Avoiding the Embarrassment of a Bad Compensation Plan

There's a lesson in this judgment I'm about pass.

It's a lesson I learned early in my management career. It's also a lesson I learned the hard way… by not thinking... by screwing up. 

Yesterday, news broke that United CEO Scott Kirby backtracked on an unpopular plan to incentivize employees with big bonuses chosen by lottery. In the boardroom, the plan may have sounded excellent. Instead of giving everyone a paltry $300 per quarter, why not pool the money and give one lucky individual $100k in travel, cars, or other luxury items? But in the words of Frank Shirley:

"Sometimes things look good on paper but lose their luster when you see how it affects real folks... It's people that make the difference. Little people like you."

(Name that movie and another favorite idiotic business quote in the comments below)


What Employees Love (and Don't) About Incentives

Employees love incentives. But they don't want their incentives to unfairly positioning them above or below their peers. If a hard-working employee receives a $100k bonus, it had better mean that they worked $100k harder than his or her peers, or at least generated that much more in results.

When someone receives a bonus that isn't attributed to their performance, even if they could use the money, they'll be concerned that their peers will treat them differently, think of them differently, and act differently around them. Their peers (who didn't receive the random bonus) will feel unfairly treated and see their lack of control in the situation. Both sides are obviously terrible.

The lesson? It's simple...

Think long and hard about how you compensate and reward your employees. Spend the extra time necessary to understand how they will feel about your plan, the ramifications it will have on their work and personal lives. Discuss your ideas for your plan with a trusted advisor, an outside consultant, a mentor, a candid employee, or even your spouse. 

Had I done this early in my management career, I would have avoided the embarrassment of rolling out an unthoughtful bonus plan and all the time it took to roll it back. Had United done this, they might have avoided the same. 

For comment: Will you have extra money to dole out to your employees this year? What is your plan? 

About the Author

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Michael Mehlberg


Mike Mehlberg helps entrepreneurs and business owners develop a clear and focused strategy to stand out in their market, outsmart their competition, and achieve maximum sales impact. Grab his free 3-Step Strategic Planning Worksheet to grow your business with purpose and speed.