Encourage Employees to Think Like Owners

Give your employees a direct connection to the success of your business
2 min read
Opinions expressed by Entrepreneur contributors are their own.

A common mistake in designing bonuses is basing a bonus on a measurement that the employees can't affect. If your bonuses are based on overall company performance, make sure your employees have the ability to affect overall company policies. Involve them in decision-making, strategy, cost-cutting and so on so they can have a real connection between their work and reward. Also, make sure they have the information and training to help the overall business. For example, if your managers understand basic finance and you give them the business's financial information, they will be able to be part of the overall business strategizing. Here are some other ways of giving people a piece of the pie:

  • Give them stock that vests over time or vests when certain milestones are hit.
  • Establish a phantom stock-tracking fund and issue "shares" in the fund tied to performance targets. The shares in the fund can later be used as the basis for distributing bonuses, can be converted to real stock and so on.
  • Give them royalties tied to a specific product line or revenue stream. This is routinely done with creative types (such as recording artists and actors), and your ability to do it depends on whether that product line can support an ongoing expense to earnings. Be careful when setting royalty rates, though--if you're paying too much in royalties, you can hurt the business's ability to grow by paying out all your profits before any has come to the business for reinvestment.

More from Entrepreneur

Get heaping discounts to books you love delivered straight to your inbox. We’ll feature a different book each week and share exclusive deals you won’t find anywhere else.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.
Starting, buying, or growing your small business shouldn’t be hard. Guidant Financial works to make financing easy for current and aspiring small business owners by providing custom funding solutions, financing education, and more.

Latest on Entrepreneur

Entrepreneur Media, Inc. values your privacy. In order to understand how people use our site generally, and to create more valuable experiences for you, we may collect data about your use of this site (both directly and through our partners). By continuing to use this site, you are agreeing to the use of that data. For more information on our data policies, please visit our Privacy Policy.