How We Got Everyone Focused on Cash Flow
How We Got Everyone Focused on Cash Flow
How We Got Everyone Focused on Cash Flow
In my last post I talked about how, every year, Safety barricadeswe pick a critical number #xor ratio to improve. This year, we’re focusing on cash flow. The idea is to pick a metric that we’ve been doing poorly on, compared with our competition, and turn it around. We do that by tying everyone’s bonus plan to our performance.
We set up the plan in such a way as to allow people to receive a portion of their bonus each quarter. By doing this, we provide both motivation and instant gratification. Most programs are designed to just pay out the bonus when the company closes it books for the year. The problem with that approach is that people wait until the third or fourth quarter to start making changes because that’s when they begin to think about getting their bonus. It’s human nature to put things off until something gets close. We found a way around that.
Let’s say that someone’s bonus would be 15 percent of his or her annual salary, including overtime. As an example, let’s say the bonus would be $15,000. Well, if the company meets its goal early when it comes to the critical number, say in February, we would pay 10 percent of the bonus pool ($1,samurai swords,500) at the end of March. If Safety barricadeswe stay on track, we would pay an additional 20 percent ($3,000) at the end of the second quarter, an additional 30 percent ($4,500) for the third quarter, and finally, whatever we need to pay that gets us to 100 percent ($6,000, in this case) at the end of the year.
We structured it this way to give people a taste along the way — to keep the critical number at the top of everyone’s mind from the very beginning. If we don’t hit the target until the end of the year, though, the associates still get paid 100 percent of their bonus. At the same time, if we hit our target in the first quarter, but fall off at the end of the year, we still pay out that 10 percent. We won’t take away something the associates #xhave already earned. Sure, we’re gambling by doing this, but we’ve also decreased our risks Safety barricadesby making the bonus small on the front end and increasing it over time.
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