Management Bonuses: Creating A Successful System

Successful business owners recognize that their company's financial health can be directly attributed to the staff providing care and education to their young customers. And, likewise, the success of the staff can be directly attributed to the school’s leadership.

How, then, does a business owner appropriately reward management team members for their success while creating an atmosphere of healthy spending and empowerment?

A successful bonus program is aggressive and generous, typically rewarding both the Director and Assistant Director of a school. It is vital that the program is easy for the manager to understand and track with a direct correlation to actions within his/her control. In addition, the best programs provide a significant reward of up to 25% of a manager's compensation within the bonus.

Our preferred methodology for calculating bonuses includes a complete financial picture of the school, including three components: Revenue, Expenses and Accounts Receivable Management.

Considering only one aspect of this formula could have the unintended consequence of rewarding unhealthy behavior. For instance, it is not difficult to enroll and sustain a customer if tuition is not collected timely, and it is not difficult to maintain enrollment if staff costs are overspent. None of the three components of a successful bonus plan can be ignored for a financially healthy plan.

Another consideration is how to change a compensation package from a straight salary to a lower salary plus bonus. Successful transitions include a time period—often a year—in which the new system is implemented, but the former annual salary is guaranteed to the manager. What this accomplishes is a year to train the manager to receive financial data, understand the bonus system and how it relates to the financial data, and learn how to make changes that affect the health of the school. Another important goal is for the manager to feel that the former salary is not only achievable under the new system, but that it can be exceeded.

We are often asked what an appropriate compensation is for a manager, and our quick answer is, "as much as possible!" When a Director is financially successful and motivated, then the staff is successful and motivated, thus creating excellent schools with successful business owners.

For more advice on management bonus systems, or any other business and financial topics, please feel free to contact us at info@hingebrokers.com.

Meredith Martin