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New Production Manager Position, how to structure pay/bonus

nitrousmudbogger

Aluminum
Joined
Feb 12, 2013
Location
Belgrade, MT
Im forming a new position for Production Manager. A current employee is slated for the position. Im trying to figure out how to structure pay. My plan is to keep him at the same hourly level and add in a production bonus.

I cant seem to figure out the bonus. For example this month no one noticed we are almost out of a key product that we have to buy for our products, now shipping is delayed 2-3 weeks as a result. Well next month he would get a bonus for a high number of units shipped because of Dec screw up. A bonus for a previous month screw up doesnt sit well.
 
You better have a very top notch accounting program if you are going to pay bonuses monthly. It can create an incentive to game the system, with more effort going into obtaining bonus payments than into actually doing the job. And be careful you incent the things you really want your new Production Manager to improve. You WILL get exactly what you incent, but it may not be what you desire.

One bonus method to reduce gaming the system is bonuses are figured on a yearly basis but receive quarterly payments. The quarterly payments are then reduced by a significant percentage early in the year due to uncertainty.
 
My take on this if you do monthly or even quarterly bonus payments is he is gonna see it one way and you another even if you tried to put hard numbers on it shit happens that can cause delays and again he is going to interpret his bonus amount one way and you another. Will lead to nothing but trouble and headache.

Work out how much this position if ran correctly will increase profit for your company, bump his salary up a percentage you feel comfortable with.
At the end of the year based off his performance pay a one time per year bonus and be done with it.
Most important of all, be fair. If he knows his shit he will know if he exceeded expectations or failed them and will be expected to be compensated accordingly.
If lack of key products keep delaying orders then its time for a new production manager.
 
I cant seem to figure out the bonus. For example this month no one noticed we are almost out of a key product that we have to buy for our products, now shipping is delayed 2-3 weeks as a result. Well next month he would get a bonus for a high number of units shipped because of Dec screw up. A bonus for a previous month screw up doesnt sit well.

If there's no inventory control currently, and you're the owner, then the lack of needed product is on your shoulders. Before you establish a Production Manager position you need to have a clear outline of what that person's duties will be, and how they will achieve them. Will they be speccing an inventory control system, controlling programming and manufacturing workflow, and will they be in charge of purchasing? Does the current employee have the background (and the support from you) to succeed at his job?

Aside from all that, it sounds like this person's responsibilities will be high enough that they should be getting a proper raise, not just a bonus on some TBD metrics. If the person can do a good job, it'll be well worth a 15-20% pay increase, as they should be improving the company bottom line by much more than that (like making sure there's no delays in getting products shipped).
 
You can't figure it out because you're trying to avoid doing it right. If you're making him an honest to god manager, make him an honest to god manager. Pay him a salary and set expectations.

If you're just trying to get more production out of existing employees, set up a piece rate system instead.
 
If you're just trying to get more production out of existing employees, set up a piece rate system instead.

But have a good quality control and parts segregation system in place. Don't want "iffy" pieces getting through just to have a few more bucks in someone's pocket. And you don't want parts recycled or otherwise abusing the count.
 
I keep saying this at work,......I work in a mine, so bear with my train of thought..

Bonuses should be based on availability of equipment, tooling supplies materials etc.(ETSME) Not favoring how much went out the door. Why? on the reactive maintenance side of it. The management "saves money" by not doing the proper planning, maintenance, scheduling.ETC.... If the bonuses are paid based on product moved vs availability of (ETSME) then the product pays out every-time, but everything else is shoved to the sidelines. I see this everyday in a fortune 500 company.

You should have an average of everything you need to produce and a min / max quantity of each.

Defined responsibilities / targets that allow the payout of a bonus. if the targets are not met no bonus....
 
I see two ways to go about this.

One is pay him more outright. I believe this should be done to begin with if he is moving from managing himself, to managing this abstract entity called "production"... This comes with the expectation that things will go smoothly, as well as thoughts toward process improvement.

If a major boost in productivity is achieved, give him a bonus anyway - a bonus is just that, a bonus; a gift or reward. My worry would be if monthly, quarterly, or even yearly bonuses are mentioned as part of his advancement, it will be expected, in exchange for the added headache.

The other, if production levels are satisfactory or better (that definition is up to you; whether it be a higher profit margin or a going a certain period without a late delivery, etc.), reward him periodically. But I would not set this up explicitly in his advancement, as I said above, out of concern for it becoming an expectation.

I guess my point is, if you expect something from this position, regularly, pay accordingly. If he does go above and beyond, add to it. Bonuses can be given at any time for any reason! If the person is not able to meet base expectations, then either reduce the pay level to match the lesser requirements, or...

If you go the bonus route, perhaps wait a quarter or something before you start looking to give him bonuses. That way any kinks get ironed out, and everything forward falls on him.

Man, I hope that made sense.
 
I see two ways to go about this.

One is pay him more outright. I believe this should be done to begin with if he is moving from managing himself, to managing this abstract entity called "production"... This comes with the expectation that things will go smoothly, as well as thoughts toward process improvement.

If a major boost in productivity is achieved, give him a bonus anyway - a bonus is just that, a bonus; a gift or reward. My worry would be if monthly, quarterly, or even yearly bonuses are mentioned as part of his advancement, it will be expected, in exchange for the added headache.

The other, if production levels are satisfactory or better (that definition is up to you; whether it be a higher profit margin or a going a certain period without a late delivery, etc.), reward him periodically. But I would not set this up explicitly in his advancement, as I said above, out of concern for it becoming an expectation.

I guess my point is, if you expect something from this position, regularly, pay accordingly. If he does go above and beyond, add to it. Bonuses can be given at any time for any reason! If the person is not able to meet base expectations, then either reduce the pay level to match the lesser requirements, or...

If you go the bonus route, perhaps wait a quarter or something before you start looking to give him bonuses. That way any kinks get ironed out, and everything forward falls on him.

Man, I hope that made sense.

It did...to me, anyway...:D
 
If you want a manager pay him like a manager. If you don't understand the difference between a machinist and a manager then you have a real problem. Being a manager is hard work, lots more headaches, and anyone that will take the position without a boost in pay probably is in for culture shock.
 
Im forming a new position for Production Manager. A current employee is slated for the position. Im trying to figure out how to structure pay. My plan is to keep him at the same hourly level and add in a production bonus.

I cant seem to figure out the bonus. For example this month no one noticed we are almost out of a key product that we have to buy for our products, now shipping is delayed 2-3 weeks as a result. Well next month he would get a bonus for a high number of units shipped because of Dec screw up. A bonus for a previous month screw up doesnt sit well.

The bonus for a screw up may not sit well with you. I understand why.
However,
How much extra stress, turmoil, headache, and effort do you genuinely expect him to deal with for the same pay?
Shouldn't expect a great job for long. By the time he gets good at it, he will be sick of it.
 
IMHO your train of thought has already failed, your worrying about how to mesure his performance when you have a problem thats already affecting business income. FIX the problem THEN WORRY ABOUT THE BENEFITS!!! Way to many people in large companies spend way too long ego stroking whilst the place folds around them.

Key thing in being in business, buy supplies in make product and sell it at a profit, get distracted from that at your own peril.

Bonuses should be based on company profit, not sales numbers, not shipped in time etc, because at the end of the day, the profit numbers the bit that matters. Higher the profit the more funds are available to improve next year.
 
There is nothing wrong with bonuses and incentives being part of management compensation, it usually is I'd say. The concern the OP expresses is universal. the most basic truth of management is you get the behaviour you measure and reward....and as soon as you change the formula the law of unintended consequences kicks you in the ass.

I'd have something qualitative in there vs just a formula - ie the key metrics are on time, on budget scrap rate (whatever) and here is our historical high water mark, ie here's the best we've done and now with a dedicated manager think we should strive for that continuously. Your bonus will be based on meeting or exceeding these key metrics as well as being a key player toward overall profitability, employee and customer satisfaction (whatever fits).

might sound like BS, just made it up......but the idea is get something qualitative so you have wiggle room in the case of some clever sod figuring out how to game the system but at the cost of some terrible unintended consequence
 
I have seen many times in large companies that the CEO is paid to raise the stock prices--this is his incentive. The CEO does raise the stock price, but wrecks the rest of the company while doing this. This is the "law of unforeseen consequences." Be careful!

Best wishes --- Allen
 
If you need this guy to MANAGE, then pay him a salary to manage. Pay him a yearly bonus based on company profit. A low-cost manager is of no use to your firm, or you. Regards, Clark
 
The bonus needs to be based on profits. If it is based on production what happens if a 15% increase in production is achieved with a 20% increase in costs? Not sure what you make and what machines you use to make it, but it is very easy to speed things up past the breaking point.
 
Pay him a manager's salary. As for a bonus, if he really is helping out give him a small piece of the pie. That will directly influence how he manages. The better the company does, the more it pays out to the share holders which directly affects his pay.
 
Pay him a manager's salary. As for a bonus, if he really is helping out give him a small piece of the pie. That will directly influence how he manages. The better the company does, the more it pays out to the share holders which directly affects his pay.

A small piece of a privately held company is worthless. You have no voting power to influence the company decisions and you can't sell the share(s).

Might just have some value if there's a dividend stream and a guaranteed buyback policy.

Back in the late 1990's during the DotCom boom everyone was offering halfway decent coders a share of the company in return for accepting a shit salary prior to IPO. I worked on the principle that if they couldn't afford to pay me now, my chances of collecting weren't great. Never regretted that attitude.

PDW
 
Lots of ways to guess at it.

First is you!

What will the manager actually manage meaning will yiu stay out of the way so to speak.

Yes it is salary job but 50 hours usually expected so bonus is expected but bonus MUST be measurable repeatable and reasonable and some pro rating to allow partial bonus on some with solid triggers that are within his control to must be met for payment..

Reducing scrap rate and increasing productivity are both 100 % in their control as both are work culture related.

Profit not so much as quoting skills effect it so profit MARGIN is somewhat in control as the labor part can effect it so determining margin of manager controlled things.

Yes it can be complicated but providing lots of ways to establish the bonus helps both you and the shop.

Sent from my SAMSUNG-SGH-I337Z using Tapatalk
 








 
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