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Boeing recently overhauled the bonus system for all employees working in the Boeing Commercial Airlines (BCA) unit in a bid to fix serial safety issues within the company.
The airline is currently in crisis following a mid-air door blowout on its 737 Max 9 model and fatal crashes in 2018 and 2019. The Federal Aviation Administration says that employees lack significant knowledge of safety protocols, echoed by current and former employees and whistleblowers who claim there is a culture of retaliation against those who identify safety and security concerns.
In an attempt to create a company culture that prioritizes safety and rewards employees who practice it, bonus payouts to non-unionized executives, managers, and employees will now value performance on safety and quality metrics above financial metrics.
This prompts HR, recognition, and reward teams in all industries to consider how they determine bonus payouts and what behaviors they wish to reward.
Financial metrics can be important – but so can other types of performance
Financial performance is an undoubtedly important determinant of bonuses. In the BCA unit, for example, it used to account for 75% of bonus payouts, and it still will for Boeing’s other two units (defense and services).
Particularly for divisions such as sales units, individual or team performance is a useful driver, and can keep such teams focused on their primary aim of building revenue for the business.
However, for most other employees, financial performance, especially at the individual level, is further removed from their scope of work. This is where other single-factor or multi-factor bonuses are more useful and create a more equitable compensation system that will best incentivize the type of behaviors or outcomes your organization wishes to create, rather than risking scenarios where employees feel they are treated unfairly or individuals receive unwarranted windfalls when the company hasn't done well overall.
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“There is no ‘correct’ way to design a bonus plan, and so each company may decide on a different set of metrics,” explains David Buckmaster, a former Rewards leader at Stability AI, Wildlife Studios, and Nike, and an author on pay. “Bonus plans are intended to enforce the right combination of behaviors. Non-financial targets can be important reminders to make sure people are earning their bonuses in ethical ways that are not detrimental to the brand in the long run,” he explains.
For Boeing, there is an undeniable need to create a company culture of safety, hence bonus calculations now include performance factors around safety and quality. For job roles in industries where whistleblowing is crucial to the organization, rewarding, rather than retaliating on quality or safety can drive a culture where this behavior is supported. Beyond aviation, this could include industries such as construction or transportation where safety risks, including for workers, are high.
In another organization, division, or team, employers may wish to incentivize other forms of behavior.
“It is important to make sure the bonus plan is aligned to the overall company’s vision and strategy,” says Leonardo Citro, Director of Global Total Rewards at Mars. “This approach may also vary by industry. An energy company may benefit from having safety metrics, while a service company may want to focus on customer satisfaction.”
Buckmaster offers the example of restaurant bonus programs. “Typically, you see non-financial measures act as a modifier on the bonus plan,” he explains. “If the restaurant manager exceeds their sales and profit goals, but takes shortcuts on food safety to generate those results, the company might decide that food safety is so important that the sales achievement is nullified and no bonus is received.
Balancing financial targets with non-financial targets sends an important message to the plan participant about the employer's desired behavior.
Bonus best practices from two rewards experts
Both Buckmaster and Citro have clear but effective advice when it comes to creating effective bonus structures. Here are four simple but critical steps for making a comprehensive and engaging program:
1. Identify stakeholder goals: “It all begins by understanding the organization’s strategic goals and objectives, suggests Citro. “Then it will be similarly important to understand the perspective from different stakeholders, including senior leaders, team leaders, and employees to gain insights about their perspectives and priorities.”
2. Tie individual metrics to the goals: “Once you complete those steps, we can align the metrics with the overall strategic goals, which could also include the individual metrics,” he continues. “Tailoring metrics to reflect the unique responsibilities and contributions of each individual, team, or division will also support a better outcome for the bonus program.”
3. Keep it simple: Buckmaster encourages compensation leaders to “not try and be too creative when it comes to bonus plan design.” He adds that “good practice says the plan should be easy to understand, so as simple as possible, with no more than three metrics.
4. Check plans are fair: “The plan should be in the person's control,” explains Buckmaster. “If they are in a more general role like finance or engineering without clear and direct business impact, then a bonus tied to their individual performance rating (which will be tied to objectives) makes more sense. It's critical that each segmented plan has a clear link between performance and payouts.”
The benefits of a balanced bonus framework
The cases above are very simplistic but underpin the message that bonus payouts should reflect an employer’s values and goals. Most organizations have established some type of KPI-based system to measure and monitor performance, so hearing that different individuals, teams, divisions, and companies have different objectives shouldn’t come as a surprise.
However, a 2023 survey from Bonus.com of U.S. 1,000 employees found that performance-based bonuses ranked as the most popular form of bonus in the U.S., so it’s worth considering whether the bonus scheme and performance measures in place for each employee or team are fully inclusive of the behaviors your company wishes to instill.
Particularly for team-based bonuses, there has been a historic temptation among U.S. employers to reward financial performance above all else, when other qualities – safety, quality, innovation, customer satisfaction, peer support, inclusivity, sustainability, productivity, and so on – may be just as, if not more important, to the health of the business.
Re-aligning bonus schemes to include multiple factors beyond financial performance – which is often several degrees of separation from their work – creates a more equitable total compensation for employees and better reflects the full scope of what they bring to work.
Citro argues there are several benefits of considering a broader range of metrics for bonus plans. “This approach will encourage a longer-term view by discouraging short-term gains at the expense of broader impact,” he says. “By aligning bonus plans with multiple types of metrics beyond financial, companies can incentivize behaviours that drive innovation, compliance and ethical conduct, ultimately contributing to overall business growth and resilience.”
Indeed, the rewarded behaviors should also help the business drive what it hopes will be competitive advantages, or else – such as in the case of Boeing - save it from crises or scandals.
But be warned, it’s not an easy task. “Ultimately, bonus plans are tough to get right, so the company has to know the pain tolerance they are willing to take on to get the incremental performance they expect the plan to generate,” concludes Buckmaster.
