Accelerating Organizational Performance through an Employee Bonus Plan

Question: When do increasing labor costs make your cooperative more competitive? Answer: When the increase is tied to a "bonus" plan. That's the conclusion of Wright-Hennepin Cooperative Electric Association's (WH) board of directors and management who in March challenged employees with a bonus plan equal to an additional 5% of total base salary in exchange for accelerated organizational performance. "When the stakes are upped, you have to up the ante," Board President Alvin Heinz said. "The stakes have been upped by the competition coming to our industry. " Wright-Hennepin, a 28,000 member cooperative northwest of the Twin Cities in Minnesota, has been preparing for industry change and competition in a number of ways since 1989. The first venture was a diversification effort into the home security business. Started in 1989, recurring revenues from monitoring the systems has grown into a million dollar a year revenue source for the cooperative. Second was the reorganization of several key areas in 1993 including the company's dispatching, new services and tenant changes into more marketing oriented business units. The bonus plan was born at the January board meeting when General Manager David Larson asked the board to consider it as part of a double-edged strategy to deal with competition coming into the utility industry, as well as how to prevent the coop's talent pool from being raided by other companies in the local job market. "A bonus plan seemed to be a win-win situation that addressed both issues," Larson said. President Heinz formed a task force, chaired by director Tom Mach, a CEO of a Twin Cities window manufacturing firm. Also serving on the committee was Board Vice President Chris Lantto, and director Sandra Hunz, an owner and department manager respectively, in the competitive retail grocery business. Larson's five staff members, as well as his executive secretary and personnel director rounded out the task force. "I've worked under bonus plans for more than 25 years," Mach said in the initial meeting, "and I'm a believer that they work. " The task force agreed that a bonus plan could achieve a number of objectives: * It could be a competitive tool to attract new talent to the organization, as one piece of research indicated that about 60% of all mid-size companies in the Twin Cities market already had bonus structures. * It would be a tool to retain current talent. * It would provide a mechanism to significantly reward exceptional one-time performance that an existing wage and salary plan inherently cannot allow. (For instance, a 5% additional raise, instead of a bonus, is an expense that recurs every year and compounds over the career of the employee. "It's the gift that keeps on giving," Larson said, "even if the employee's performance drops for the rest of his or her tenure." A cash bonus, on the other hand, recognizes and pays for superior performance only once.) * In these competitive times, it would be a way to help all employees focus on and take ownership of the overall goals of the organization. With the value of a bonus plan defined, Mach directed the staff to conduct a review of existing bonus plans in the rural electric industry, as well as from other local companies. What the task force found was eye opening: There seemed to be very few formal plans in effect among the nation's rural electric cooperatives. Indeed, the WH staff, with help from NRECA's Scott Luecal and Winston Tan, found less than a dozen such plans in place, but two of them were right in central Minnesota. United Power Association, (UPA), WH's wholesale power supplier, and East Central Cooperative Association (EC), a sister co-op to WH in the UPA group, had fledgling plans in effect. UPA Vice President of Marketing Mark Laub and EC General Manager Gary Bye met with the WH group to go over the details of their plans. Several important themes emerged from this meeting. …