Due Diligence by Design

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Due Diligence by Design

As for managers running a business – we at ÆGIS understand the challenges and difficulties involved…   In addition to the myriad of “normal” business challenges to building, maintaining and growing the business, there are thousands of ways to steal from a business that we as owners and managers are constantly trying to circumvent… and yet it losses to internal or external threats always comes out of one pocket – ours!

In this vein, we wanted to share an important story with you. We came across an interesting approach to remote running of a business enterprise that included some interesting “hooks”:

All employees had a stake in the profitability and success of the business.  While the profit sharing was not unusually large, it would add between seven percent and twelve percent to the employees payroll check when the profit bonus was paid.  The bonus was calculated every calendar quarter and then paid six months later.  It was also normed, so that one could not shove all of the losses into one particular calendar quarter and thereby receive a bonus for the other three calendar quarters by, in essence, rigging the deck, so to speak. And as for the ‘hook” mentioned earlier, the dwell time in paying of the bonus was/is truly an ingenious feature of the bonus program.

Permit us to posit an explanation:

All employees were encourage to report to the owner everything they saw in the course of their work; they could send an email, write a letter, a fax, or even a voice mail to a special telephone number.  Vendors and customers were also encouraged to could do the same.   They could submit any information good or bad — anything such as better operating ideas, processes or thoughts on how to improve the business, or issues of safety or misbehavior – even theft or fraud. Information could be done in an acknowledged fashion or an anonymous fashion.  The owner learned very quickly that employees do not like to see managers steal as that cuts into their pocket via reduced bonuses and reduced profit share.

The dwell time is for the owner.  If any of the employees was fired for theft or other very serious reasons – and they must be serious reasons – the bonus or profit share would not be paid.  Serious transgression voided the bonus paid in arrears.  The same provision applied for the managers if they were fired for serious reasons or when they left and went to work for a competitor in violation of an agreement not to compete;  their bonuses were clawed back.

If they left for less than serious or for reasons that contribute to a competitive threat – such as resignation or termination that were associated with minor (but annoying) stuff – then the bonus was paid – not at the time of leaving but in accordance with the timetable as described herein.

The little company has been running this program as described over the past five years has done well and has very low labor problems, such as turnover.  Perhaps the most “robust” example of an employee issue that has been reported by them was when they fired an employee for being drunk on the job.  They debated about whether this was a serious enough offense to claw back the bonus that would be payable to this employee – they choose to pay the bonus anyway.  The terminated employee was shocked and told several of his friends that still worked at the company that he was going to get paid his last two bonus checks.  That one incident did more to build a lasting positive morale for the troops than anything else.  The idea (or fear) that one would be fired solely to save bonus money was removed from their heads.

This was a smaller company that was comprised of approximately 60 employees and the implementation of such a program was not difficult.  The beauty of this bonus plan is also its simplicity – all of the incentives were aligned, all shared, and the owners have been very authentic to paying out or not paying out – bonuses to ex-employees.

We have recommended this approach to a number of our clients for their business operations.  In general those who implement their version of the approach – see dramatic reductions in theft and error and real improvements with employee innovation, morale and generally profitability.

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