The Blade

I was struck by James Surowiecki’s mention in a recent New Yorker piece, “A Fair Day’s Wages,” that when Henry Ford increased wages for those on the assembly line building the Model T, employee turnover and absenteeism decreased dramatically and profits went up. Surowiecki also highlighted that Trader Joe’s and Costco have credited paying higher wages with increased sales. I’ve seen this also with a firm I admire and have been studying, software giant SAS. Its founder, Jim Goodnight, who owns roughly two-thirds of the privately held firm, and can reward employees pretty much as he pleases, has from day-one unselfishly shared the wealth with his entire team by offering generous benefits. The employees, in return, have rewarded SAS, almost never quitting. The low turnover has greatly increased profits.

Business management expert and author Peter Drucker famously suggested that a 20-to-1 salary ratio of CEO pay to average salary at a firm was a threshold above which a company will be afflicted by the corrosive effects of employee resentment. In 2013, the average ratio of CEO pay for the S&P 500 was 204-to-1, and that was up 20% from 2009. We’re moving in the wrong direction.

If you’re building the next GoPro, Facebook, Tesla, Twitter, or Uber, share the wealth with your entire team. This doesn’t have to be in salary. Start-ups are in an optimal position to pay bonuses, in part because they’re subject to less regulation. Set goals and reward people well for achieving them. The key is to make the goals realistic and your communication about them positive. Don’t make people feel like this is really a way of holding their feet to the fire or that you’re pitting them against one another.

Here are some great strategies for making sure everyone is inspired by bonus offers so they’re a win-win:

• Variable Bonus: Each employee receives the same bonus percentage of their base pay if the goal is achieved, plus escalations if it is exceeded.
• Team Bonus: Each employee receives the same amount of cash, plus escalations.
• Profit-Sharing Plan: Pay all or part of the bonuses into a plan that you then divvy up equally.
• Add Attractive Benefits: Invest some of the new profit into gym memberships, better health care coverage, more vacation time, or an upgraded 401(k) plan.
• Creative Benefits: How about for the next year, all employees end their workday on Fridays at 3 p.m.? Or, upgrade your office space to be more employee-friendly?

Or if you do want to raise salaries instead, why not raise all of them by, say, eight percent, including executives, rather than 10 percent for execs and 3 percent for everyone else.

Whichever way you go, make the amount meaningful. Just think about how your team would feel if you gave them bonuses like those awarded to the whole staff last year by etailinsights. I spoke to founder Darren Pierce, who told me because the team exceeded its goal, each employee received a $5,000 bonus check.

Bravo. Charles Dickens would be impressed.