The Great Game of Business – Chapter 7 section 1 (part 11 of 17)

Chapter 7 – Skip the Praise Give Us the Raise

There is no more powerful tool a manager can have than a good bonus program. … If a bonus program works, it can be an incredible motivator. It can get people producing at levels that make the cost of the program seem like peanuts, no matter how much you may have spent to set it up.

What a bonus program does is communicate goals in the most effective way possible – by putting a bounty on them. … When you do that, you get people’s attention very fast. … We call it “Skip the Praise – Give Us the Raise,” or STP-GUTR – pronounced Stop-Gooter. Here are some of the things we like about it:

  1. Stop-Gooter is our most effective educational program. We use it to teach people about business.

If the goal is to improve the debt-equity ratio, people learn about debt and equity and how they can affect both. … Whatever the goal, it gives people a big incentive to find out about some aspect of the accounting system, the company, and the competitive environment.

  1. The bonus program serves as a kind of insurance policy on the company and our jobs.

That’s because we use it to target our vulnerabilities. Every year, we figure out what is the greatest threat the company faces, and we get the entire workforce to go after it in the bonus program.

  1. The program brings us together as a team.

It ensures that everyone has the same priorities and that we all stay focused on the same goals. It eliminates mixed messages. … The bonus program forces the problem out into the open. Once it’s there, you can go to work on it. You can solve it.

  1. The program helps us identify a problem fast.

If we don’t achieve a goal, we find out very quickly why we missed it. … The bonus program forces the problem out into the open. Once it’s there, you can go to work on it. You can solve it.

  1. Stop-Gooter is the best tool we have for increasing the value of our stock.

We always set it up to guarantee that the stock value will rise substantially if we hit our targets – and will be protected even if we don’t. … “This Game is all about equity and job security.” Short-term incentives like bonuses are fine, but we want to make sure people never lose sight of the long-term payoffs.

  1. Most important, the bonus program provides the structure of the Game.

It sets the tempo. It keeps the action going week in, week out, all year long. It gives us a language , a way of communicating. It creates excitement, anticipation. … It makes sure that people stay involved, engaged, and on their toes. It is, in short, our most important motivator, which is its primary function.

Bootstrapping: the best reason for paying people with bonuses

I am a strong believer in operating a company, any company, as if its future were always on the line, as if something could happen at any moment to threaten its survival. Most companies do, in fact, follow that principle when they are starting up. … Bootstrapping is a mentality, a set of habits, a way of operating based on self-reliance, ingenuity, intelligence, and hard work. When you don’t bootstrap, you grow fat and sloppy. You get into the habit of buying solutions to your problems. You take the future for granted. … You let your costs rise, and you take your eye off the ball. You get caught up in a lot of issues that have nothing to do with making money and generating cash. The next thing you know, a competitor comes along and knocks you out of the box.

As I’ve said, there is only one sure way to protect jobs, and that is to be ruthless about costs. But least-cost companies face an unpleasant choice. If you want to come in below your competitors, you can (1) pay your people less or (2) make your product faster. That’s about it. No humane person enjoys making such a choice. Who wants to have a business that provides people with the lowest standard of living in the market, or that forces them to work so fast it’s unhealthy? Who wants a company that prevents people from taking care of their families and themselves, from leading a full and happy life? But what’s the alternative if you’re going to be competitive and stay in business?

A bonus system like ours offers a way around this dilemma. It allows the company to hold base salaries at a level that gives people a great deal of job security – that pretty much guarantees they’ll have work so long as they do a decent job. But if people do a better than decent job, if they can figure out ways to improve, the company shares with them whatever additional money they generate by paying them bonuses. The more they generate, the bigger the bonuses. It’s like getting a raise, maybe even a very substantial raise, over and above their regular salary, but in a way that doesn’t jeopardize their future employment. We know we can survive the tough economic periods. We may not pay bonuses in tough times, but we’ll keep going. We won’t lose jobs.

In effect, we’re creating a certain elasticity for the down-times. We don’t ever want to lay people off, and we don’t want to cut wages either. Most of the salary a working person earns goes to cover his or her fixed costs. … I don’t know of anything harder than having to cut basic living expenses.  We want people to be able to count on a certain level of income, but we also want to give them the opportunity to earn more. And they will earn a lot more as long as the company is in good shape and they are performing up to their capabilities.