The word “bonus” is a pretty dirty word these days. It brings to mind corporate greed, excessive executive bonuses, and everything that is wrong with the American financial situation of today. But before bonuses became an incentive that some corporations handed out like free candy, they were actually a useful tool for providing motivated workers with a road map for exceeding average goals. In return, any overachievers up to the task of meeting bonus goals were rewarded for their assistance in making their company a stronger institution.
When I joined the Board of the Pedernales Electric Cooperative last year I discovered that they also had a practice of handing out large financial bonuses to their general manager that had no ties to work performance. PEC had a long-standing tradition of awarding these “performance” bonuses to its managers. In fact, the General Manager received bonuses in excess of $300,000 without any basis or plan to be measured against. Bonuses were expected yearly and were based solely upon a rank, tenure, or even just a recommendation. The quality of performance of the respective manager had no bearing upon what or how much was rewarded.
This archaic method of reward without exception did little more than create a system of entitlement. There were no benefits to the cooperative in adhering to this old bonus system—it forced no improvement in processes and did not support corrections to problems. Initiative was stymied and growth—collective or individual—was stunted through lack of goals. I saw in PEC a mirror image of the corruption and greed we currently see in our U.S. banking institutions and corporations who we are now burdened to support through government bailouts.
Knowing this situation was critical, I began to develop a 2009 Performance Management Matrix for the General Manager in 2008. Following open discussion, the 2009 Key Performance Indicators (KPI) was unanimously approved in our March 16 board meeting. The new bonus plan consists of quantifiable measurements that accurately reflect what we believe to be the critical success factors of the cooperative. For 2009, the KPI includes goals for safety, cooperative cost control, member satisfaction, relevant industry comparisons, and program development. These KPIs manifest the cooperative’s new goals in that they are critical to improving our bottom line, promoting a safe environment for employees, creating more efficient work processes, and ultimately restoring the trust of the membership.
The General Manager will use the Key Performance Indicators that have been established for him as benchmarks for his staff. All PEC employees will then become partners in achieving the measurable goals the board has defined. Every department and employee will be recruited to work in synergy towards our overall success.
The PEC’s bond rating was recently dropped due to poor past business practices such as this unhealthy bonus system. It was also recognized by Fitch, the bond rating service, that PEC was under pressure to reduce costs and rebuild trust with its membership. The Fitch report is affirmation that the new KPI driven bonus plan is a step in the right direction. By establishing performance goals which promote financial stability for the cooperative we will both reduce costs and rebuild trust.
We’ve removed the smoke and mirrors from the PEC bonus system and provided intelligently defined targets that give the board, the management, the employees—and even the membership—the benefit of a high-level, real-time view of the progress of our cooperative. As with all Key Performance Indicators, the target will change as the organizational goals change and as the organization gets closer to reaching a milestone. This serves as incentive to ensure that the cooperative management remains flexible and nimble to a changing climate and membership.
Typically, a bonus plan is not a newsworthy or even very interesting topic. Many companies annually define or redefine their goals to provide incentive for the executive officer to drive company performance. Yet for PEC this is another historic moment. PEC now has a clear direction of what needs to be done to meet goals, make improvements, and ultimately serve the membership.
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