I’ve been thinking about whether or not to share this publicly, but given the recent talk about how the working class has been largely ignored and how the rich are getting richer, I think it’s my duty to speak out. I want to change the conversation and question the status quo. I’ve noticed that in corporate America there is often a class system. There’s the executive class and then there’s the working class. The executives are paid way more, get better benefits, and get big bonuses. It doesn’t have to be that way.
Since we are a privately held company, we get to decide how to run things. Simplexity’s bonus program does not follow industry standards. Usually year-end bonuses are based on meeting certain metrics and the higher up in the organization you are, the bigger bonus you get. Or they are pro-rated based on salary, so everyone gets, say, a 2 percent bonus. But if you make $30,000 a year, that’s a $600 bonus and if you make $150,000 a year, that’s a $3,000 bonus.
While there may be benefits from doing it this way, I view the annual bonus as an extra benefit for helping to contribute to the success of the team. People are already paid different salaries based on if they are an engineer or a technician, a CEO or an office assistant.
Yet every role in a company is important to meeting the goals, or it shouldn’t be there in the first place. With that point-of-view, the annual bonus is a way to share the wealth.
So, here’s how I set the annual bonuses in my company: 10 percent of net profit is set aside in a bonus pool and then divided equally by every full-time regular employee who has worked for the company during the past year (and pro-rated for those that recently joined the company). Each person gets the same amount. That includes me as the CEO, all the executives, as well as all the technicians, and office staff. Everyone, the same dollar amount.
Note that pretty much all compensation “experts” would say that this is a bad idea. They would look at industry standards in other companies that say that executives are getting bigger bonuses so if I want to hold on to them, I need to also give them big bonuses. Or that executives have better benefits than line employees (we only have one benefits package – it’s a great one – I get it and so do all my employees) so we need to do something to differentiate them and make them feel important. But I think this is a flawed way to look at the issue of bonuses, because I don’t focus on only the executives.
I focus on the engineer who is just a few years out of school, but doing an amazing job designing machines, the technician who puts the parts together and makes sure the prototype can ship, and the office workers who make sure the coffee is stocked, the parts are ordered, and the office is pleasant to work in. All of them make up the team to make the company successful. All of them have different roles and I agree that some roles are more difficult (which is why our engineers have higher salaries than our technicians), but all are important and valued. And the bonus is just that: a bonus. Something extra that doesn’t reflect your status or salary, but a kick-back to the employees who each make the company profitable. While there will never be a perfectly fair system, I believe that a system where the bonus is the same for each employee, regardless of job title, is the best system.
I’ve also watched the impact of giving what some would consider proportionally large bonuses to my lower-paid employees. They use the money to help others in their families who may be struggling financially. They use it to fund their schooling. They use it to buy gifts for their kids at Christmas. They save a portion of it for their kids’ college education. It makes a difference- a big difference- and it is one step towards bridging the income gap.
So I encourage other CEOs to think of doing something similar. Buck the trend of creating an executive class that you have to keep feeding with more and more money to get them to stay. Hire people who believe in your vision, pay them fairly, and work together as a whole team to accomplish your goals. While I could certainly use a huge annual bonus (hey, I could buy a fancy car), I don’t need a bonus that big to feel like my contribution is valued. I’d much rather give everyone an equal bonus and have loyal and inspired employees.