Struggling with MBO Bonuses: How Do You Decide Fair Payouts in a Startup?

Hi Friends,

I was wondering if any of you can help with this constant struggle that I have when it comes to deciding how much to MBO bonus to pay on achieving targets. Our company has an MBO incentive program where if x is your incentive, then 50% of x is based on your performance and 50% on the company's performance. Since we are a start-up, we have decided not to give the company's incentive to people this time. So we are left with 50% of x. According to the management, we should pay as given below: 1 (superior performance) = 100%, 2 (consistently exceeding targets) = 80%, 3 (meeting targets) = 60%, 4 (not meeting targets) = 40%, 5 (poor performance) = 0%.

I want you to share with me your thoughts on the above. Also, is there any statistics (data from the IT industry) that can support this or any other way to give this incentive? According to me, getting 60% of 50% of my incentive on achieving targets would be a demotivator. Waiting for your inputs.

Regards, Jeena

Hi Jeena,

I am not from the IT industry to share the data on incentive payouts.

"Our company has an MBO incentive program where if x is your incentive, then 50% of x is based on your performance and 50% on the company's performance. Since we are a startup, we have decided not to give the company's incentive to people this time."

So what is a startup? Surely, one can award them as their performance would determine the financial results.

"So we are left with 50% of x. According to the management, we should pay as given below:

1 (superior performance) = 100%
2 (consistently exceeding targets) = 80%
3 (meeting targets) = 60%
4 (not meeting targets) = 40%
5 (poor performance) = 0%

I want you to share with me your thoughts on the above. Also, is there any statistics (data from the IT industry) that can support this or any other way to give this incentive.

According to me, getting 60% of 50% of my incentive on achieving targets would be a demotivator."

On paper, it looks very good; however, what needs to be assessed is the linking of the goals to the organizational goals. The above standards need to be clearly defined. For instance, how does one define "Superior Performance"...what are the metrics associated with it?

Secondly, one can consider paying them on the basis of:

Sales:

If they achieve Rs ---- sales value with the Net Margin of Rs ---, then they would be entitled to the incentive of Rs 2 lakhs as a bonus payout.

However, if one achieves 90% to 100% of the Net Margin target, then -- % of the incentive alternative. If one exceeds the target, he/she is entitled to an additional pro-rata % of the incentive payout.

Thirdly, one can consider similar options with various categories with % weightage.

Hope this helps! :D

Cheers,

Rajat Joshi

Hi Rajat,

Thanks for your inputs. I don't have any problem when it comes to the Sales guys; they have a different incentive programme.

My problem is when it comes to the techies:

1) It's almost impossible to set measurable targets.

2) Sixty percent of fifty percent of your bonus on achieving your targets doesn't sound motivating to this group. Let's say your bonus is Rs.100/-, so you are assessed for 50% of this since the other 50% is based on the company's performance. Sixty percent of Rs. 50/- is Rs.30/-. So essentially, if you slog all year and meet your targets, you get only Rs.30/- from the Rs.100/- that is there.

3) Management wants data from similar companies to pay more for achieving goals. So all arguments that this is not a good incentive scheme, on the contrary, may prove to be a demotivator. This ends there because of a lack of data to support the argument.

Looking forward to more inputs.

Regards,
Jeena