A. Michael Hiles & Associates Inc.
Michael's Profile on LinkedIn
  • Home
  • Focusing On HR - The Blog
  • About Us
    • What Others Say
  • Our Consulting Process
  • Our Stories
    • Rewarding The Employees Who Built The Company
    • Specialized Tax Consulting Firm
    • Organizing The Compensation System
  • Quebec Pay Equity
    • Frequently Asked Questions - Quebec Pay Equity
    • Quebec Pay Equity - More Details
  • Compensation & Benefits
  • Organizing The HR Function
  • Staff Development
  • Recruitment & Staffing
  • HR Administration
  • Planning & Strategy
  • Performance Management
    • Performance Assessment - Easing The Pain
  • Resources For Visitors
  • Contact Us

Bonus Plans - Simple Rules

23/6/2010

0 Comments

 
Click on "Comments" to see prior comments and leave one of your own.

A
bonus program should have two key elements. First, it must not become an entitlement program where everyone thinks they will get a bonus no matter what. Secondly, the bonus program should be self-financing - the achievements that the program pays out for should improve the company's bottom line by more than the cost of the payouts. 

This means that the individual objectives (whether metrics or MBO-type objectives) must be very carefully chosen, so as to avoid behaviours that are good for the employee and possibly not so good for the company. This is easier said than done. Everyone works for themselves, and this is where it becomes obvious. Manage compensation so that working for the company is the best strategy for the employee.

Secondly, there should be some way of factoring in the success of the project or company, and better yet, the company-level success of the specific objectives (in aggregate) assigned to individuals. This can be a method of determining a pool of money that will be paid as bonuses, or determining a factor that leverages the individual bonus awards to reflect the success of the project or the company as a whole. If the project fails or the company does not make predetermined targets, then bonuses could - and probably should - go to zero. This is a must, in my opinion. Alternatively, if the project or the company results exceed targets, bonuses could be leveraged up. 

Think your bonus program through carefully. In my experience, bonus programs can be a very mixed blessing that can easily become a costly nightmare. Poorly designed bonus programs often become an incentive for self-interested activity rather than promoting the success of the company or project. Remember recent high profile arrangements in the financial services industry where high paid people are getting big time payouts while the companies fail under their leadership.
0 Comments

Termination Settlements - How Much To Pay

11/6/2010

0 Comments

 
Click on "Comments" to see prior comments and leave one of your own.

Terminating an employee is a gut wrenching experience. George Clooney in recent movie - Up In The Air - made it look smooth and easy. It is not.


Amongst many considerations, how much settlement to offer is a question that often arises.

The first thing to remember is that settlements are intended to help the employee over the period between his former job and a new opportunity. Settlements are rarely, if ever, paid as punitive damages for the termination.

There are four things to consider when determining a possible settlement:

Basic Amount - We recommend a basic, fixed amount that applies in all situations. Regardless of other factors, everyone needs a little time to get over the stress of being terminated. We usually recommend 8 weeks salary, but in some cases this could be as low as 4 weeks. This basic payment goes to everyone, regardless of service, age or current salary.

Years of Employment - Long service usually means that the terminated employee has been out of the labour market for a considerable time. The longer his/her service, the more time will be needed to find another job. We recommend 2 weeks per year of service.

Age - Like it or not, older employees take longer to find a replacement job than their younger colleagues. We recommend 1 week salary for each 5 years of age over 35. So someone aged 47 would get an additional 3 weeks salary.

Salary - Higher paid individuals usually take longer to find suitable employment. We recommend an additional week salary for each $5,000 salary above $35,000. So someone earning $65,000 before termination would be paid an additional seven weeks salary.

In addition, some orgnizations will increase the basic settlement by a factor to represent the value of benefits. This could be between 5% and 20%, depending on the value of the company's benefits program.

We were recently asked to recommend a severance package for a 62 year old employee making $65,000, with 9.5 years service. The calculation is:
 
Basic Amount:                                                    8 weeks
Years of Service:                       9.5                   19 weeks
Age:                                        62                     6 weeks
Salary:                                $65,000                  7 weeks
Total:                                                              40 weeks
Total Dollars:                                                   $50,000
Value of Benefits:                      15%                   6 weeks
Total Weeks:                                                    46 weeks
Total Dollars:                                                   $57,500

Many companies would include a cap - often something like 15 months regardless of circumstances. A formula like this would be a useful basis to determine a termination clause in a contract for a more senior person.

Sometimes it is helpful to make an offer that is a little light - perhaps 4 weeks less than your ideal settlement, and be prepared to give away the 4 weeks in a negotiation. People like to win something, particularly in a stressful situation like a terminand this approach can sometimes prevent an acrimonious fight.
0 Comments

    Author

    Michael Hiles solves Human Resource problems with unique and tailor-made ideas for small to medium sized business.

    Archives

    September 2017
    September 2016
    December 2013
    September 2013
    August 2013
    June 2013
    February 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    June 2012
    February 2012
    November 2011
    July 2011
    June 2011
    February 2011
    January 2011
    November 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    February 2010

    Categories

    All

    RSS Feed

Powered by Create your own unique website with customizable templates.