[loewenskind]

Personally, I would avoid a bonus system entirely. The latest happiness study I've seen showed that a bonus system is a net loss. The system existing sets expectations, which means you have 3 possibilities: exceed, meet or don't meet expectations. If you meet expectations then nothing changes, the employee got what they expected. If you surpass expectations then the employee gets very happy and works even harder! For about a week.

However, if you don't meet expectations then you cause disappointment, resentment, etc. And if the employee is unhappy this can affect other employees (poor attitudes are infectious). Disappointment is tricky and will be made even worse by your proposed semi-random reward schedule [1].

Personally, I prefer the safer route of skipping any tit for tat scenarios (e.g. "if you do X you might get Y at some point in the future").

[1] With the semi-random schedule there is the additional risk that the employee completed something they thought was a big deal, but you didn't or didn't even know about it. Disappointment by not acting on something you weren't aware of.

[lsc]

>Personally, I prefer the safer route of skipping any tit for tat scenarios (e.g. "if you do X you might get Y at some point in the future").

Well, you can pretend that employment is not a tit for tat scenario... but it is. even with a flat salary, you do what I want, and I might give you a raise. You don't do what I want, and I might fire you. There is really no getting around that.

Now, the discussion here is "should we maximize or minimize those tit for tat aspects of the employee/employer relationship"

>With the semi-random schedule there is the additional risk that the employee completed something they thought was a big deal, but you didn't or didn't even know about it. Disappointment by not acting on something you weren't aware of.

This seems like a very important concern that any bonus system would have to account for in order to be successful.

One way to approach it is to tie the bonuses to company revenue, which is easily measured, and in a company this small, fairly easily moved by even one person. (now as we add more people, it might work less well, as one person might feel like they are carrying other less productive employees... but right now, it's me, the owner, and one full-time employee, so I don't think I'd have those problems.)

I think tying it to total company revenue performance (maybe with a random multiplier or on unpredictable dates? that would be the manipulative part that may or may not be insulting and bad.) would mitigate a lot of the problems you mention of feeling jilted... I mean, you can argue about how hard you worked, or about how brilliant you are, but you can't argue about how much money came in.

[doki_pen]

I think the bonus system can be very effective at preventing turn-over for the better part of the year. If you just hang on a few more months you get that big bonus!

[loewenskind]

It is good at lock in ("sheesh, I've been here for 8 months, I've only got 4 to go. If I leave I could be leaving $20k on the table"), especially since bonus payouts are often months after hearing the number so you've already began earning the next one before you get your current one paid.

The problem is, when you get that "big" bonus and it's not big then you can't help but be disappointed. I recently saw a company lose about 5 key people at one time because of the disappointment caused by this. Before bonus time those people were happy with their job and even their pay. But they all got nice bonus the year before.

In my estimation, that's 5 people they lost by a non-existent problem they created themselves.

[doki_pen]

I call that doing it wrong. When you are hiring, you need to promote the bonus as part of the salary, and make sure you pay most of it, even if tough times. You can skip the raise, but don't skip the bonus. That is penny-wise, pound foolish.

[cynicalkane]

At my company, bonuses are based on a standardized bonus earnings target. The target is unpublished, but the company keeps people updated on the approximate chance of the bonus meeting certain percentage benchmarks. Keeps people from being unpleasantly (or pleasantly) surprised by too great a degree.

When bonuses are paid out this way, I see them more as a way to sort of vary compensation based on market health, while still guaranteeing a fixed salary. They're performance incentives inasmuch as employees are compensated based partly on performance and partly on how well the industry is doing, making compensation market-driven in a loose sort of way.

[nerfhammer]

Disappointment might be mitigated if you use small, unexpected bonuses, e.g. "$100 for whoever fixes the most bugs in the next 2 days!", "Free dinner at Bennigans for whoever can fix this bug that's been nagging us for weeks!"

[lsc]

hm. especially if i don't announce it but spring it unexpectedly, this would be a cheap way to test the theory.

[lsc]

hey, so I talked to my employee about this, and he echoed the concerns in your footnote, and he says "I can't imagine trying for a random bonus" - and it's really his opinion that matters here.

[jjs]

You could tie the bonuses to profits. Problem is, your employees might game the system by making the company more profitable!

[lsc]

Yup, that's what I'm thinking. I mean, its one employee and me, so if we are doing well, he probably deserves something anyhow.

[ladeniran]

"Problem is, your employees might game the system by making the company more profitable!"

How does this work? How's this a bad thing? Do you refer to figure manipulations which I believe as CEO you should be aware of?

[Willwhatley]

I thought he might be at first. On reflection I think the statement is ironic (and well expressed).