you may have already done both of these things but i cannot stress their importance enough.

as for incentives, they should be pretty different based on roles. for sales staff, i trust you already have sales quotas established with significant bonus payouts or accelerators based on over-achievement. for support staff, i think some sort of periodic review of customer satisfaction with the support experience combined with new ideas that bring support costs down over time are the right 2 measures to offer incentive-based pay on.. for your testers, you should be careful not to simply measure defects found but instead incent based perhaps on a combination of defects found, developer satisfaction with the testers, and new ideas that reduce the testing burden.

i’ve always found incentives around developers the toughest. i wrote some about this in my initial piece. my guess is over a reasonable period of time you’ll know who the best are – those should be candidates for nice bonuses and perhaps additional option consideration down the road.

not sure if these comments will prove helpful. i wish you the best of luck in retaining your team & growing your business.

-dave

I run a really small software company with 6 developers, 2 testers, 3 sales and support staff. In myr grand scheme of things, I hired, trained and created this core team for product development.

Right now we are not profitable – hope to be so in the next few months. The demand for the skills that the team has is pretty high – essentially this means that they can leave when they want and finding a job will be no problem at all.

Now I need a decent incentive based salary structure that motivates the small team without causing them to unduly compete against each other.

Help!!

To make peformance-for-pay system work well in a large org, it is critical that all top managers are “A” players and each has “ownership” in the company… In my experience, Bechtel – they are a $16+ Billion engineering-procurement-construction company – has done this quite well… Every SVP is a partner/owner in the privately held holding company (s-corp!) and virtually all senior managers are “A” players who

With today’s technology, we can take the performance ranking to the next level – as we have done with our team members, a majority of whom are offshore. All our team members do force ranking of other team members, and grade them on a scale of 0-10, all via online surveys… Also, in addition, they distribute a hypothethetical bonus pool amongst the team… And, the client team members also provide similar feedback… Thus, we can do a lot of things that the Big-Consulting firms do, at a fraction of costs/bandwidths by doing it all via online surveys. Over past 12 months and 3 release cycles, we have followed this process, where final decisions are made by the team lead/manager and the cash incentives are 20-40% on top of above avg base salary… As a result, we have a high performance team incld the 15+ offshore employees…

Plus, if I reward only workaholics, what message is that sending? I become a sweat shop like some of the video game development houses we’ve been reading about. Reminds me of a course I took at MIT, where only one problem set in the whole class was given a “5″. If you got all the answers right, you got a “4″. But if you went nuts on the problem set, submitted all kinds of extra work, etc., you might get the coveted “5″. It was irritating and pointless and stupid (yes, I’m talking to you, Mike Hammer).

Doing performance reviews has always reminded me of college admissions. You have to let some of the alumni’s C-student offspring attend, because otherwise you don’t get any big checks at fund-raising time. But at the same time, you can’t afford to admit too many slackers, or overall student quality goes down.

The purest performance-based reviews are done by consulting firms. They are absolutely consumed by reviews (as they must be, because only the tiniest fraction of “associates” can ever be allowed to become partners). I’ve seen consultant performance review forms that are staggeringly complex. Peer reviews, manager reviews, partner reviews, customer feedback, self-analysis, critiques of the self-analysis, critiques of the critiques, and so on. This process can consume a significant fraction of the aggregate IQ of the firm.

What seems to work best in my experience is when everyone owns a piece of the company, which usually ensures that all the oars are pulling together. Problem is, in a big company it’s awfully hard to divvy up the lousy few percent of equity that’s typically made available by owners/investors, so that it has any material impact for the recipients. And, the slacker problem can become an insoluble problem if an “owner” decides to stop pulling his/her weight.

Sales compensation is another supposedly performance-based model, which rewards by revenue contribution. But, I have seen many examples of sales people (in the spend management vertical, too) being let go or forced out, because their commissions drive their income above that of jealous CxO’s or sales managers. The prospect of million-dollar years is always held out to sales people, but seldom does it occur more than once. Next year, the million dollar baby finds his territory split up (“you can’t possibly handle all these accounts by yourself”) or her compensation messed with (“for really big deals, we’re cutting the commission percentage way back”).

Maybe Oracle got it right somehow, but I can’t say I’m overjoyed with any performance-based solution I’ve ever seen.