Not a month goes by at Meridian that a reader doesn’t call to ask advice about a store manager bonus program. The caller usually begins by saying that their bonus program doesn’t work anymore, or never did the way they had hoped, and couldn’t we just send them one that did.
Unfortunately, we learned that it could be detrimental to your company for us to provide boilerplate bonus programs. A few years ago at Focus on Finance during one of our roundtable sessions, we had attendees bring and trade off their bonus programs. One attendee’s program had produced tremendous profits.
Of course, all the attendees thought they had found the Holy Grail of Bonus Programs. The attendee who designed the program even made copies for all the other attendees, and everyone went home to try the “super manager proven bonus program.” Not only did the program not work for most of the companies, some lost formerly loyal managers!
For a manager bonus program to be effective, it has to dovetail with the objectives and challenges of your organization. A bonus program must be a constant work in progress,
changed no less than annually according to adjustments in your overall company goals. In addition, the bonus program must be achievable, controllable and fair.
For instance, a bonus program should not be based on bottom-line store profit if store managers do not control the price/margin on fuel. When a home office controls fuel margin, managers must be compensated only on inside revenue and expenses that they can and do control.
Bonus programs can be used to effectively manage problem areas such as inventory shrink. Once a specific problem is cured, this item should be deleted from the bonus program and a new problem substituted. For instance, employee turnover could replace the shrink item. In other words, bonus pay programs should be reasonably dynamic and presented to managers as the “current” bonus program, not “the” bonus program.
Companies who report the greatest success with bonus programs usually have some form of open book management. Managers see store performance data, help set goals and monitor their own progress. Because of the diversity of store locations, sizes and offerings, many companies find it most effective to offer different bonus programs to different managers within their chains. For instance, a 4,500-foot interstate store may have a different bonus program than a 2,000-foot in-town location.
So, the best way to achieve an effective bonus program is to set corporate goals, know how your store operations are expected to integrate with those goals, design store goals that support the corporate goal, and then develop manager bonus programs that support those specific initiatives. It’s not fast and easy, but it works.
If your bonus program is presently ineffective, stop the program immediately if you can do so without losing key managers. Your managers will then have a vested interest in helping you design a program that makes sense – one that is self-funded by new store profits.