If your firm does not have a well-crafted system for handing out employee bonuses, you run the risk of creating the haves and the have nots.
2016 was a good year in the domestic A/E industry. Revenues were generally up, as were profits. The results closely paralleled those of the national economy.
Now that the year-end numbers are in, and bonuses have been distributed, I’d like to talk about something often whispered about around water coolers and coffee machines this time of year – “the protected class.” You know what I’m talking about; that project team or group of people within your firm that always seems to have the favor of the boss. It’s okay. Just about every firm has one. But, it’s at the end of year when its significance is most obvious and disconcerting – bonus time.
While many organizations today award and distribute bonus compensation according to a prescribed formula, many still leave it to the subjective discretion of the division manager or office manager. The key word here is “subjective.” In most instances, these decisions are made within a very short period of time, sometimes in less than 24 hours, due to the needs of the organization to post and distribute bonus compensation prior to the accounting department’s official year-end closing. The result? Managers lacking a prescribed distribution formula often make their decisions with brevity and absence of foresight, typically gravitating to what is most familiar in terms of staff, as opposed to what is quantifiable in terms of performance.
In these situations, the process can be further hampered by the organization’s failure to articulate to its managers why the bonus program was installed in the first place. For example, in most organizations the fundamental tenet of a bonus program is to acknowledge and reward performance above and beyond the expected. In most organizations, the intent of bonus compensation is to incentivize staff by directing their attention and their personal interests beyond a basic job classification or performance objective, and toward what is seen as gainful for the firm’s economic success. Often, bonus compensation is also used to acknowledge an employee’s lasting efforts for the firm.
Unfortunately, and in the absence of such direction or a prescribed formula, many managers will use bonuses to acknowledge performance as they would an annual salary review, or to correct a prior inequity in pay with respect to a job classification or peer group. This amounts to a “double-dipping” of sorts for those whose efforts might have already been used to justify a previous salary adjustment. In this sense, awarding bonus compensation to personnel whose base salaries have already been adjusted as a result of their having demonstrated an ability to meet or exceed the expectations of their job, but who have not ventured beyond those expectations or goals, serves little motivational purpose and effectively represents an already rewarded effort.
So what do I mean by “protected class?” Here’s the issue. We can’t pick up the newspaper or listen to the nightly news today without reading or hearing about some inequity or inequality in our society. It’s commonplace. Just as rectifying social injustice has become a mantra of many politicians, eliminating corporate injustice has also been among the goals of many global corporate leaders. In the A/E industry, our individual firms are no different. We all espouse the virtues of working toward a common goal or objective, and how the efforts of every single team and team member will in some way affect the success of our organizations. While some may do so more than others, we recognize the contributions of one team and the members comprising it, yet they are likely to be no more sincere or effective as other teams.
Unfortunately, at the end of the year much of what we espouse falls victim to “gamesmanship” on the part of managers whose firms lack a prescribed formula for the award and distribution of bonus compensation. In these instances, bonuses are prone to being adjusted or even manipulated to the benefit of those who are responsible for distributing them. And, despite the best of intentions, and often adamant denials to the contrary, there is always a protected class, and in your company I’m guessing you know who’s part of it and who’s not. That’s not to say that the “outsiders” are any more or less deserving than the “insiders.” But when it comes to acknowledgements and rewards, the boss always has his or her favorites, and consciously or subconsciously, it generally factors into their decision on who gets what at bonus time. That’s life.
Here’s the problem. In the face of a highly competitive and increasingly commoditized A/E industry, delivering year-over-year performance and driving exceptional outcomes demands impartiality from those who are responsible for awarding and distributing bonus compensation. Anything less will quickly be viewed as favoritism and bias, undermining the tenets on which a firm’s bonus program was based, and the performance it seeks to incentivize.
By the way, that whispering you might be hearing around your water cooler or coffee machine isn’t good. Young employees today want to know what they have to do to advance in terms of their careers and in terms of their compensation. There’s little tolerance for favoritism or bias with respect to promotions, and there’s even less with respect to bonus awards and distributions. And, while having a well-crafted formula that helps drive exceptional economic performance for your firm won’t necessarily eliminate the protected class in your organization, it could very well prevent the issue from becoming a point of discontent around your water cooler later this year.
Marc Florian is vice president for Environmental Consulting & Technology, Inc. He can be reached at firstname.lastname@example.org