Linking KPI & Bonuses to Develop Strong Teams

In business, one of your most important resources are your staff. And in order to get the most out of your team, you need to consider how you motivate them daily. Whilst culture and atmosphere play a very significant role in that motivation, today I will focus on motivation through effective financial remuneration systems.

First level: Pay

One key motivator (not the only one) is payment conditions. Firstly, unless you have some really fantastic other conditions to offer your employees (for example, Google’s free cafeterias and play rooms), you’ll need to ensure that you’re paying market level or better to attract and keep highly-skilled individuals.

Second level: Bonuses

To pull your employees’ performance up to the next level bonus packages are generally required. Think about it from the employee’s point of view: they get paid if they do their jobs, and the work gets done, right? They only have incentive to put in extra effort if they have some sort of stake in the outcome of a project. That’s where KPIs come into play.

What’s a KPI?

KPIs are Key Performance Indicators. They’re a way of measuring the performance of an individual or a team. Once you identify the KPI with the staff member, you then establish a target, based on a number that they need to achieve on a regular basis. If they are consistently hitting that target, then you have an employee who doesn’t need to be micro-managed. If they aren’t hitting their targets, then you can sit down with the staff member to identify the problems (does the staff member need extra training to fulfil their duties? Is the KPI unfeasible? Are there issues outside the staff member’s control that are blocking progress?) and figure out how to improve results.

For example, consider an HR manager. You might decide that their key priority is staff retention. So their KPI could be a staff retention figure of 90% each month. If they consistently fail to meet the target, you might sit down with them to discuss the issue and find that a particular manager is alienating staff and causing constant resignations, but refusing to work with the HR manager to fix the problem.

Example KPI areas

  • Office Manager: overhead costs
  • Sales Manager: units sold
  • Production Manager: % of defective units
  • Marketing Manager: qualified leads generated
  • Purchasing Manager: cost of sales %
  • Project Manager: duration of current project.

When should I pay bonuses?

It is important that bonuses are paid consistently and frequently to motivate the employee – at least once a quarter, if not monthly. It’s essential to deliver promised bonuses if the employee meets the criteria. This is a non-negotiable!

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