The company is a global industrial group with a turnover of $7 billion. The reorganization took place at two subsidiaries in Baden-Württemberg, which manufacture and install products for the food and pharmaceutical industries.
As a result of changes in ownership and multiple organizational changes, the bonus system had become skewed. The distribution key for variable remuneration for management was barely comprehensible and was perceived as unfair. This led to the opposite of what bonus programs are actually designed for: Instead of creating incentives in the desired direction and having a motivating effect, considerable frustration had spread. Managers spent a lot of time venting their anger. The mood turned negative and teamwork was significantly hindered.
Functional design of the bonus programs modeled
The analysis revealed a large number of dysfunctional elements in the design of the bonus programs. The allocations to the units were often chosen in such a way that the results were neither directly nor indirectly within the sphere of influence of the respective manager.
The absolute amount of the variable components varied considerably - and without any recognizable systematic approach. The number of parameters used was high. The definition of individual parameters was unclear and, finally, the procurement of some of the data involved a great deal of effort.
When modeling the new bonus system, the HR interim manager chose an iterative approach that compared four basic options in the first step:
- do nothing
- adjust the existing model at critical points
- redesign the bonus system from scratch
- eliminate the bonus system altogether.
The first option was eliminated due to the high level of suffering and the significant negative side effects. The fourth option was not politically desirable. The second option was rejected because there was no stringent system in place and reservations were now very high. This meant that there was a low level of compliance among all stakeholders. The third option was chosen. The bonus model was redesigned from scratch.
The result was a clearly understandable system based on a few relevant parameters that was simple and could work with existing data from Finance. In addition, the absolute amount was brought into a meaningful and comprehensible structure. Fair severance solutions were negotiated with those disadvantaged by the new structure, but these represented a minimal component of the overall budget.
New bonus system well received
The benefits were felt long before the system was actually implemented. The mere fact that the company addressed the long-simmering issue with the help of the external HR expert for bonus systems brightened the mood. The feedback from everyone involved was constructive throughout the entire process. After this productive phase, the issue of the bonus system once again took a back seat - and the managers were delighted with both the anticipated and actual payments. The issue was off the table, as was the dissatisfaction - and the administration of the bonus system was no longer a headache.
