by J. Robert Beyster

According to a recent survey by human resources consulting firm Hewitt Associates, American businesses gave out fewer annual holiday bonuses in 2007 than in previous years—only 35 percent versus 41 percent in 2005. Reasons cited by companies for eliminating annual bonuses—some of which named more than one reason—included cost (50 percent), development of pay-for-performance plans (37 percent), and difficulty in administering bonus programs (16 percent).

Given our current economic climate, it’s not surprising that many annual bonus programs are going by the wayside because of cost considerations. And it’s unfortunate that a great number of programs have been discontinued simply due to administrative difficulties. I wonder how the employees in these particular companies feel about their managers—not very favorably, I would venture to guess. However, I do see a ray of light in this survey. Many companies that dropped their annual bonus programs reported that they did so because they are switching over to pay-for-performance plans. In my experience, employee motivation is greater when their financial compensation is at least in some part tied to performance.

Within the first year after founding SAIC, I realized that we needed to find some way to both attract and retain very talented employees—and to motivate them to perform at the highest possible levels. The result of this realization was my decision to grant ownership to employees, based on performance. If an employee landed an important contract or brought business to the company, then he or she would be rewarded with SAIC stock. As time went on, we expanded our efforts by developing a sophisticated incentive and stock ownership program that included stock awards, cash awards, stock options, and direct purchase of company stock—along with a system to distribute these rewards equitably.

Throughout my time with the company, I found that a simple formula worked exceedingly well for us: Hire very smart people, encourage their entrepreneurial spirit, let them focus on customers, and reward them for their contributions. And, while I am convinced that our system of employee ownership was a key factor in our rapid growth (SAIC’s revenues and earnings grew at a compounded annual rate of 33 percent from the company’s founding in 1969 to 2006), it’s important for small business owners and managers to realize that there are many ways to reward employees that are not financial in nature, and that don’t cost a dime.

To reward outstanding performance, we extensively used titles, face time with upper managers and board members, participation in company policy development, committee work, participation in outside professional organizations, awards for technical and administrative excellence, and much more. In my experience, our best employees were less motivated by money than with doing something of lasting value. It was our job as leaders to help provide our people with these kinds of opportunities.

Remember: Your employees do have a choice of where they will work. As the Baby Boomer generation nears retirement age, the supply of talented workers is going to tighten, making it more important than ever before for business owners and managers to ensure that their companies are rewarding places to work. Do so, and you’ll find that your employees will respond with increased engagement in their work, improved morale and loyalty, and enhanced productivity. The result? Better products and services, happier customers, and a more favorable bottom line. And, aren’t these all things that you would like to see?

# # #

Dr. J. Robert Beyster (La Jolla, CA) is the founder of Science Applications International Corporation (SAIC) and author of the book The SAIC Solution: How We Built an $8 Billion Employee-Owned Technology Company (John Wiley & Sons, 2007) with
Peter Economy. Dr. Beyster served as CEO and chairman of the company for 35 years, and he promotes innovation and employee ownership through his Foundation for Enterprise Development and the Beyster Institute at the Rady School of Management,

University of
California San Diego.