properly, this can have amazing and even transformational effects on a small business. The first question you have to ask is this. Does the bonus structure you have in place, or are thinking about implementing benefit the employees and the company equally?
Year end bonuses are problematic. Nobody gets out of bed on July 15th prepared to do a better job at work because they know that they will be getting a Christmas bonus. The cycle and timing of the bonus needs to be short enough and frequent enough to be on the minds of your employees throughout the year. The Legacy Alpha bonus structure tracks monthly performance that ties to quarterly results and annual goals. The actual bonus dollars are then paid in quarterly increments, with the largest amount reserved for the last payout of the year... The typical holiday or Christmas bonus. With that structure, your employees may very well get out of bed on July 15th with a mindset of doing a better job for the company. It is the same on July 20th, September 15th and any other date you pick during the course of the year. That is the mark of a properly functioning employee incentive plan.
The biggest mistake made when determining employee bonuses is what to base the bonus dollars on. An ill-conceived bonus structure may end up paying bonuses on something other than profit dollars and will either add to the struggles of the business or will be abandoned. Abandoning a bonus structure because it was poorly thought out is an investment in bad employee attitudes, and can be a very negative proposition for a small business. The Legacy Alpha employee incentive plan has three safety nets built in to ensure that the business will never pay bonus dollars on anything other than profit dollars, and that employees will know when and why their bonuses are small or non-existent.
An often overlooked benefit to a properly structured employee incentive payout is the tax advantage gained by the owners of the small company. In a good year, the dollars paid in bonuses can represent upwards of a 50% tax savings. In other words, you get a 50% discount on the dollars paid to your employees compared to paying the taxes on those same dollars that were not bonused out.
For a complete review of your employee bonus structure or plan, contact us today. There is still time this year to take advantage, and reap the benefits of a properly structured plan. Going forward, a properly structured plan could be the best Christmas present a small business owner can get.
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