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.

Dealing with FMLA Anxiety

Rose 1

It seems that one of the core competencies an HR professional must develop, particularly in smaller organizations, is the ability to handle frantic, panicky, anxious managers who feel victimized by the Family and Medical Leave Act (FMLA).

No other HR law creates as much angst and confusion as FMLA. The law is simple in explanation, elusive in practice. Everybody who works 1250 hours a year after their first year of employment is entitled to twelve weeks of leave to cover absences related to serious medical conditions involving self or family members. Pretty simple on the surface.

The problem in really understanding the law is the use of the phrase “twelve weeks,” because that implies chunks of time that a manager can easily plan for, like vacations. It’s more accurate to say that everyone covered has 480 hours of leave, because the law allows for two kinds of leave that give managers fits: intermittent leave and reduced-schedule leave.

Intermittent leave seems to be the most difficult to deal with. Essentially, an employee with, or caring for a family member with, a serious medical condition that involves occasional flare-ups or continuing treatment can spread those 480 hours over the entire year, often at very inconvenient moments for managers. Although the law asks that employees give notice of potential absences, the phrase “when practicable” applies to FMLA. Sometimes a condition (migraines, for example) is inherently unpredictable and may even prevent the employee from calling in. If the medical practitioner writes something like “may be absent 2-3 days per month at unpredictable intervals,” that means that all of those absences are protected absences that the employee has the right to take. This can give managers migraines as they try to deal with the impact of slipping deadlines and coverage issues.

Equally problematic in the small organization is reduced-schedule leave, which occurs when the medical provider indicates a person can only work a part of his or her weekly schedule. Managers who had been counting on a key person being there for an important launch or to finish a critical project on time find themselves in a difficult spot.

These two situations invariably cause the frustrated manager to storm into HR and interrogate the HR professional about loopholes, exceptions, second opinions and suggestions to hire private detectives to see if the employee is really does have a “serious medical condition” or is just trying to avoid work. Some managers even go around HR and try to get people to work from home in defiance of the medical practitioner’s restrictions.

While I have known a few employees who have used FMLA improperly, the vast majority of people on FMLA don’t want to be there. They don’t want to have a serious medical condition and live in constant state of anxiety. They want to work and they want to get back to work as soon as possible. The last thing these people need is a flipped-out manager who cares only about getting the work done and shows little or no concern for an employee who needs care and compassion.

The problem isn’t that people go on FMLA. This is life; stuff happens. The problem is managers who don’t know how to plan to save their lives.

My advice to HR professionals on how to deal with managers who make FMLA more difficult than it needs to be is as follows: when you train managers on FMLA, open your talk with a single slide free from graphics that contains one message: “FMLA is the law. Get over it.”

Once they’ve recovered from the shock, explain to them in simple terms how FMLA works. Then tell them how to prepare for it:

  • Plan your overall staffing needs based on the assumption that at least one person in your department will always be out on FMLA.  Double that number for every ten people in the department.
  • Ensure that all processes in your department are documented and easy to follow so that anyone can step in and do the essential job requirements with a tiny bit of refresher training.
  • Make sure you have at least one (preferably two) backups for every job in your department. Implement a cross-training plan and stick to it. Make sure the backup is regularly informed of what’s happening in the job they’re assigned to cover.
  • List all of the resources you have available to fill a position temporarily: temp agencies, temp pools, interns, floaters, borrowing people from other departments.
  • Don’t be afraid to ask your fellow managers for help when you’re tight on staffing.
  • Learn how to do all the jobs yourself. Particularly when it comes to intermittent leave, you may find that you are the backup.

The law expects that management will make whatever preparations are necessary to comply with FMLA requirements. With a little planning and forethought, managers can avoid panic, keep things running and focus their energies on encouraging a person with a serious medical condition to take the time to get better soon.

And that’s exactly where they should be.

Dealing with Tragedy

Copley Square, Boston
Copley Square, Boston

Over the past ten days I have been following the stories about the Boston Marathon Bombing. Like so many others, I have felt the shock and anger at the brutal murders and senseless carnage, but have also been touched by the countless demonstrations of courage and support for every one whose life has impacted. Whether it was a runner in the London Marathon donning a black armband, or a survivor from the Boston Marathon returning to the blast site to leave a pair of running shoes, many people were trying to answer the questions, “What can I do in the face of this tragedy? How can I show solidarity and help people begin the healing process?”

For ten days I have been trying to answer those same questions, and as I sat in front of my computer to write this blog, I found my mind drifting to the times in my career when incomprehensible tragedy hit near or within an organization where I was the HR leader. I started to recall the actions my team and I took to show people that “the company” really cared and supported their employees in a very personal way.

I have been the HR leader more times than I care to count when a tragedy has impacted my organization. Each situation was different, each one was heart wrenching and none of them were easy to work through. In my case, each situation took place in a remote location, in an office or community located some distance from the corporate location where I worked. What was common to each situation is that HR was called upon to provide support designed to help the employees cope and set the stage for the healing to begin. It is from these experiences that I learned that HR must show leadership in the face of tragedy.

Below are some actions to be taken following an event. This is not intended to serve as a full business continuity plan but to summarize some key things HR must do:

Contact the senior manager of the impacted location to ascertain the status of the workforce.  Is everyone accounted for? Has anyone been seriously injured or had a family member or close friend seriously impacted? Is she/he aware of any specific issues that need personal follow-up?

Anticipate obstacles, barriers and disruption that have impacted the team and intervene. I cannot list all of the possible issues that an employee may have to deal with, since each event is unique and employees will be impacted differently. However, as you gather information, repeatedly ask yourself, “How can we make this easier?”  Be proactive and creative. If an employee is having trouble with approval for a benefit, call the carrier. If transportation has been effected, organize car pools, make Zip Cars available or offer telecommuting options.  A word of caution:  if you do offer “special benefits,” make sure to communicate that they are temporary, and establish an end date if possible.

Make grief/trauma counselors available and convenient. If you have an Employee Assistance Program, contact them and arrange to bring a counselor(s) on site or to a convenient location for several days. If you do not have an EAP you can find a qualified counselor through your health care provider or other resources. People will need to talk about their experience and emotions in a safe and confidential environment.  A professional will be able to help people process their feelings. He/she will also be able to offer suggestions about how the organization may best support the employees.

Develop and distribute communication to the impacted employee group, to the overall organization and to clients, if appropriate.  Act quickly to facilitate a communication strategy. At a minimum you will want a communication piece from the most senior leader to the impacted employees, using a method that is accessible and as personal as possible. Communicate with the non-impacted employees to provide them with the facts of the situation, any near-term changes in the operations, an overview of the support the company is providing and suggestions about how they can help. Develop any external communication that may be needed for clients, vendors, job candidates and others. Finally, be certain that key personnel understand any instructions or protocol for dealing with the press or investigators.

Allow employees the time to grieve and heal with their families and communities. Here’s where you will need to balance flexibility with reason. People will need time to heal and may need time to reorganize their daily routines for themselves and their families—give it to them. You may also need to make some personal exceptions and accommodations for unique circumstances.

Plan or participate in a group event that offers closure and sets the stage for healing.  In the case of death, this may involve time off to attend a memorial or holding your own special memorial time on site. If the company chooses to sponsor its own memorial service, use a professional counselor as a facilitator and make sure to avoid any religious overtones.

Stay in touch. Do not assume that once the initial event has passed that everything will return to normal.  Of course, the organization and the people will eventually need to move forward, so stay in touch with their progress. Talk with the local manager frequently. Provide support and follow-up as necessary for as long as necessary.

The Reason for HR


In an earlier post, I talked about The Purpose of HR. Another way to look at the problem of HR in modern organizations is to ask the question, “Why have an HR function at all?”

The truth is that most, if not all of the functions that make up the PHR field of study can be outsourced in a heartbeat. Benefits? Let your broker and a few specialist companies deal with benefits. Compensation? There are plenty of competent consultants who can design comp programs, and almost any decent HRIS can make administration a no-brainer. Employee Relations? I know of several organizations who have adopted a call center approach to dealing with ER problems. Recruiting? That’s the easiest function to outsource because of the easy availability of employment agencies and headhunters. Everything in HR from onboarding to termination can be outsourced as easily as a manufacturing operation can be transferred overseas, which today is a relatively simple thing to do.

So, why bother with an HR department? Why bother having an internal function that rarely pays for itself and is perceived by many to be more of an obstacle than a valued service provider?

Well, if you’re a cost-control driven company with a bureaucratic HR department, I’d say, “Sure! Outsource the whole thing.” In this case, HR is an unnecessary expense that provides no value. Some business leaders are all about profit and loss, believe people are always replaceable and couldn’t care less about creating a great culture, no matter how many studies you show them linking engagement to profitability. HR exists in such an organization only out of habit or history. Get rid of it and move on. Let your HR people go find more fulfilling jobs elsewhere.

And where might those fulfilling jobs be found? In organizations that value HR because HR is focused on facilitating decision-making rather than processing transactions and making rules. As I stated in The Purpose of HR, the primary mission of HR is to facilitate, to make it easy for people to make intelligent choices. This applies to things as simple as helping an employee choose the right medical plan or helping the leadership team work through a tough decision. In a world awash with too much information, HR can help everyone in the organization make intelligent choices, from the entry level to the executive level. They can remove unnecessary hassles that waste time and reduce productivity.

On a practical level, HR has another vital purpose, particularly in a non-union organization. HR is the place where people go to talk about things they don’t think they can talk about with the boss. Many employees don’t like calling the Employee Assistance Program for a good chunk of the problems they encounter because they associate EAP’s with “serious problems” like drug dependency or family crises. They want to go to someone they know and trust to talk things out, to figure out their options, to consider the possibilities. HR should be the place where people go to make sense of organizational life, and there is no other function in a modern organization that can do that. How HR handles such visits is one key to understanding what differentiates an effective HR department from a bureaucratic, meddling HR group. HR’s goal is always to move the conversation out of HR so that the person with the issue eventually goes to the person they have the problem with. This is often a boss or a co-worker that the employee is reluctant to confront. HR can’t be their parents or play big brother/big sister and step in to take control of solving the problem. Every person who comes to HR with a problem should feel empowered to solve that problem when they leave. Needless to say, this service also has a very practical purpose: if the employee feels they have no one to talk to inside the organization, they might seek help from regulatory agencies or law firms.

HR provides value through facilitation and empowerment, not by processing electronic data or paperwork. If a transaction can be handled through self-service, do it. If the energy invested in administration distracts HR from facilitation and empowerment, outsource it (COBRA, for example). Things like FMLA and unemployment are borderline and depend greatly on organizational size and location. The bottom line is that an HR department has limited time and staff and an HR leader needs to separate what must be done internally from “would be nice” and definite distractions.

I believe firmly that HR’s reason for existence is strengthened by integrating HR, OD and Learning & Development into a single, united team. This increases the value of all three functions and supports the model of a facilitating, empowering HR function. It also puts HR in the business of providing what people need most in a modern organization: ongoing learning and teamwork skills. Such integration also facilitates skill sharing, so that HR people become more skilled at the arts of learning transfer and dialogue that are core skills of Training and OD professionals.

In an information-saturated world full of expert specialists who will often know more and be more current about a given HR subject area than internal HR professionals, it is critical that HR leaders realize that the strength of HR does not lie so much in functional expertise as in knowing where and how to get quality information. This means that the reason for HR cannot be functional expertise, which can be found elsewhere, but in synthesizing information with the needs of the culture to help the people in that culture make the best possible choices for themselves. If I’m a business leader, I’m going to value a function that reduces complexity instead of increasing it. Because HR is concerned with the human side of organizations—the most complex aspect of any organization—its most important function is to synthesize complex information impacting the human side so that all of the people in the organization are empowered to make effective choices.

Therefore, the reason for having an HR function is because any complex organization needs a function that facilitates collaboration. Like the Blue Hat in De Bono’s thinking model, HR is the neutral party whose only interest is to help people work together to solve problems. A great HR department is the glue that holds things together, focused only on strengthening the culture and the people in that culture.  By providing services that allow people to make choices and through processes that help people make effective choices, HR becomes a function devoted to creating a culture of personal responsibility . . . a value-added reason for existence in any modern organization.

The Integration of HR, OD and Training

business team

I’ve been fortunate enough in my career to be a first-hand witness to events that clearly demonstrated how not to do things.

While finishing up my graduate work, I was making a living in the Corporate OD group at a company that was once a major player in the technology field. Although I was somewhere near the bottom of the hierarchy as the trainer of first-line supervisory development programs, I did get to interact with some of the gurus at the top, a few of whom later went to work for Tom Peters and other big names in the field. The point of interaction involved the implementation of a company-wide quality program, a major change initiative (to say the least).

As the change process moved forward, it became clear that a major obstacle stood in the way: The HR Department. They refused to change the performance review system to incorporate the tenets of the new quality program. They rejected the suggestion to review the compensation program to ensure it was aligned with the messages we wanted to embed in the culture. The HR Department even refused to send their people to the mandatory quality training classes, choosing not to participate in the program at all. Nearly every other department in the company had specific plans to incorporate the principles of the new quality program into their internal processes, but the HR Department stubbornly declined to participate.

Why? The truth is was that the HR VP and the OD VP couldn’t stand each other. They spent as much time taking potshots at each other and engaging in political gamesmanship as they did on the work they were hired to do. Combine that with a hands-off CEO who found conflict terribly unpleasant, and you have a sure-fire recipe for organizational dysfunction.

The quality program was implemented with great fanfare, but never really took hold. Without HR’s support, key systems were never changed to support the initiative, creating a whole lot of noise in a communication channel that needed complete clarity. People felt the company was sending out mixed messages, and many started to believe that the company really wasn’t serious about quality. People became cynical and began referring to the quality program as “flavor-of-the-month.”

This experience led me to the firm belief in the value of the complete integration of all human-side functions: HR, OD and Training. All of these functions share the same goal: helping to create a great place to work. All of these functions need to communicate the same philosophy, the same values and the same messages about what the organization is trying to achieve and why. Even more importantly, these functions need to resolve any obvious or underlying conflicts to avoid sending out mixed messages, and the easiest way to do that is to unite the functions under a leader who is fully committed to building common ground and helping people to learn from the different perspectives on the team.

In my three stints as top HR leader, this was always one of my goals, and I ran into the same obstacles every time. Training and OD people often resist being associated with HR because HR has the reputation as The Department of You Can’t Do That! OD people in particular tend not to want to get their hands dirty with such pedestrian issues as compensation and benefits, and some of the more snooty OD people view HR people as “less than” in terms of education and intellect. For their part, HR professionals receive very little real education in change management, organizational development and learning theory, and the education they do receive in these fields is fairly superficial.

So, the first thing you need to do is . . . educate them all! Show the HR people that their initiatives would be much more successful if they approached them as change-and-learning initiatives instead of program roll-outs. Show the OD people that many core messages and values emanate from HR, from the wording of policies to the priorities of the sales compensation program, and those messages must be considered as a factor in any careful analysis of the culture. Show the training people that both HR and OD need their expertise in both direct message delivery and in developing teaching skills that make learning an exciting experience. In other words, you have to convince them that they have much to learn from each other and that collaboration will lead to better outcomes for all.

Once you educate them on the philosophy, the next step is to put them together on a project so they can learn from each other and use those learnings to improve the outcome. Benefits is a great place to demonstrate this because it covers all the bases (and if you don’t think that revamping your health plan in today’s environment constitutes a major change-and-learning initiative, you’re crazy). Benefit design choices are loaded with messages about how the company views its relationship with its employees (OD); the complexity of choices and the shift to consumer-driven health care requires education (training); and the plan must remain competitive with a very dynamic market (HR). Cut OD out of the loop and you could wind up with a benefits plan message that contradicts the messages of your culture change initiative, weakening the effectiveness of both initiatives and creating unnecessary cynicism. Leave out the educational component of benefits and you create a legion of frustrated and confused people who will likely conclude that the company is not telling the whole truth and nothing but the truth, thus damaging the trust that is needed to support most HR and OD activities.

You’ll find an equally powerful opportunity in HR policies. Seriously!

At one company, we implemented a massive leadership development program based on a message of personal responsibility. Since you can’t expect people to build personal responsibility unless you allow them to make choices and experience the consequences, we encouraged leaders to manage people by giving them choices rather than imposing solutions. Somewhere in the middle of the initial program roll-out, one of the HR people, who was in the midst of expanding her skill set to include OD and Training, pointed out that our policies were sending a contradictory message. They were telling leaders and employees what they had to do instead of giving them choices.

I was a bit embarrassed that I hadn’t thought of that, but I got over it pretty quickly.

Following her lead and bringing in other members of the team, we went through the 150-page policy manual and stripped out every sentence that denied people choices except where the law required us to deny choices. The policy manual shrunk from 150 to 14 pages (!) and the slimmed-down version passed the requisite attorney review. When we published our modest little volume, it sent a clear message that we were serious about personal responsibility, and both managers and employees responded very favorably. The combination of empowering leaders and employees to resolve their own problems reduced our employee relations workload considerably, and we went four years without a single lawsuit or discrimination charge.

The power of these three functions working together is considerable. Focusing these groups towards the common goal of workplace improvement increases the likelihood that improvement will actually take place. While it’s possible to build collaboration between different departments, my experience tells me you get more through organizational integration. With everyone on the same team, you have a better chance to increase cross-specialty learning, unite people behind a shared vision and create stronger initiatives characterized by clear, consistent messages.

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