Employment Operations

Real World Applications: Developing a Bonus Plan

Written by gilahalleli

I got a call from a friend a few weeks back. Let’s call her…Fifi. (She’ll like that). Fifi manages the customer support team of a SaaS company. The company wanted to roll out a bonus program for the team; Fifi had to come up with a structure for the program, that is, how bonuses would be calculated for each team member.  Perhaps I could help?

Just the facts

I asked Fifi to tell me about (1) the service (2) the team and team responsibilities (3) performance measurements and (4) Fifi’s goals. This is what I learned.

The Service

  • Her company provides a B2B SaaS product and has a growing customer base.
  • The company model is that of a relatively small number of large, long-term (at least five-year) contracts.
  • Realization of real benefits and value from the service requires not only a significant investment of customer time and resources for the initial service set up but also active use of the service by the customer on an ongoing basis. No use, no value.  No value, no renewal.

Fifi’s Team

  • They spring into action the moment the contract is signed. They manage onboarding and provide initial and ongoing training and customer support.
  • Fifi tries to minimize employee turnover. Nonetheless, five years is a long time in this environment and a single client can end up being managed by multiple reps over the years. In addition, only a modest portion of each rep’s clients are likely to be up for renewal in any given year.

Performance Measurements

  • Onboarding process completion (amount of time, process success, etc.)
  • Service engagement and utilization (various parameters are tracked using a traffic lights system)
  • Service renewals, upsells and expansions
  • General employee assessment parameters (e.g. initiative, teamwork, attitude)

Fifi’s (and the Company’s) goals

  • Maximize service renewals, upgrades and expansions
  • Maximize new customer acquisition
  • Maximize customer engagement and satisfaction levels (key indicators of future renewals)
  • Minimize support team turnover by maximizing ability to recruit quality employees and then maximizing employee satisfaction and retention

Watch out for pits!

After I had the background, we talked about potential pitfalls in setting up the program.

  • Manager bias. Fifi is human. Like any human, she likes some people more than others. She’s liable to judge the performance of someone she likes more favorably than that of someone she doesn’t.
  • Start-up environment. The company is at a relatively early stage. Things are changing daily. Fifi knows what she needs to focus on now, but that may change as the company grows.
  • Show me the money, Part I. Some clients are more desirable than others. If payout is tied to contract value, not only will there be more competition (and hard feelings) over larger clients, but smaller clients are likely to be neglected.
  • Show me the money, Part II. Team members regularly have to cover for one another.  People go on vacations, maternity leave and so on.  If team members only get payouts for their clients, and not the clients they are covering for absent co-workers, the orphan clients are liable to suffer drops in service.
  • Lack of confirmation. Service periods are five years. Let’s assume that around 20% are set to renew this year. That means that 80% won’t, so Fifi won’t have that as a yardstick. And even the ones that are up for renewal may have had various support reps over the years.

Based on the above, I made the following suggestions to Fifi.


Achievable. A program with goals that are so lofty that no one will hit them will do little to incentivize employees to work harder.  Because, why? On the flip side, a program where the goals are so low that even the office slacker gets a fat payout will also offer insufficient incentive to work hard (and will result in the company paying a lot of money for little benefit).  I suggested to Fifi that she set program goals with a range of reward levels. Most solid employees should hit at least the minimum threshold for a payout, with the bonus amount then progressively increasing based on superior levels of achievement.  Fifi knows the maximum bonus she can give is equal to the employee’s monthly salary. We agreed that most employees should almost never get the full bonus but that it should not be impossible for this to happen—just super challenging.

Goal oriented. I suggested to Fifi that she break down the program into an individual portion and a team portion and that the individual portion be further divided between “hard” elements (e.g. customer satisfaction and onboarding statistics) and “soft” elements (team player/ helpful). For each element, she needs to decide, in advance, what the goals are. These will vary from year to year based on the company’s goals. For example, this year it might look like this:

Team Portion Individual Portion- Hard elements Individual Portion-  Soft elements
Overall client satisfaction rate

Overall client engagement rate

Overall contract renewal / contract loss rate

 

Average client query response time

Average onboarding process time

Average client engagement rate

Renewals and upsells

Client complaints or compliments

Attendance

Attitude and personal skills

Ability to work in a team

Co-worker complaints or compliments

Other items (e.g. stellar performance on a one-off side-project)

Note that ensuring that the whole team will earn money if clients are happy and engaged overall and that the whole team will not earn that money if the overall statistics drop, will encourage team members to work together and help each other out.

Measurable.  It’s important that employees feel that they are being treated fairly and that they understand where numbers are coming from.  I suggested to Fifi that, as much as possible, she link the various program elements to things that can be objectively measured.  For example, to assess customer engagement, build a numerical score based on the traffic light system and derive an overall average. To measure onboarding time, determine what constitutes a full setup, and simply count the number of days between contract sign-off and completion of the process.  While she will probably need to adjust these somewhat for client-specific considerations (e.g. an excessive onboarding time due to the client point of contact being on maternity leave, or a complaint from a notoriously nasty client), the statistics will provide a reasonable starting point.

I further advised that, for the areas that are harder to actually measure (e.g. “team player” or “attitude”) she make a good faith effort to assess employees based on how they function within and contribute to the team and the company on a professional level and not based on their friendships with her or with other team members. A top-performing employee shouldn’t be penalized because they are reserved or refuse to go to after-work happy hours and a barely mediocre employee shouldn’t get extra because they are a social butterfly and everyone adores them.  Taking an extra minute to compare the employee’s “hard” elements ratings with their “soft” elements ratings may uncover cases of unconscious bias.  (Not to mention mentally asking “if I liked this person, would I care about X”.  If the answer is “no”, the problem is quite possibly her tastes  or bias and not their performance.)

Flexible. As the company grows and evolves, the incentive program will need to evolve as well.   For example, you might expect a startup for whom each sale requires massive effort to pay higher sales commission rates would an established company with a large established customer base which renews each year with modest expenditures of effort.   You would further expect that those rates would drop as the startup grew its brand and customer base and total sales increased. I suggested to Fifi that she set up the program based on the current goals but to present it to the team as a period -specific “201_ bonus program”.  Each year, she can assess and tweak the program based on developments within the company and the team.  For example, if the company were to roll out a service normally sold for one year periods and not five, she might want to give more weight to renewals in the new program. At the same time, saying that the program is set for a defined amount of time means that the employees know what their goals are and can work towards them. She should not move the goalposts mid-game.  That’s just not fair.

But what if she does need to make a change mid-year?  It happens! My rule of thumb? You can always give more—you can’t give less.  For example….

  • If the company rolls out a new upsell service and wants Fifi’s team to push it, don’t reduce the existing program, but create a little add-on program which rewards sales of the new product. No one will complain about having the chance to make more money.  🙂
  • Where current program goals are found to be not achievable, Fifi can tweak the program to make the goals more reasonable (that is “giving more”— moving the goalposts in the employee’s favor— so it’s fine).

At year-end, when Fifi designs the next year’s program, she can take these mid-year tweaks into account and can simply incorporate them into the new plan.

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gilahalleli

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