When it comes to farm and food business success, it always circles back to the people. If your people aren’t good, your business isn’t good. If your people aren’t committed, your business won’t last.
Bonuses are a great way to build employee investment and reward good work. Good bonuses can increase compensation, improve efficiency, and drive profit. They should be carefully planned and clearly communicated across the company.
In this blog post, we’ll explain the basics of bonuses, the three varieties of bonuses best suited for farms and food businesses, and provide examples of bonus structures that you can use.
Basics of Bonuses for Farms and Food Businesses
Successful bonuses require planning. They aren’t a few hundred dollars in an envelope at the holidays or a random distribution of profits at the end of the fiscal year. Good bonuses tie to specific behaviors. They encourage the forward progression of the business as a whole.
Here are my 6 rules of bonuses and incentive plans:
- Build bonuses to drive specific behavior. Be explicit about what the bonus will reward and why that behavior is important to the business as a whole. For example, a bonus could be tied to days without an accident on the kill floor, bushels of vegetables harvested, or revenue brought in from the farmers market stand.
- Bonuses need to be clear. Employees should know exactly what they need to do to receive a bonus and the amount of bonus they will get if they succeed.
- Bonuses need to be time bound. Set an expectation for what will occur in a set amount of time. Try testing bonuses for a quarter to start, or leave them a bit more flexible so you can take them back if they’re not working.
- Bonuses need to be measurable. And they need to be measured frequently. Data collection is critical to a successful incentive plan. Try to collect the data as close to daily as possible and share it with the person getting the bonus. The measurement needs to be in units that the person getting the bonus understands. For example: if you’re tracking labor, measure the hours of labor not dollars of labor. This is especially relevant if the staff member is doing their own tracking – for labor, the measurement they can access is hours worked.
- Management reserves the right to revise the bonus at its discretion. If a bonus isn’t helping stakeholders achieve their goals or if safety or quality issues occur as a result of the bonuses, then it needs to be revised. Sometimes, what you intended to incentivize simply didn’t play out as planned. That’s ok – just revise the bonus!
- Bonuses need to serve ALL stakeholders. The behavior driven by the bonus should result in a scenario where:
- The company makes more profit and is more resilient,
- Employees are safer and make more income,
- Vendors feel more connection and greater desire to do business with you,
- Customers get better pricing quality and service and,
- The community and environment improve as a result.
When bonuses follow these guidelines, they are intentional, beneficial for your business, and more likely to be successful.
Three Categories of Farm and Food Business Bonuses
Management Bonuses
Management bonuses tie to the net profit of the business, the same element that ownership is generally focused on. Give these bonuses to managers to share the overall business success.
In general, a management bonus is a percentage of their base pay. The amount of the bonus will vary depending on the company and individual, but it should be enough to create an incentive. This bonus should be divided into two sub-types: quarterly and yearly.
Quarterly bonuses encourage smaller, quick successes and should each be equal to a smaller percentage of the manager’s base pay, likely around 2-3%. They get paid out if the net profit for the quarter exceeds the net profit for that quarter the previous year. The purpose of this bonus is to encourage growth and improvement year over year. It should be paid out within 30 days of the end of the quarter provided the manager is still employed and in good standing.
A yearly bonus is designed to keep the employee engaged, retained, and focused on real improvement. It’s generally worth 5-10% of the manager’s base pay and gets paid out if the net profit for the year is higher than the budgeted net profit. This bonus should be paid out within 90 days of the end of the year provided the employee is still employed and in good standing.
Tactical Business Goals
Bonuses based on tactical business goals could be a budgeted percentage of an employee’s base pay or of profits, depending on what will maintain overall business profitability. There can be one tactical business goal bonus at play or a combination of multiple.
An example of a tactical business goal bonus is one based on efficiency. In this instance, the goal is for the team to beat their budgeted labor rate for the month. The rate is measured in hours and the bonus varies between $.25 and $1.50 per hour worked. The efficiency is tracked on a weekly basis so the employees know how they stand with regard to the bonus and then the bonus is paid out on a monthly basis.
Reward for Doing Your Job
The final category of bonus is a short-term, reinforcement type bonus for meeting the basic requirements of a job. Use this bonus sparingly and only for a quarter or two at a time. Bonuses in this category include:
- Quality bonuses – A small, flat rate bonus for no quality issues for a period of time. This bonus is very optional and should only be used occasionally.
- Retention bonuses – A bonus given at the end of each year of the individual’s employment. The amount of the bonus is at your discretion. Make sure that it’s enough to motivate a person to stay, but not so much that it overly taxes the bottom line of the business.
These rewards for doing the job should not make up the bulk of an individual’s bonus potential, but they can be useful to accomplish specific goals or recognize service.
Bonuses do work. They create an incentive and reward to influence behaviors. Sometimes there are some unintended results, too. When you create a bonus plan, if there is a result that you didn’t expect, don’t stop—rather change and keep modifying to get the results you want.
Bonuses are an important people management tool. When used thoughtfully, they lead to benefits for all stakeholders of the business.