Karman, Culture, and Policy Pt4 — Bonuses
Bonuses, everybody wants them but they never seem to live up to expectations. There are some standard approaches that organizations take but we feel they all fall short of their intended goal.
Reward employees and motivate them to take a vested interest in the success of the business.
With that in mind, we’ve put together a plan that hints at great potential while remaining fair and protecting business viability.
How It Works
Each year we take 15% of our profits and distribute them out to employees based on the amount of time they’ve spent at Karman.
It’s that simple.
Well, there is one caveat. We pay out a year’s earned bonus in equal parts over 4 years.
That’s It?! Explain…
Don’t let the simplicity of this plan fool you. There are some key advantages this plan gives to both the employee and company that may not be apparent at first glance. We think these details are really clever but mostly we just want to share our opinions on something that we spent way too much time thinking about.
1. Bonus Payout is Uncapped
In a lot of organizations your bonus is capped to either a fixed amount or some fraction of your salary (Ex: 10%). Most of the time the cap isn’t an issue but if your employer ever has a really big year you only stand to gain so much. Shouldn’t you get a fair piece of that big year? Our bonus plan acknowledges that we operate in a hit based industry and should we ever get it right our whole team stands to gain. Even in the unlikely event it’s enough to retire on…
2. Payout is Spread Over 4 Years
This next point directly addresses the complication of large bonus payouts. If you pay out too much money your largest bonus earners (usually your key people) are highly likely to retire or start their own thing. Fear of a mass exodus is one of the big reasons many companies cap their bonuses. That’s why we amortize payment of our bonuses over 4 years. So, if in 2018 one of our team members is entitled to $40,000 in bonus they’ll receive $10,000 per year for the next 4 years as long as they remain with the company. The train of thought here is that people are likely to stick around for their full payout. During those 4 years we, as Karman, have 4 years to either strike it rich again (pushing out another 4 years of retention) or scrape whatever magic off that person that helped achieve that first successful year.
If we can’t scrape the magic off in 4 years we don’t deserve to keep them.
A pleasant side effect of these amortized payments is that it smooths out the amount of bonus paid out to people each year. For example, if in 2018 we’re really successful but then in 2019 decide to invest in a major IP project and take a loss, the team can still expect a nice payout for their second 2017 bonus payment.
3. Time at the company
Finally, the issue of deciding how to divvy up the bonus pool amongst team members. Our approach is to value people’s contributions based on the time they’ve worked at Karman rather than salary or some subjective performance metric. The theory here is that the longer someone spends at Karman the larger role they played in the success of each year. When first joining the gap between a new hire and a veteran employee is large but over the years the difference in their hire date means less and less.
For example, if at the end of the year, employee A has 1 year of time with Karman and employee B has 2 years, employee B will get 2/3rds of the bonus pool while employee A gets 1/3rd. Fast forward 2 years and now employee A has 4 years and employee B has 5 years. Their bonus payments will be much closer to one another and that makes sense since they contributed a similar amount of effort to the company at that point.
This works for us since our team structure is pretty flat and we’re quick to cut those that don’t pull their weight. Our approach to splitting up the bonus pool would definitely have some drawbacks in a more hierarchical team or a place that didn’t keep on top of team member performance.
Constant Refinement
While this policy was conceived by me and Jon, the details were refined and adjusted by the rest of the team. As with all of our policies the bonus policy went through extensive review by the whole team. However, our approach isn’t set in stone. We hope that as new team members join they think about, challenge, and add their perspective to the mix. Ultimately it will just make Karman a better place to work and produce stronger work as a whole.
There are a lot more details, examples and explanations in the actual policy below. If you’re interested, take a read through and let us know what you think. Would this help sway your decision to work here? Is the company made vulnerable? Is this unfair to people? We’re always interested in feedback and discussion.
Credit where credit is due
Finally, it would be unfair to claim this was 100% our idea. We were heavily inspired by the team over at Undead Labs and their approach. If you’re interested at all in this kind of thing I highly recommend you check out their approach too.
