We currently pay overtime and an annual profit share bonus but we want our team to choose between payment of either OT or Bonus or commission (current commissioned employees don't get bonus or OT). I am struggling on how to communicate this. All OT and bonus' are non-contractual. Any thoughts are appreciated...
TLDR: Bonusses are 'extras', and stopping them will have the least impact. Cut them before overtime.
Most companies pay a "bonus" when they are doing well. The company does really well, employees get a big bonus. Not so well, they get a small bonus. In a financial bind (which it seems you are), they pay no bonus at all. In fact that's the reason companies pay some money as 'bonus' rather than rolling it into salary.
So that would seem to be a solution. You say "the company has not done well this year, so there will be no bonusses". It's bad news, but it's not as bad as some other possibilities, for these reasons:
- It should be understood that this is a one time thing. If the company does well next year, bonusses will be back.
- It doesn't disincentivize people from working extra (which stopping overtime payments certainly will).
- It's normal practice, and many other companies do it.
- Overtime is something people feel they are owed (since they worked for it). Bonusses are something they feel much less entitled to.
- Looked at logically, keeping overtime payments means "give the available money to people who did extra work". Keeping bonusses means "give the available money to everybody equally".
I know you asked about how to present the choice to your employees, and I am almost always in favour of giving employees a choice. But in this case I think the morale disadvantages of even suggesting cutting a part of their pay that they earned is too great. Make the right choice for them. However do follow all the good practices about how to announce bad news. Joe Strazzere writes good stuff.
You should make sure you check with a legal or HR professional whatever you intend to do. Changing the terms of employment, such as stopping overtime payments, has legal implications. If someone quits because of it you may find that you owe them severance pay. Even if the payments are 'non-contractual', if you have been doing this for a long time they may be considered an implicit part of the contract. (In the UK at least. For that matter if you have been paying the bonus regularly for many years without taking into account company performance it may also be considered an implicit part of the contract.)
If you haven't been doing it before, start making a clear association between company performance and bonusses. That will get people used to the idea that the bonus may not be there if the company does badly.
It's always difficult to convey bad news to a team.
My approach has always been to be honest and direct.
- Explain that this change is coming, and when
- Explain the reasons behind the change
- Indicate the specifics of the choices which employees must make
- Show the possible results of choosing Bonus, and the possible results of choosing OT
- Help them make as smart a choice as the situation allows
- Explain that the new structure isn't optional (assuming that it is indeed required)
- Acknowledge that this may adversely affect some (or all if that is the case)
- Acknowledge their complaints if they come
- Provide a time to listen, hear what they have to say, and respond to the best of your ability
- Provide a time when individuals can talk with you, away from the group
My experience tells me that folks won't be happy with such news no matter what, but will appreciate an honest, direct approach.
So it sounds like you have to administer a pay cut. That will clearly hurt morale even if the amount is only small, so good communication can help with damage control. You have a few options here
- Consider not doing this at all. This will do harm and you should have a really good reason to go ahead with it
- If you have a good reason, make sure to communicate it. "we lost our biggest client and need to tighten up a bit" goes over better than "the boss needs a new Lamborghini"
- Consider whether the choice is necessary at all. As soon as you offer it, everyone will stop thinking about work but will focus on modeling and assessing which way they come ahead
- If you really must do the choice thing, give your people as many tools as possible so they can make a good decision. Provide historically data on over time and bonus, estimated future bonuses and maybe a spreadsheet where people can model their own scenarios. They will do this anyway; if you do it for them it will go faster and come out with better results
With OT, people may feel more in control of the extra money they get because the tracking can be more objective. If I work X hours of OT, I get X money. The downside for management, is determining if the OT is warranted.
Most companies do an awful job with bonus structures and employees may feel they are too subjective or out of their control. Sales/profit is always a factor. When employees get a bonus for doing the things that lead to higher sales, everyone benefits. Rarely, do companies take the time to identify and track measurable behaviors that are linked to profits. You really have to understand how your business works.
If your goal is to be fair, you can't apply one method to the entire company because people have different tolerances for risk. When business is good, you're probably not paying them enough and when times are bad, you're probably paying too much.
Workers will feel punished if they do their job and don't get rewarded because of a decline in sales that is not their fault. This is why you have to develop a system where one group/department cannot undercut another department and profit from it. When sales wants to add features to close a deal that puts too much burden on the developers who don't get a bonus for it and visa versa, you have a problem.
Talk to everyone. Find out what their risk tolerance is and allow them to join one group or the other. Then you can start finding metrics that contribute to profits and begin to offer a larger slice of a bigger pie. You may be surprised at how many people will jump at the chance to do what's necessary when they are confident they will get rewarded even though there are no guarantees. It is possible to work very hard and just never make a profit.