How to design an incentive plan for my small business's managers?
September 8, 2017 12:32 AM Subscribe
I'm a small business owner who has been doing all of the management-level tasks solo for the past five years. I've been quite successful, but I'm exhausted and need help as we've grown too large for me to run things alone! Luckily I've found two great candidates for two new management-level roles, and while the base salaries will be modest I'd like to design a profit-sharing plan to sweeten the deal as both roles can have a direct impact on growing sales in their area of the business.
We are a comedy theatre that also has a school that teaches classes (general public & corporate), a la the Upright Citizens Brigade Theatre. Currently I'm the only full-time person, but we have a large number of casual hourly employees and contractors.
I'm hiring a full-time salaried School Manager to run and grow the school side (sample KPIs might include number of active students, total classes sold, etc.), and a full-time salaried Theatre Manager to run and grow the theatre (sample KPIs might include total tickets sold, bar sales, etc.). Both salaries are modest – fair, but nothing to get excited about. I can afford them.
I'd like to set up a reward structure for them based on their success growing their particular area, but pay out based on the success of the entire company. This is because the theatre runs at a loss which is covered by the school's profit, so even if the theatre manager does an amazing job it's unlikely to turn a profit anytime soon – still, shrinking the losses would be wonderful!
What are things to think about while designing a plan for a business this small? I want to make it clear that there's incentive for going above and beyond, but am wary of starting too big and needing to scale back the program later. A lot of articles and case studies I've found refer to much larger businesses. Thanks for your help!
We are a comedy theatre that also has a school that teaches classes (general public & corporate), a la the Upright Citizens Brigade Theatre. Currently I'm the only full-time person, but we have a large number of casual hourly employees and contractors.
I'm hiring a full-time salaried School Manager to run and grow the school side (sample KPIs might include number of active students, total classes sold, etc.), and a full-time salaried Theatre Manager to run and grow the theatre (sample KPIs might include total tickets sold, bar sales, etc.). Both salaries are modest – fair, but nothing to get excited about. I can afford them.
I'd like to set up a reward structure for them based on their success growing their particular area, but pay out based on the success of the entire company. This is because the theatre runs at a loss which is covered by the school's profit, so even if the theatre manager does an amazing job it's unlikely to turn a profit anytime soon – still, shrinking the losses would be wonderful!
What are things to think about while designing a plan for a business this small? I want to make it clear that there's incentive for going above and beyond, but am wary of starting too big and needing to scale back the program later. A lot of articles and case studies I've found refer to much larger businesses. Thanks for your help!
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1) I think you need to clarify - in your own head and very much to your new hires the extent to which their job duties and/or bonuses can and will include drumming up new business. Because "manager" and "salesperson" are two different jobs, and they should know going into the job what you expect from them. To be bluntly honest, an awful lot of small creative businesses like yours only get to the point of hiring managers when, like, the lights in the school get shut off because you forgot to pay the electric bill because you were spending too much time riding herd on the theater box office. Which is to say, if they're entering this job expecting primarily to help you keep all the plates spinning in the air, and then discover that the only thing that turns their "modest-but-fair" salary into a GOOD salary is to take on extra duties "selling" the business . . . . that seems like bordering on a bait-and-switch and could lead to resentment.
2) A lot of the way managers "grow" a small business is by keeping things functioning smoothly, which can be hard to tie directly to any kind of KPI, maybe especially the very specific ones you've listed, like more ticket sales or active students. Like, your Theater Manager makes sure the bar doesn't run out of bourbon, which makes a more pleasant experience for your bourbon-driking patrons, which in turn leads to good word-of-mouth, which in turn can put more butts in seats . . . but how do you tie that directly to a specific KPI?
3) This is . . . . . the entertainment business. Shit happens, if people could reliably predict things every movie would be fantastic and make a bajillion dollars. But that ain't the case. So, while you're not wrong that both roles can have an effect on growing sales, it can be indirect (as in my #2), and if their bonuses are tied too directly to specific detailed things like tickets sales or number of classes they could wind up essentially penalized by things totally out of their control. (What happens if the local football team makes the playoffs? Over here in the US a bunch of sports bars make a killing, but live music venues and improv theater shows take a bath. Just for one example.) Again, connected to defining and setting expectations about how much time and effort your managers are supposed to spend growing the business versus maintaining the business.
4) What're you doing? I mean, obviously you're not gonna be sitting on your ass, but one thing we've discovered in my company is that since the owner/founder is the face & name most associated with the business, he's the one in the perfect position to act as "salesman" expanding the business, while those of us in managerial positions ensure this new business goes as smoothly as the old business. So bonuses for new business doesn't really work for us, even though us managers not only occasionally drum up new business ourselves but constantly grow the business by doing a kick-ass job which leads to repeat customers and recommendations.
5) As you've probably guessed by now, I'm not a huge fan of this idea. I get that it seems like a good idea ("You drum up more business, you make more money!!"), and it's certainly a well-intentioned one, but tying "manager" bonuses directly to "salesperson" work can be hard to make work in practice if your managers aren't really enthusiastic salespeople.
6) And then you're still in the position of one aspect of the business essentially subsidizing the other; another complication.
7) I'd say you've got three options: a) a fairly straight-forward commission plan, like your Theater Manager gets 10% of the nights' gross, or a dollar a ticket for any tickets sold over some minimum number; your school manager gets a percent of the class or offsite program price; things like that. b) if it's applicable, where you have some extra-busy weeks/months where your managers work over 40 hours a week (like if there are extra classes/extra shows), go ahead and pay some overtime amount for the extra hours worked. c) give out quarterly/semi-annual/annual bonuses that may be loosely but not solely based on some of the KPI's you're thinking of, but the amount is at your discretion and essentially based on "We've (the organization as a whole, not separating theater from school), done really well this quarter, you've done a great job, here's an extra $xxx." IOW, a Performance Bonus that's rooted in "more income" while not being directly specifically tied to "10% more tickets sold."
posted by soundguy99 at 6:57 PM on September 8, 2017 [1 favorite]