What is a person looking for when applying for a job with you? Why wouldn’t they pursue this work themselves, as a business owner or freelancer? What do they want from your position and your requirements? When you ask a lot of people, the answer is usually the same: “stability.”
On the other hand, we want results from a person and expect them to deliver, so we want to reward them based on their performance. But what do we get in return? In return, we face difficulties in finding employees, as employers and workers are simply speaking different languages!
Employers are trying to come up with a solution that looks like a “base salary + bonus.” On the surface, everything seems fine, but if we take a closer look at this system, we can see a hidden crocodile lurking beneath. The crocodile emerges when we realize that, from an economic standpoint, the base salary is the amount that serves as the “minimum acceptable” for an employee. It’s the amount they are willing to accept to come to work. And if we are trying to lure someone from another company, their expectations are usually very clear: “at least no less than what I was earning at my previous job.”
On the other hand, an employer is willing to pay a successful person a certain amount that is considered fair compensation. This includes the market aspect of “how much such a person is worth” and the internal aspect of “how much the company is willing to pay.” This amount is always above the “sanitary minimum,” but not by much.
Within this difference between the “sanitary minimum” and the “fair price” lies a bonus that, when added to the “sanitary minimum,” forms the “fair price” when the worker’s productivity meets a certain standard.
So, the crocodile, or rather its head with eyes, is that “minimum” and “fairness” are very close to each other, and it turns out that there’s no room for the size of the bonus to grow. It doesn’t motivate. It’s not taken into account by the employee and doesn’t play a role in their life plans. What’s the point of paying a bonus if it’s so small?
The tail of the crocodile, along with its backside, hides in the fact that bonuses are often “rounded” without any real connection to their economic justification. 5%, 10%, 15%, and so on. These figures are almost pulled out of thin air. Simply because they look nice. However, the economic sense disappears, and the problem only worsens. If the “minimum” was 10,000 hryvnias, the “fair” amount is 15,000, and the bonus calculated from the sales volume is 7.6923% (let’s assume the expected sales volume is 65,000 hryvnias), then by rounding the bonus up to 10%, we are forced to lower the sanitary minimum, which in turn deteriorates the quality of candidates for the position, and then we wonder why our expectations are not met. If we round the bonus down to 5%, we worsen our offer as an employer, and the person will not receive their “fair” compensation based on the expected output. In fact, we are unjustifiably inflating the sales target.