Developers contribute greatly to your organization’s success, but they’re not sales people. The true value they bring is often not felt until weeks or months after a product is delivered, and even then it’s hard to quantify given all of the other variable’s to a product’s success.
Sales people are given bonuses for when they meet or exceed the number of sales. Executives are given bonuses when the revenue reaches a certain point. So, how are we to structure the bonuses of developers?
During my career, I came up with a good bonus structure that I call the “40/40/20 Plan” that I believe solves this problem. It has the right mix of short and long term goals and it’s designed to help both the company and the individual. It’s broken up into 3 sections:
- 40% for High-Level, Individual Goals
- 40% for Specific Projects
- 20% for Discretionary Spot Bonuses
40% for High-Level, Individual Goals
A developer needs to grow during his or her time at your organization. This helps both the individual and the performance of the company. You should set out no more than 2 high-level goals for the developer that can be accomplished throughout the year.
Examples would be:
- Learn this new cloud technology and deliver a one hour presentation to the team.
- Become an expert of our most important product or technology and deliver documentation and mentoring.
- Learn to be more assertive by completing a class and demonstrating improvement.
40% for Specific Projects
The organization stays in business by delivering key products and projects. Often times, there are pet projects (or experimental projects) that are less important from a revenue standpoint but could have rewards
Assign these “extra” projects to your developers, give them a good amount of ownership of them, and ask them to complete this work above their day-to-day deliverables. In essence, you will be paying them for this work through 40% of their bonus. As such, make sure that these pet projects have a small enough scope to compensate the developer appropriately.
For example, if the person is making $100,000 per year, then their rate would be around $50/hour. Therefore, if 40% of the bonus is $4,000 that would amount to 80 hours worth of “extra” hours. Make sure to keep the effort of the project to around 80 hours.
20% for Discretionary Spot Bonuses
Often times a developer is asked to go above and beyond in critical, high stress situations. The server crashed (and is not the developer’s fault), the sales team promised some big feature by Monday (and the developer had short notice), or the key member of the team left and another developer has to take his or her place and keep an important project on track.
This 20% is what separates ordinary developers from the “shooting stars”. You’ll know who your superstars are and who’s willing to step up in a time of need. Reward them with spot bonuses up to 20% of their overall bonus. This should be delivered within a week of the event so that they feel appreciated during the moment and not 6 to 12 months later when they’ve forgotten about it.
This one is a little more difficult if your HR department or Board of Directors has strict rules around when bonuses can be awarded.
This bonus plan structure worked for me and my organizations, but I’m curious as to what has worked for you.
Drop me and line and let me know, and as always, Happy Team Building!
