Tuesday 25 November 2014

How to give bonus to management and employees?

Bonus, payment, employee, manager

Lately I have been thinking a lot about bonuses. One reason for this was due to that I was standing in the crossroad having to decide to build up more cash in my own company and pay 30% taxes on the earnings or to pay out a Christmas bonus to myself and my employees. In the end I decided to pay out the Christmas bonus.

To pay out bonuses must be made more transparent than what it is today. If one employee does a good job but the rest of the company does not then sorry, no bonus for you. If you want a bonus then teach the others to do an equally good job as you did and then maybe we can start talking about a bonus payment, given that the company starts to make earnings that is. A company that does not increase the amount of coins at the bottom of the treasure chest are also not able to pay any bonus to any employee just as they should not be able to pay any dividends to the shareholders.

In my opinion most companies would profit from having very easily written bonus rules for the management and employees such as:

A company is maximum allowed to pay out 50% of the earnings from operations as dividends. x% of the earnings from operations goes to bonuses for the management and employees. No earnings, no bonus. No yearly improving business and earnings then also no yearly increasing bonus payment for the managers and employees. One could leave it to the managers how to divide that x% in bonus. If they are too greedy they will lose their key employees and lose their own bonus so any manager with half a braincell would manage to establish a fair system. And if they are not able to establish that then which shareholder would like to have them as manager of the company anyway?

More borders and roofs are needed when it comes to bonuses and the only way to bring that in is by making rules. As soon as you have a roof in place then you have to divide it into portions according the importance of the job done, each bonus employee will receive a calculated value. This value then in the end gives them their bonus paid out which will stand in correlation to the company earnings just as it is being paid out to the shareholders according to how many shares they have.

Am I being too much of a socialist in my thinking?

Next on the agenda will be a mixture of finding new attractive companies as well as looking back on especially the companies with negative earnings in the All company analysis list which can be found on the Stocks of Interest page. Hopefully the companies have started to make earnings again and then there could be some nice investment possibilities appearing.

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