Bonus Programs...What Should They Consist Of?
By Pamela Alton
When an owner contacts me looking for a manager, one of the very first questions they ask is, "How much should I pay the manager, and what sort of bonus program should I have to motivate him?" I am not going to discuss wages in this article; however, I will try to give you some insight into the type of bonus programs I see being offered in the industry. Please keep in mind when designing a bonus program that there is no right or wrong.
A bonus program should consist of two things: One, it should motivate the manager to reach for a clearly defined goal; and two, the bonus should be attainable. There is nothing more deflating to a manager than working his tail off for bonus he can never reach.
One thing for sure is all managers will receive a base wage, and 95 percent of the time, they will also get some sort of bonus for doing a good job. In addition, about 70 percent of the managers today are receiving medical benefits.
To keep a manager sharp and motivated to answer the telephone effectively, some owners like to pay a commission per unit that the manager rents. It could be $3 to $5 for each rental of a 10-by-10 or smaller, and $5 to $10 for each rental larger than 10-by-10. Or, it might be a flat fee of $3 to $10 no matter what the unit size. This type of bonus could be paid to the manager and relief manager, based on how many units they each rent. A lot of owners like this type of bonus because it is probably the easiest for the accounting department to handle. However, there is not much motivation for the managers to keep sharp and on their toes. Sure, they will receive a per-lease bonus for each unit rented, but where is the motivation to keep their existing tenants happy or to collect as much income as possible each month?
Percentage of Monthly Income
The manager could get a percentage of the monthly income. For example, if your facility has been bringing in $40,000 per month and you think a good manager could bring in more, you might say to your manager, "I will give you 20 percent of anything over the $40,000 base." So, if the manager brings in $43,000, which is $3,000 more than the expected income, he will receive $600 for the month, and it could be split with the relief manager, 70/30. This type of bonus really motivates the managers to make timely collection calls and collect as much money as they can each month, not rent units at a discounted price or waive late fees.
Income and Delinquency
The bonus could be based on a predetermined monthly goal of the income and delinquencies that will be expected at the facility each month. When you sit down with your manager at the end of each year to prepare the annual budget, you might say, "OK, for January we will set goals of 92 percent occupancy and 5 percent delinquency, and for February we will have 93 percent occupancy and 5 percent delinquency. For March, it will be 95 percent occupancy with 4 percent delinquency," and so on. If the manager achieves the occupancy goal, he gets $200 or $300; likewise if he achieves the delinquency goal.
With a "split" bonus, the manager could achieve half the bonus if he reaches one goal but not both. This type of bonus also motivates the manager to get the highest occupancy and lowest delinquencies. Most managers think in terms of occupancy and delinquency percentages, not monthly income. If they achieve higher occupancy and lower delinquency, then this translates into higher profits for you.
Shopping or Sales Skills
Some owners are now using a shopping or sales-skill bonus in conjunction with other bonus programs. In this case, the manager is shopped on a monthly basis, and given a bonus based on his telephone or face-to-face performance. With this type of bonus, the manager usually is given a telephone sales script to follow. If he uses the script and asks all the questions--providing the facility name and directions, providing his name, asking for the caller's name, etc.--he is given a specified bonus, perhaps $100. If the manager misses just one item on the script, the bonus is reduced to $5 or $10--a big difference. There is a real incentive for the manager to make each telephone call count and should translate into more rentals. Used in conjunction with other bonuses, this method keeps the manager sharp in his telephone sales.
There are several "shopping" services in the industry today. Some shop your manager and just send him a written notice a month later, which has some good points. However, if you just give the notice to your manager and don't discuss the findings with him, it is a worthless piece of paper. Some services will immediately follow up with your manager after the "shopping" call and evaluate his telephone presentation, as well as send a written evaluation. This way the manager can immediately get feedback from his telephone presentation.
Late Fees and Commissions
Some owners figure X amount per month in late fees will be collected at their facility. Managers, on the other hand, often prefer to drop the fee when a tenant complains about it. To reduce late-fee credits, an owner could work them into a bonus system. For example, all late fees over a specified amount go straight to the manager. This will make the manager think twice before he is so willing to drop late fees, because he is giving away some of his own money.
Another avenue for bonuses is in sales of ancillary products. Some owners pay commissions on sales of locks, boxes, packing supplies and insurance policies, and give this to the manager as a monthly bonus, which motivates them to sell these items.
Rental trucks are another form of income. If you have trucks, it's advisable to pay your managers a commission on them, otherwise there is not a lot of motivation to actually rent the trucks. Renting trucks is not easy for the manager, especially at an active facility. Truck-rental companies may want to convince your manager that he is there only to rent the trucks. However, your business is owning a storage facility and renting space. Your manager should devote his time to renting space and collecting rent. With truck rentals, your manager has two bosses: you and the truck-rental company. By compensating your managers for truck rental, they will have the incentive and motivation to rent the trucks and bring in the added revenue. The average truck commission paid to the manager is 30 percent of the owner's profit. Some owners pay 50 percent, some only pay 5 percent and some pay nothing.
If you have more than one site, you might want to consider organizing contests between your various locations as another incentive to keep your managers sharp. If your sites vary in size or locations, it is a little more difficult to determine which site does better than the rest. Therefore, these contests should probably be based on percentages. For example, you could reward managers at the facility with the highest percentage increase in rentals or the facility with the highest percentage reduction of delinquencies or the highest percentage increase in income over the previous month, and so on. Obviously, this sort of bonus program takes more time to calculate than a per-rental bonus. However, you might find it drives your managers to compete with one another, resulting in more profits. You could use weekend trips, cash, small TVs or appliances, or whatever you like as contest prizes.
Whatever bonus program you chose to motivate your managers, it should be designed to keep your managers sharp and on their toes and to make them stretch to reach goals. At the same time, it should be attainable by the manager. It is de-motivating for a manager to work hard for a bonus that is so far out of reach that he can never achieve it. It will only deflate your manager and, in the long run, hurt your facility as well as your chances of retaining a good manager.
You and your manager might elect to design a program using a combination of bonuses to help keep them sharp, motivated and focused. These bonuses could be paid on a monthly, quarterly, biannual or annual basis, or a combination of these. By working with your managers and getting their input and feedback, you will come up with a good program that they will be pleased with and that will make you, your manager and your facility a winner.
Pamela Alton is the owner of Mini-Management TM,
one of the industry's largest nationwide manager services.
Mini-Management also offers policy and procedures manuals, sales
and marketing training manuals, inspections and audits,
consulting, low-cost "Storage Support" TM, telephone
shopping and training seminars.
For more information on the services offered by Mini-Management, call (800) 646-4648.