I get questioned a lot from owners about their current reward system, and whether they should roll out a bonus, incentive, or profit-sharing system to boost performance.

They ask me things like:

• Should we start a profit-sharing program?
• Do incentives actually work?
• Should I replace our Christmas bonus?

What they are really asking is: How do I reward my team in a way they will buy into, that actually changes behavior—without backfiring and hurting morale?

The Common Starting Point: Bonuses

Many companies start with bonuses because they’re easy—typically a Christmas bonus or an ad-hoc year-end reward.

The plus: You can reward those who gave extra effort and helped the company excel. It keeps things simple and keeps you in control.

The minus: Bonuses quickly become expected and are very hard to take away when performance declines.

Because bonuses are subjective, they reward individuals over systems—and weak systems ultimately hurt company performance.

Bonuses recognize effort, but they rarely create accountability.

Read more: Why Bonuses Backfire and What to Do Instead

Incentives Shift Behavior

An incentive is a structured plan that often runs throughout the year: Hit X, get Y.

Well-designed incentives are tied to controllable actions, follow clear rules, and improve motivation.

But incentives also come with inherent risks. People follow the money. If speed is rewarded without quality, quality will suffer.

Incentives can be gamed, which is why they require a strong culture and constant inspection.

You still have to inspect what you expect.

Profit Sharing Is Powerful

Profit sharing distributes a percentage of the company’s profit—usually annually—based on a formula.

Profit sharing is the hardest incentive to game, though it can fail when rolled out poorly.

At the leadership and executive level, I’m a big fan of profit sharing. It creates all-for-one thinking and long-term stewardship.

Where companies get into trouble is rolling it out too broadly or too fast.

Profit sharing requires ongoing communication and education. Employees must understand how their individual actions affect profit.

Without that foundation, it becomes arbitrary.

Overall Challenges

• Profit sharing doesn’t fix a lack of accountability.
• Incentives don’t fix poor systems.
• Bonuses don’t fix unclear expectations.

Read more: Profit Sharing Case Study

This is why it’s important to decide which problem you are actually trying to solve.

Gamifying Your Crews

Field teams don’t always want the same rewards owners think they do.

That’s why we recommend starting with gamification for crews.

Set up leaderboards, define clear rules and production specs, and explain what a win looks like. Derek Wells shares a strong example in my podcast with him.

Gamification without money is a smart first step. Teach people how to win the game before attaching money to it.

Read more: What If Your Employees Acted Like Owners?

Your Challenge: Get Your Systems Dialed In

I recently met with a coaching client to discuss their ad-hoc year-end bonus. They were doing well financially and wanted to switch to profit sharing.

My advice: if you are not willing to significantly upgrade year-round communication and education, focus instead on improving dashboards, KPIs, and accountability.

You can always improve. When money is involved, choose your battle wisely to avoid unintended consequences.

Focus on improvement first. Better is better than different.

Regards,
Jeffrey Scott

P.S. The transition between reward systems is where owners get stuck—especially when cash flow and expectations collide. If you need help mapping out the right approach, let’s talk.