Bonus Plans: Don’t Make These Fatal Flaws

Where's the Money? (3)

Performance Bonus Programs represent a straightforward practice used to motivate performance, improve employee engagement and ameliorate a team’s compensation concerns while managing fixed salary expenses. Many times the decision to implement a bonus program is driven by the business leader, and the process of developing the plan involves financial modeling and a myopic focus aimed at solving a single problem, such as the need to improve sales or grow the customer base.

Seems simple enough! However, there are underlying principles that need to be thoroughly addressed if a bonus program is going to achieve the goals it is designed to achieve. If these elements are ignored in the initial decision-making you may find that your bonus program fails to achieve the desired results, creates unintended and unpleasant consequences—and you end up pouring your money down a rat hole.

Lesson #1: A bonus program will drive the behavior that is incented, therefore, be clear on how you structure the goals.

My first experience with this “fatal flaw” was with a sales organization in which the EVP of Sales launched a bonus program intended to increase sales. The fundamentals of the program were very simple: after a person sold 100% of their quota they would receive an incremental bonus payment in relation to the incremental improvement in sales. At first the program seemed to be working great —sales were growing, and in some locations, the numbers were stratospheric. However, in about six months the EVP started receiving data from the accounting department that sales cancellations and uncollectable accounts were also growing at an alarming rate—and in many cases correlated to the locations showing record sales.

The EVP turned to HR to help get the program back on track and I was assigned this task. While I won’t go into the details of my investigation, the bottom line was that the goals of the bonus program had not been thoroughly thought through and focused on one aspect of sales growth—writing new business. When setting the goals for a bonus program be sure that they not only drive the stated behavior, but do not encourage undesirable behaviors, as well.


  • Ask yourself, “If the team only focus on doing “x”, what could go wrong?”
  • Align the bonus goals with other performance goals, as in “Increase sales over quota without increasing the cancellation rate.”
  • Keep the goals, simple, clear and measurable—remember S.M.A.R.T. goals.
  • Bonus goals should be strategic business drivers and be sustainable. Although they may need to be tweaked from time to time, if the direction is constantly changing, the bonus program will lose its credibility—fast.
  • Don’t have a laundry list. Keep a laser focus on what you want to accomplish and identify the 2-3 things that will make it happen.

Lesson #2: The goals and objective for which people are incented must be tracked and visible to people in real time or at least in frequent intervals.

My second bonus program nightmare comes from another organization that launched a bonus program for a team that was sort of a hybrid sales-relationship management operation. To the credit of the top executive, he hired a well-known consulting firm to design the program. They came up with a solid design along with two very important metrics that clearly drove revenue and a smaller percentage of the payout that was tied to personal KPIs.

I started working with this team one month before the first bonus payout was to be made. During that first meeting I learned that while the goals and metrics were clear the calculations were not shared with the employees until well after they’d received the bonus check. When the first payout was made, the employees were confused and disgruntled. Many people thought they had performed better than indicated by the amount received and there was a feeling that the bonus program was unfair and arbitrary, even a bit of a bait and switch.

The analytics team worked very hard for several more quarters to create a better and more visible tracking system for the team, but could never figure out a way to do that because there were too many variables involved in the calculation. Bonuses continued to be paid and people continued to be unhappy with them. At the end of the year I had a conversation with an employee who was leaving her role to take a position in another business unit, one that did not have a performance bonus program. She told me she was leaving because the other position paid more. Her statement puzzled me since I had the salary information for both positions. She currently made $80,000 and had received a bonus of $28,000 making her annual compensation $108,000. The new position paid $88,000 with a straight company bonus of 15% or total annual compensation of $101,200. I pointed out that she actually made more in her current position. She replied that the bonus didn’t count— to her it was “magic money”.


  • Bonus programs drive performance when people can adjust their efforts to improve their results against their goals.
  • If people can’t see how they are performing against these goals they don’t have the ability to correct course and will not feel they control their earning potential.
  • If performance metrics are not visible to people, the program may lose credibility and people may start to view the bonuses as “magic money,” or worse.
  • If the organization does not have the ability to track metrics and make them visible and accessible to participants in the bonus plan—come up with a different compensation strategy.

A bonus plan is both a strategic business decision and a financial decision, but neither the strategic nor the financial goals will be met if you ignore the fundamentals of clear goals and clear communication. HR’s role is to make sure that the impact of a bonus plan is positive, motivating and in support of those strategic goals.

Responsibility to Others in the Workplace: Learning to Love Your Obnoxious Co-Workers


If you ask people what they love most about their job, they’ll frequently say, “The people I work with.” If you ask people what they dislike most about their job, they’ll frequently say, “The people I work with.”

Most people who dislike the people they work with rarely do anything about it beyond trying to tune them out or avoid them whenever possible. This is a lousy strategy that doesn’t improve anything and encourages people to internalize stress. Instead of honest interactions, we have people playing games with each other. Avoidance of others may be a decent short-term strategy if you’re trying to get out of a dysfunctional organization unable to change, but it’s a poor choice if you have any hope of workplace happiness.

In Working Choices, I wrote about our three basic human responsibilities: responsibility to self, responsibility to others and responsibility to the community. Let’s look at what that middle responsibility means.

Responsibility to others is all about your relationships and doing the things you need to do to keep them healthy. There are five fundamental actions related to this responsibility:

Seek the true self: Many people enter relationships based on their personal expectations of what they want the other person to be. This is obviously true in many romantic encounters, but also applies to the workplace, where we heap expectations on leaders and co-workers as to how they should behave. Such a perspective is inherently unfair and invariably disappointing, because no one is here on this earth to live up to our expectations. To be truly responsible to others, we must release others from our expectations and establish a space where people are encouraged to be natural. This also validates and supports the self-responsible action of self-development, in that by letting go of our projections, we learn more about others and therefore ourselves.

Respect for Choices: Along with seeking the real person behind the expectations, it is necessary to learn to accept another person’s right to choose. This does not mean that if someone chooses to shoot you that you should let them go ahead and do it, for you would be violating your overriding responsibility to yourself. What it means is that you allow people the right to make choices and mistakes, just as you permit yourself the right to make similar choices (and similar mistakes). It also means practicing tolerance for choices that may not fit with your particular tastes, but as long as a choice brings no harm to another, you cannot interfere. It is up to the person making the decision to judge whether or not a choice will result in harm to him or herself.

Offering Assistance with Choices: All of us need help in sorting out choices. Sometimes we miss potential consequences or fail to take certain variables into account. We can help others by sharing information and by listening to their thinking. Sharing information and listening without bias are probably the two greatest gifts we can give someone who is facing a difficult choice. Keep in mind that assistance does not involve giving advice or finding other sneaky ways to try to force them to live up to your expectations. It means being there for them, not for you.

Defining Your Parameters: It is important to be fair to others, and being fair often involves explaining to another person your own personal limitations. You have to let people know what values are important to you so they can make choices as to how to relate to you. It is not fair to another person for you to withhold values and feelings when withholding that information could lead them to make unwise choices about how they interact with you.

Forgiveness: Just as we need to learn to forgive ourselves, we need to avoid beating up other human beings who engage in the ultimate human experience of screwing up. Your parameters will determine how much you can forgive, which is why it is wise to let the people close to you know just how far your tolerance goes. It is also possible to forgive someone while at the same time deciding that you really don’t think it’s a good idea to maintain the relationship. In this case, forgiving another is important for you in terms of letting go as it is for the other in terms of receiving permission to attempt change.

The way to make co-workers more likable is to begin to see their actions through their perspective instead of through your judgments. Clarifying your parameters is a more professional way of dealing with relationships than walking the other way when you see your obnoxious co-worker coming down the hall towards you. If you want to be successful in this world, you’re going to have to learn to successfully deal with all kinds of people, and that means  building relationships based on the open, honest communication that leads to mutual understanding.

Skip Level Meetings: Preparation and Process (Part 3 of 3)


Once the senior leader feels confident that he or she is clear about the purpose and goals for a Skip Level Meeting and is satisfied that the participants have the requisite level of trust, it is time to move forward. Whether you use an internal facilitator (your HR partner) or external facilitator (if you feel the meeting may be difficult or the HR partner lacks facilitation experience), the following steps will ensure you have a well-organized, focused and effective experience.

NOTE: These steps are accomplished by the leader and HR partner working in tandem unless otherwise noted.

1.  Review the process with the skipped leader if you have not already done so. This is critically important, especially if you value transparency and trust. By talking with the skipped leader before invitations are sent to employees the senior leader is able to:

  • Ensure that the manager understands the purpose of the meeting.
  • Clarify what the manager’s role is and is not in the process and follow-up.
  • Gain the manager’s support of the process, which will encourage employee participation.

2. Develop and review the questions you want to ask.

  • Brainstorm a list of questions or issues.
  • Estimate the time you believe each question and the discussion might take.
  • Review the list and prioritize. You want to have a manageable number of questions so that the meeting doesn’t go on too long (60-90 minutes is a good range to work with).
  • Eliminate any questions that you are not willing or able to address.

3. Determine the meeting logistics (who, when, duration, place).

4.  Have the senior leader invite employees to the meeting. The invitation needs to come from the meeting leader, not HR or the facilitator. Describe the goals, process and logistics in the invitation.

5. Prepare any meeting materials.

6. Conduct the meeting(s).

  • Briefly review the goals and the steps, then ask your first question.
  • Record all input and feedback in real time. You’ll need accurately recorded data for the next stage. This task can be handled by the HR partner or facilitator.
  • Allow sufficient time at the end of the meeting to summarize the feedback to identify main themes that have emerged. Allow the group or individual to provide input and/or corrections as you synthesize the information into themes or topics.

7. Review the rough synthesis of the meeting, develop a clean summary and identify the key themes you want to cover with the skipped leader.

8. Debrief with the skipped manager and jointly create a plan of action to address any issues. Structure the de-brief in a simple “What’s going well” and “What could be better” format. A good Skip Level Meeting process allows both the leader and skipped manager to learn how they both impact the team. The senior leader needs to communicate a willingness to accept responsibility for his or her contribution to any negative outcomes, and encourage the skipped leader to do the same. This meeting may or may not be facilitated, depending on the outcome.

9. The senior leader then follows up with employees to review the action plan and to thank them for their participation. Follow up periodically to ensure the action plan is on track.

Photo Credit: © Rgbspace | Dreamstime Stock Photos &Stock Free Images

Skip Level Meetings: Two Essential Ingredients, Part 1

Group of worrkers

A few weeks ago I received a call from a colleague who wanted to discuss the pros and cons of Skip Level Meetings. Her company’s new CTO had approached HR for assistance in planning a series of Skip Level Meetings to get to know his new team. The leader had informed his direct reports of his plan and he reported to my friend that everyone thought it was a great idea. However, shortly after meeting with the CTO, my friend noted that one by one each of his direct reports dropped by HR and it didn’t take long for the conversation to turn to their concerns about the “Skip Levels” their new boss wanted to conduct with their teams. To the credit of my HR colleague she immediately recognized that there was a significant disconnection between the new leader and his direct team and that the idea of implementing the Skip Level Meetings needed some further evaluation before plunging ahead.

So, my friend wanted to take a step back and talk through some of the fundamentals involved with Skip Level Meetings. After helping her assess the objectives of the new leader and the readiness of the team, I thought it would be a good idea to share some best practices on the HROD Blog.

What is a Skip Level Meeting? In simplest terms a Skip Level Meeting is held between an upper level manager and an employee or group of employees who are more than one level below them in the organization. In other words, the employee(s) are part of the senior leader’s team, but do not directly report to them. The senior leader meets with the employee(s) alone or with a neutral facilitator, but the direct (or “skipped”) manager of the team is not present. The “skipped” manager receives feedback from the meeting through a debriefing with the senior manager and participates in a joint follow-up session with the senior leader and the team.

Technically, a Skip Level Meeting can be an impromptu meeting between a senior leader and a single employee who meets the criteria described above, but for the purpose of this discussion we are talking about a more structured process.

Back to the Basics: The Two Essential Ingredients. As with any HR or OD process, the thoughtful practitioner must take care to ensure that they use the right tool for the right situation. This always requires assessment of the situation and the relevant factors that will either facilitate or sabotage success.  The two essential ingredients that need to be assessed when considering using Skip Level Meetings are as fundamental as it gets: trust and clarity. Trust relates to the confidence the people involved in the process have in each other, while clarity is about having a clear and appropriate purpose backed by a sound, well executed process.

This week we are focusing on questions that will help to assess trust from the different perspectives of the participants in the Skip Level process.  These questions are not intended to be asked and answered directly, but are areas you should tactfully probe as you assess whether or not a Skip Level Meeting is the right approach for a given situation.

Does the “skipped” manager trust that . . .

  • the real purpose of the meeting is clearly stated and that there are no hidden motives?
  • their leader is open to actively listening to the team and gathering information, even if the feedback may challenge some of the leader’s own beliefs or assumptions?
  • the meeting will be well-organized and skillfully facilitated so that the feedback they receive is unbiased, reliable, honest and timely?
  • their team will offer fair and balanced feedback to the leader?


Do the employees who are invited to participate trust that . . .

  • the senior leader conducting the meeting is fair and open to really listening to them?
  • the senior leader supports the “skipped” manager and is not trying to undermine the manager or to protect and defend him/her?
  • their feedback will be taken seriously and that there will be meaningful follow-up?
  • the facilitator will keep the meeting on track and make it a safe place to speak up?
  • the senior leader and facilitator will respect the confidentiality and anonymity of what’s said, while presenting the themes of the feedback in a credible and accurate manner?
  • their fellow team members will respect differences in opinion, the need for open dialogue and each person’s right to confidentiality?


Does the senior leader trust that . . .

  • they have sufficiently thought through and conveyed the purpose of the meeting to the facilitator, manager and employees?
  • the “skipped” manager is supportive of the process and will convey that support to their team?
  • the “skipped” manager is receptive to hearing honest feedback and will follow-up with appropriate actions and dialogue?
  • the employees view this as a constructive avenue for dialogue and will be open and engaged in the process?

If the answer is “yes” to all of the questions posed above, you can feel confident that the team has a good level of trust. Next week we will delve into the purpose of the Skip Level Meeting and why it is essential to clarify the purpose before getting started.

Photo Credit: © Pilarin | Stock Free Images & Dreamstime Stock Photos

Is America in Decline? A Lesson in Group Problem-Solving

Baseball in TattersIs America in decline? That was the entire content of one of those quickie polls that appear in the sidebar of the Washington Post’s website. “Is America in decline?” Yes or no.

What a stupid question!

For one, the question can only produce one result: an argument. If you answer yes, you’ll be labeled a traitor and will get the love-it-or-leave-it message from a self-proclaimed patriot. If you answer no, you’ll be labeled as a person seriously in denial by those who have reached the opposing conclusion.

When I took a peek at the poll results, the results showed about a 50/50 split. Duh.

The reason why it’s a stupid question is because it’s not a helpful question. The problem of “America” is too big and broad for us to solve. “America” is the result of a billion variables that go into the recipe. If you try to solve the “America problem”, all you’d wind up doing is making a lame attempt to cover up a failed recipe with a few spices in the hope that it might at least turn into something palatable.

Which America are we talking about? North Dakota seems to be doing pretty well. Recent dining experiences have convinced me that American winemakers are on their game. Last weekend’s round of football playoffs were pretty exciting. On the other hand, there’s little question that Congress is broken, that the stock market is more influenced by fear than fact and that there are still far too many people without jobs. By trying to solve the “America problem,” we fail to solve thousands of problems that are within our power to fix. Instead, we waste our time debating a meaningless question that cannot possibly yield a solution.

The other problem with the question is that it allows the person answering the question to sidestep any responsibility for the problem or the solution. “America” becomes an abstraction, something that is beyond me, a problem I did not create and cannot solve. When we break any problem down to its components, we know this cannot be true. If you voted in your congressional election, you bear some responsibility for the sorry state of Congress.

Edward DeBono came up with a simple way to define problems. A problem is simply the difference between what you have and what you want. If you try to apply this model to the “America problem,” you’ll find out pretty quickly that you can’t come up with a problem definition on which everyone will agree. We all have different definitions of what we have and what we want. That alone should tell you that you’re trying to solve the unsolvable.

Until we agree on the problem, we will never agree on the solution. This is why the most important stage of group problem-solving is the first: trying to precisely define the difference between what you have and what you want. Too many groups in business, government and the nonprofit sector operate in crisis mode, reacting to symptoms instead of problems because they haven’t taken the time to clearly define the issue at hand. This leads to poor decision-making, failure and to a decline in the confidence of the group members to solve any problem.

As anyone who has been a human being for any length of time knows, it takes time to figure out what you want and what you don’t want. It requires hard thinking and quality discussion to help a person or a group clarify a goal and avoid potential pitfalls. One way to get there is to reshape DeBono’s model by phrasing the question in the “How can we/Without” format: How can we (get what we want) without (getting what we don’t want). How can we reduce unemployment without increasing the deficit? How can we position this product in the market without cannibalizing sales on other product lines? How can we improve the bottom line without cutting heads? How can we design a compensation program that has real impact without breaking the bank?

Some might read this post and blame our instant gratification, time-sensitive culture for refusing to give us the time we need to clearly define problems. Sorry, but I don’t buy “the culture made me do it” argument. Anyone in a position where they have the opportunity to influence an outcome has the responsibility to take the time to get it right.

Given the seeming enormity of our many problems, taking the time seems like a pretty inexpensive investment.

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