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I run a small company which develops complex technical stuff. Employees are very skilled engineers. Most of them are with me for the last few years. Up until now the drive come from me but as we are growing I cannot be around as much due to travel induced by the business development effort and I sense the drive is coming down. I like to establish a compensation strategy but the ones I experienced in big companies will not work.

Are there good frameworks that works which I could get inspired from? Pointers would be great.

I expect to pay in average 3 months worth of bonus to each employee, plus options. So money is there. The issue is more how to set the goals and explain the structure in a nice frame work so that they understand it is fair, performance based and competitive. The yearly goals will not work as our plans keep change every 3-6 months. As the company grows opportunities keep popping up and we try to take advantage of these selectively. Quarterly milestones is something I considered. I also want some portion of bonus tied to revenue as well. It is a complex equation and probably there is no one size fits all but I need to do something soon.

TGG
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  • Before thinking of implementing bonuses, have you already established an efficient and effective management structure now that you'll be forced to delegate operational issues more and more? You need a reliable way to track performance in this case and some form of standardised process to ensure that the bonus system is fair if you tie it to personal performance. – Lilienthal Sep 08 '15 at 14:07
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    Might be worth moving this to the Startups SE. – Laconic Droid Sep 08 '15 at 15:07
  • The literature is very clear that monetary bonuses for knowledge work, harm the work. A lot. For an overview see Daniel Pink's video, here: https://www.youtube.com/watch?v=u6XAPnuFjJc – Thomas Cox Sep 09 '15 at 16:25

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I suggest you read the excellent short book "The Game of Work" by Chuck Coonradt (called the "Grandfather of Gamification" by Ken Krogue at Forbes.com).

My own approach is to ask each person 1:1 to define (briefly - in 5 minutes) what "good work" is for their role, and what results they feel they should be delivering. I collect those.

Then we as a group create a value stream map of the end-to-end creation of customer value. I put up the "what results" and "good work" statements and we all look for gaps and overlaps.

In under an hour the group will find the major gaps and overlaps -- and the weak handoffs -- that are the causes of 80% of your problems today.

Now ask them each to devise a simple, simple, simple way of tracking how well they support their internal or external customers, and feeding information upstream to their internal or external suppliers.

That scorecard is the motivator. Not money. Never compensate knowledge workers with money bonuses for tasks. (You certainly can profit-share.)

Thomas Cox
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A model I have seen is you get a percentage of a revenue or profit target. So you set a target for $ that could be as simple as grow revenue compared to the prior. You have a formula for $ for 100%.

You also have goals for the department that is not based on $. E.G. number of bugs or average time to close a ticket.

So if you exceed the goal for average time to close a ticket you get 100%. Under perform like 50%. Severely under perform then 0%.

The problem there is if you are not going to make $ target then employees know they might get 100% of $0.

paparazzo
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  • @JoeStrazzere Number of bugs is just an example - plug in any metric(s) you want. The metric used has no bearing on this answer. e.g. definition. An abbreviation meaning “for example.” It is short for the Latin exempli gratia, “for the sake of example.” – paparazzo Sep 09 '15 at 19:23