Building Unified Financial Visions

How much financial detail should you provide employees about your bonus/incentive plan? We’ve always preached that for any incentive plan to be effective it needs to be (a) clear, (b) believable, and (c) meaningful.

Clarity relates to both (1) the plan itself, and (2) the results needed to earn the award and to maximize it. Most owners of private
companies are reluctant to disclose specific information about company profit results for fear that employees will misinterpret the information (i.e., conclude that this must be what the owner makes) or under-appreciate it (i.e., fail to realize that profits are the sustaining lifeblood of the organization).

Recently, a relatively new client of ours took the leap and fully disclosed to all employees exactly what the company profit-related goals are. Their new bonus plan is properly referred to as a “value sharing plan.” They explained to employees that the organization creates economic value when everyone works together as a team to achieve desired business results. And when those results are created everyone is eligible to participate in the sharing of that value.

(This is a progressive step forward. The terms “bonus” and “incentive” seem a little dated, don’t they?)

Time will tell how this impacts performance within this organization. I’m betting on continued productivity gains and  improvements. Being honest with employees about what business results are expected and enlisting their partnership efforts in achieving them is a critical step in accelerating business results to the next level.