How much of a raise or bonus are you giving your employees? ~ One of the questions I get asked from the practice owners I dealt with.
From experience, it is much better to tie remuneration to performance. I prefer to pay a bonus based on an “increase in the pie” (share in increased profits) rather than giving an increased salary (larger slice of the pie) other than CPI increases and meeting market rates.
If you give someone a larger slice of the pie than someone else gets a smaller slice of the pie, namely shareholders so it is not a win/win.
However, when you share in an “increase of the pie” then everyone wins.
If you do not tie salary to performance, then you will encourage an environment where those who complain the loudest will get a higher salary increase over those who achieve results.
Naturally, it is much better to create a culture based on performance and not on complaining.
We do this by measuring each team’s profits and we pay a bonus based on over-achieving their team profits.
A reasonable return on my capital as a shareholder would be 25% and anything above 25% is then shared with the team.
For example, if the team achieves 30% EBITDA, then 5% is shared with the team. If they only achieve an EBITDA of 22% then no bonus is payable.
(Note: if valuation/ capital is based on dollar per dollar of turnover than your EBITDA represents your return on your capital).
I hope this helps.
Ed Chan | Wize Mentoring
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- How much of an increase and bonus should you give your staff? - 2 June 2023
- What to do when an employee makes a mistake - 28 April 2023
