INCENTIVE-BASED MANAGEMENT -- Show 'em the Money
Develop an incentive pool based on the amount of Gross Margin (G/Mgn) and distribute bonuses to the team based on a weighted average. When the company does well, G/Mgn improves, thereby increasing the size of the bonus pool, and IC is greater. Tie the incentive at budget to a percent of salary to help the weighing average calculation. Managers will have to control several components to achieve results without losing sight of the end goal.
Pay management incentive compensation based 50 percent upon which the employee is directly responsible, 30 percent on how their performance impacts other key departments (i.e.. how sales can improve production throughput) and 20 percent on their ability to improve equity value or other elements within their control. The intent is to measure performance and, as importantly, cooperation between departments and personnel.
Structure a bonus payment scale in accordance with ‘Worst’, ‘Likely’, or ‘Best’ scenarios. In ‘Worst’ case, few bonuses should be paid because goals were not met. In ‘Likely’ case, pay 40 percent to 60 percent of the full bonus rate. In ‘Best’ case, pay maximum bonus rates. The scale is clearly weighted toward higher bonus for greater performance.
Distributions should be on a year-to-date (YTD) calculation, paid quarterly. So the company doesn’t take all of the risk, pay two-thirds of the YTD bonus at the end of the first quarter, 75 percent at the end of the second, 85 percent at the end of the third and the remainder at the end of the year. This reserve within the company will avoid early payout for exceptional results, without sufficient catchup period if these results don’t continue.
Employees can share in the rewards as they occur rather than waiting until year end—an added incentive.
Direct your general manager to guide the value of the company in terms that an investor or potential purchaser would use to measure the printing operation. The real entity value is based on market value of assets, their ability to produce economic value, the ability of the management team to produce cash and profits on a recurring basis, and on the ability of the company to produce quality products and maintain customers on a consistent basis.