Bump Employee Bonuses

January 29, 2013 07:29 PM

A long-term incentive plan drives success

Most farmers think about employee bonuses only at the end of the year, but experts recommend considering an incentive program that drives results throughout the year.

"It’s in the farmer’s best interest to align employee goals with that of the farm. Consider how much more of an effort will be made if employees know they are close to meeting their goal."

Bonuses are good, but they can have unintended consequences, says Raquel Lacey Nelson, a senior associate with The Context Network, an agricultural business management consulting firm. "It can be hard to manage employee expectations if bonuses vary. Even then, employees don’t associate the bonus with their day-to-day actions."

Incentive programs clearly communicate the goals of the farm and of the position, while motivating employee performance. "This requires farmers to be proactive and purposeful," Nelson says. "You have to think a year or two in advance."

The need to formalize policies and procedures increases as a business moves from sole  proprietorship to a partnership and more people get involved, explains Barb Dartt, a partner at GROW: The Family Business Advisors. "Everyone comes to the table with different perspectives and values, which can be invaluable to a business as long as they all have the same end result in mind," she says.

Three Plans. Creating a long-term incentive plan can be intimidating. Nelson helps lay the groundwork. Employee incentive programs need to be tied to specific goals that drive specific behaviors, which can be set for an individual, team or division.

The four kinds of plan are: farmbased incentives, team-based incentives, individual incentives and spot cash awards. Farm-based incentives are best when an individual can clearly tie their contributions to the larger operation. Team-based incentives fit best when units are more stand-alone than integrated and the environment is stable at the group level. Individual incentives are best when groups consist of individual contributors and expected results are clear and stable. Spot cash awards work when make-or-break projects are well defined; awards must be administered with utmost fairness.

Farmers should ask themselves: What do I want to achieve? How do I achieve and measure it? How do I communicate and monitor it?

"It’s in the farmer’s best interest to align employee goals with that of the farm," Nelson says. "Then everyone is moving in the same direction. Consider how much more of an effort will be made if employees know they are close to meeting their goal."

An incentive program’s success hinges on communication, Nelson says. As the employer, you must be able to say, "The performance of our business did not deliver the incentive opportunity we had expected."

Dartt says an incentive program is not for everyone. "It requires a fair amount of management and communication, which means leadership needs to add that to their repertoire of skills. You can’t avoid conflict and difficult discussions; you must be able to discuss criticisms."

Whether you decide to continue giving bonuses or switch to an incentive program, Dartt says, it’s important to get to know your employees and what motivates them. Get creative with time off, baby-sitting and child care, recognition, increased responsibility, professional development and continuing education.

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