Archive for September, 2012

The Good, the bad and the ugly of bonus schemes

Bonuses have come under intense scrutiny since the recession, particularly in the banking sector where they have generated public outcry. But despite being viewed as excessive and unnecessary by media commentators, the truth is the majority of businesses continue to value bonuses as a way of encouraging better performance and motivating their employees to boost profits – not just in the financial services industry.

For a bonus scheme to be effective, businesses need to design their system carefully to ensure they achieve their objectives. A poorly prepared bonus package can have the opposite effect of your intentions and serve to de-motivate and devalue staff rather than inspire them. This is often the case when the bonus is unobtainable and unachieved, causing employees to lose faith in the system. In these circumstances, teams tend to start blaming each other for the failure to meet performance targets generating a mood of unrest.

Businesses considering implementing a bonus scheme should introduce quarterly rather than annual bonuses as this provides a greater degree of flexibility. This allows business owners to modify goals every three months to fit the business’ needs and will draw more enthusiasm from staff who can see results quicker.

When setting bonus schemes, business owners need to decide whether staff should receive a percentage of the bonus even if they don’t achieve every target and whether to include a range of goals rather than just a single, annual financial target. Profit-related schemes don’t work unless you have less than 10 employees because otherwise the majority of your staff have no way of influencing profitability. On the other hand, if the bonus scheme is to be performance-related, senior management needs to agree whether it rewards everyone or just certain individuals.

It is estimated that 80% of businesses use bonus schemes yet often the outcome is disgruntled employees. Once introduced, the bonus scheme becomes expected and anything other than the bonus being paid is a bitter disappointment.
Schemes either

A) Don’t pay out

B) Pay out less than what was expected

C) Pay out much later or

D) Pay out once or twice before being cancelled.

What message does this convey? That the company is not performing very well.

There’s no evidence to support the lasting effects of bonuses yet 64% of companies believe them to be effective in helping to meet organisational objectives. The most popular reasons for introducing bonus schemes include:

  • To improve business performance
  • To focus employee efforts
  • To increase staff motivation
  • To allow employees to share in the success of the business
  • To encourage change
  • As a way of rewarding staff without permanently increasing the wage bill

Bonus schemes can be a double edged sword!

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How do you value corporate entertaining in 2012?

Most companies are still motivated to entertain their existing and new customers as a way of nurturing relationships and ultimately boosting profit but many find themselves restricted by budget, time and resources, especially during times of recession. The dilemma facing any business owner wishing to improve their connections in today’s economy is to work out which events or functions are going to bring financial returns to the business and which will be fruitless.

So how do you make corporate entertainment worth the time and expenditure and how do you measure the value it has created?

Entrepreneurs should not automatically dismiss all corporate entertainment experiences as worth it just because they are ‘building’ relationships with either their customers or their employees. A return on investment is essential. For every £1k spent on corporate entertainment, the business should be looking for a return of at least £5k over and above what is already coming in.

Organising corporate functions or events is a good way of cementing relationships, enticing new ones and raising brand awareness but don’t do it on the cheap – it needs to be memorable.

It’s important to set a budget for entertaining and stick to it. Look at individual customers and assess the net profit they contribute to the business and how this can be increased. When it comes to the invitations, get the right balance of new and current customers.
Existing, happy customers can boost the confidence of prospective clients and are likely to say the right things at the event to improve your profile but pick your guests carefully. It’s also important to fill empty spaces with the right people not friends to ensure you maximise your investment so it’s always worth sending out the invites well in advance of an event.

When it comes to holding or attending corporate events don’t just send the sales team – the owner should be present to promote strong, genuine relationships.

Spectator sports are among the most popular corporate events as well as golf days, races, concerts and awards dinners. As with all entertaining, it’s essential to be clear about the objectives which should be strongly linked to long-term corporate goals as this will have an impact on the outcome.  But clearly a memorable event will increase your access to a customer over the following months, and then it is up to you to make the most of it.

This article was taken from a discussion at a Business Exposure Group event.

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