Mention the words “pay-for-performance” to executives and their faces take on a glow that can only be described as euphoric.
But the euphoria doesn’t last long as they try to implement variable pay plans that turn into entitlement programs.
Jack Stack, the author of “The Great Game of Business,” defines 2 types of variable pay plans:
1. Profit Sharing – This plan takes a percentage of company profits and distributes the funds on some prescribed basis.
2. Bonus – This plan is designed to make the company stronger and more competitive. Earning a healthy profit is simply a by-product of a stronger company.
HR POINTER: The fundamental difference between the two plans has to do with the 2 or 3 numbers that drive the business.
In a profit sharing plan, people are focused on profits and often have very little knowledge of what drives profits.
With a bonus plan, employees are engaged with the critical numbers that drive the objectives of the business. A bonus plan rewards the achievement of strategic objectives that are designed to strengthen the business, not just profits.
With a bonus plan, a company has an opportunity to engage and educate employees, rather than simply drive employees toward the ambiguous goal of “more profits.”
For a good overview of how our Monetary Recognition Program can strengthen a company, view this link on our website: http://www.yourparttimehrmanager.com/recognition-program/