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Employee Compensation Thoughts - Quarterly Bonuses

Attracting and retaining good employees at competitive and affordable hourly rates is a challenge in the machinist labor market today. Raising pay scales is often necessary. But that can bite back if you go too far and the labor market cools and business slows. Then hard decisions have to be made. Maybe layoffs...

That said, quarterly or semi-annual bonuses during good times are very rare. Am I wrong or is my sample size too small?

Wouldn't bonus checks mitigate the need for trying to determine some magic number pay scale for the complexities of changing markets and business cycles?

Could a $1K to $5K+ bonus check for certain quarters create a shop culture where employees would have a feel for the ups and downs of the business cycle?

Or would, as a friend suggested, there be too much employee bad-feeling and resentment when bonuses go to zero for some quarters? He made the semi-rude observation that zero bonuses would lead to "meltdowns" with "certain employees".

Or, is this maybe just a tool for very large firms?

I don't know if this is reasonable. I come from a more CAD and software company mindset where bonuses were common and considered common-sense incentives for getting and keeping talent. And I read free-market economics books and blogs (Hayek, Friedman, Taleb) as a hobby. So maybe I'm clueless regarding the culture here.

Give Daniel Pink's book Drive a read or listen. To sum it up, incentives don't work and more often than not negatively impact performance. Essentially, a business just needs to pay their employee's well to begin with, then the question of money shouldn't ever come up. As far as bonuses go, give them out unexpectedly and try not make them seem expected either.

Culture is hard thing to establish/maintain. Takes YEARS. One bad apple can ruin it all too. And if that bad apple is a manager, your business reputation in the local area is at stake.

A good reputation will attract talent. "I hear xyz pays well, has great bene's, and ample PTO". That's only half the battle. The other half is when they get in the door they need to be met with a workforce that works hard and does cool shit. Keep your programmers/machinists in good communication. Encourage them to try new tooling/strategies where it makes sense. Give them the autonomy to get the job done, but be there to support and coach them through the process when and where needed. Challenge them and don't hold their hand. People feel good about themselves when they overcome hurdles and challenges.

That being said. it's pretty rare to have a full group of dedicated folks when you don't have the capital. So, just learn the skills to coach them to be those people. And get rid of all the bad apples as soon as you spot them. Just remember, it takes a LONG time to change culture and have people buy into that. And the first step is to take money off the plate of discussion by paying them well. Give out bonuses randomly when deserved. Don't make it something that's regular and can disappear as that adds additional stress.

Our shop has quarterly profit sharing bonuses. There's been years when things were so slow that there were no bonuses and we had to go on work-share just to keep the doors open without lay-offs. Last year was the busiest I've ever seen it and the biggest profit sharing bonuses I've seen. It's nice to be rewarded for working hard

The shop also matches up to 5% of our wages to put into RRSP's (Canadian version of 401K) which is also nice.
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We do profit sharing here. Based on some formula that accounting knows of profit for the quarter. All 14 employees get the same bonus. We do post monthly sales, but never discuss any hard margin numbers.

The profit sharing has averaged at least $2/hr over the last five years, so I feel it's steady enough to mention it when hiring, but it's not guaranteed. And if you ask the guys, of course they would rather have more base pay and less profit sharing, but if you ask the owner, he would rather them have less base pay and more profit sharing.

Our business cycle is a little seasonal here. One quarter you may only get $200, the next quarter it could be $1000.

I'm for it, but be honest and completely transparent about it. And be realistic. Worst thing would be to set it up and then realize it's costing you too much money and not pay it out.
No matter what type of bonus system is in place, humans will find a way to game it.

The place I work at, we have quite large monthly bonuses if we meet our monthly goals. Think $1000+ monthly for employees that have been with the company for a while.

It certainly provides an incentive to work harder. At the same time, I have seen managers focusing on lower priority work orders at the end of the month because they want to hit the goal, instead of doing work orders in priority. They instruct their workers to do easy and quick work orders so they can cross the threshold.

Also there are definitely some employees who start to view the bonus as part of their base pay, and they become upset when the bonus is not large enough.
Just to echo several of the comments; profit sharing has its benefits, but as the company grows this becomes hard to manage/continue. One of the companies I worked for paid a yearly bonus. One year we got an 11% bonus. Corporate decided after that, even though we produced the product to earn the bonus, it was too big of a payout and canned the whole bonus system. Bean counters and what not. Management still got their bonuses, 3x, 5x, 10x, but hourly no longer.

My personal favorite system was a company whose owner, if they saw you doing a good job, putting in extra work, or you came up with an idea/improvement, would hand you cash, out of their pocket, sometimes (rarely) amounting up to a months wages.

Personally, I would rather have a company invest in me, than an occasional bonus. I would have rather the tools to make my job quick, easy, and free of frustration. I would rather have creature comforts, than another $1 in my pocket. I've worked in places were my bench was 104 at 5 in the morning, and 48 at the peak of the day. I've worked at places that it was nearly impossible just to do your damn job because of the bureaucracy internally, lacking tools/tooling/gauges, etc.
My first big boy job had an all hands meeting at the end of the year and I was new to the position having had only been a bottom of the totem pole employee prior. The subject of bonus' came up and was discussed at length for many hours and I was indifferent to it because the only kind of bonus I had ever been given up to that point was a frozen turkey before Thanksgiving one year. So they asked me what I thought and I said it wasn't a big concern to me at the time. Others, it was getting to the point in the meeting that I thought some of them were going to quit over it.

I found out a year later that those people had been getting $10-40K year end bonus' like clockwork for years and I then realized why it consumed their thoughts. Of course the bonus plan was done away with so I still never got a bonus more than a turkey. Glad I didn't expect one, or I'd have been mad as well.

I think of a bonus like tips used be in the US, it's for if the person giving the bonus or tip is overly impressed with you going over the top of your normal duties.