An incentive program that links bonuses with company profits, while rewarding teamwork and individual achievement.
Steve Furniss was familiar with all the sticking points of incentive programs. He knew the bonus system at his $25-million-plus swimwear-manufacturing company was too subjective, but he feared that a new plan more closely tied to performance might encourage employees to put their individual goals ahead of the company's. "I studied a lot of plans and talked to people for almost a year," says Furniss, president of TYR Sport, in Huntington Beach, Calif. He decided to base the plan on profits, directly linking employee bonuses to the company's fortunes, but to continue to reward the individual achievement and teamwork that TYR's culture emphasizes.
Implemented in 1993, the plan is based on increases in pretax earnings and the current-assets-to-current-liabilities ratio. Furniss and Bob Kelley, TYR's finance vice-president, use the company's budget and forecast to set the year's profit goal. If the company meets the objective, employees automatically earn 60% of the bonus. Supervisors determine how much of the remaining 40% each individual should receive. If the company doesn't meet the assets-to-liabilities target, 20% of the total potential bonus pool automatically disappears. "It gives us the flexibility to reward on the upside and adjust on the downside," says Furniss.
Each month, Furniss and Kelley meet with employees to tell them how much of the bonus goal they've achieved so far that year. TYR's accounting department and management information systems also disseminate daily financial reports that detail the company's num-bers -- with the exception of profits, which Furniss discusses only in terms relative to the company's targets. Motivating employees to boost profits without presenting the actual figures "is a real hurdle," concedes Furniss, but the success of the program "depends on the culture and trust level of the company. We came up with a way to give more access to many more numbers than most private companies." Attainable targets also help, and since TYR's management team is included in the plan, management adjusts the goals to realistic levels and "tends to err on the side of caution," says Furniss.
Of course, one would hardly expect TYR's employees to complain about a bonus plan that maxed out last year. "We don't know the downside of the plan yet," admits Furniss, who thinks it might have been better if employees had had to work up to the windfall "in the second or third year. I feel that the true test of an incentive plan is a bad year -- how the plan helps people and companies refocus in bad times."
After all, in bad times, employees might be less enthusiastic about a program that masks profitability figures. -- Robina A. Gangemi