The vexed question of the performance bonus

A well-constructed incentive bonus is an excellent farm strategy, but a badly thought-out one can be very damaging, writes John Gadd.

Years ago I was involved in quite an imaginative cliff-and-plateau performance scheme where the employee was tempted to climb a quarterly achievement level which, if successful, was rewarded by a rise in wages. Having climbed the “cliff”, then the incentive was to get away from the edge to avoid reverting to the previous wage level. If progress did occur then the next cliff looked achievably close – and so on. It looked like a good idea.

But it didn’t work for two main reasons.

First, the employee’s performance could be affected by the results coming through from other sections of the farm, such as a fall-off in piglets weaned from the farrowing section; or poor quality weaners arriving from one or another of the nurseries; a failure by the breeding section to get sufficient gilts served, especially when seasonal infertility threatened; and so on. This could set up bad relations between employees. Recent research shows bad feelings between workers is high on their list of why people leave a job.

Second, the employee’s family didn`t take kindly to a reversion to a lower wage for the forthcoming quarter and felt it decidedly unjust that the reduction in income may not have been his fault anyway.

This got me interested in both good and bad incentive bonus schemes and across 40 years in dozens of countries the following formula has almost invariably worked.

But first, should you even consider paying an incentive bonus? Yes, because if it’s well-designed, it helps recruit and keep intelligent, hardworking stockmen and women.

There are four basic rules to a well-designed bonus scheme:

  • The team, not the individual should reach the targeted levels.
  • The individuals in the team get a proportionate share of the bonus.
  • The bonus must be agreed beforehand, along with the targeted performance levels to be avhieved.
  • A bonus must never compensate for a less than reasonable salary or wage.

Get these four things right and you’re on the way to a system that works. But there are six other things that will keep the train on the rails.

  • Good, reliable and trusted records are essential. These must be administered by an independent and trusted farm recorder. If the workers don’t trust the records, then the scheme will fail. This is extra money well spent.
  • Bonus targets must be based on physical achievements, not on profit. Nevertheless, the size of the bonus to be apportioned can be based on what improvements in retained margin can be predicted from achievement over target.
  • Communication. At the start of any scheme, a special bonus meeting should be called with all workers present to explain the four basic rules. Ask for suggestions, improvements or possible snags – this helps give the impression that it’s their scheme as much as management’s.
  • Show you care that they reach their bonus targets, so provide fact sheets as aide-memoires to remind them of the crucial stepping stones towards success.
  • Part of good business management in any industry these days is the periodic “Where have we got to?” staff meetings, mainly to review, in our case farm matters, and to keep them informed – but a bonus section should always be attached.
  • Where should bonuses be pitched? Targets are based on the owner’s or manager’s decision, but are tied to the best likely profit-earning section(s) of the farm.

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About The Author

John Gadd, who has spent 60 years' involvement in pig production, has had more than 2,800 articles about pigs published and has written three best-selling pig textbooks. With hands-on experience that includes managing a grow-out herd at 1,800ft in Banffshire, Scotland, and 20 years in the allied industries with Boots' Farm Department, RHM Agriculture and Taymix, he set up his own international pig management consultancy in the mid 1980s and has now visited more than 3,000 pig units in 33 countries as a pig management adviser. (Photo courtesy Bournemouth Daily Echo)