Thoughts on compensating your team of designers/developers

A reader asked about best ways to provide bonuses to developers. I’m not a big fan of bonuses. First, it is hard to be objective about how much bonus a developer or designer should get (as compared to salespeople, investment bankers, and others who make a measurable, specific contribution). Second, people tend to become entitled about bonuses, and grow to expect them every year without fail.

So here is an ideal compensation ladder:

1. People should start out as contractors, and get paid on time and fairly for quality work. Increasingly, right or wrong, like it or not, we are moving to a freelance economy. Most people start here to prove their worth.

2. Good contractors earn the right to become employees, with benefits and a salary. Only bring an employee on if you are sure that you will use 100% of their capacity, flexing up and down with a pool of contract labor.

3. Good employees get favored with many non-cash benefits: pick of best assignments, flex time, getting thanked in a variety of personal and appropriate ways, being part of a fun culture, contests, mentoring by more experienced designers/developers, etc.

4. Core employees — those who are essential and who provide consistent, measurable benefits — can earn equity and/or bonuses. Equity goes to employees who add unique enterprise value to your company. Bonuses go to employees who achieve specific, measurable goals.

5. Bonuses to ALL employees are a good idea from time to time when the company has an especially good year. But you should make it clear that these are one-time. Also, think about distributing these to people based on their seniority, or as a percentage of salary.

The above is a bottom line approach to thinking about compensation. Many of you won’t like it. I’m used to that by now:)

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  • http://www.mjswebsolutions.com type0

    Great post. Thank you for your thoughts.

    I was curious about compensation for our referrals? I usually take them out to a nice dinner, but wondered if you had any other ideas?

  • http://www.tswinteractive.ca/ Pavel_Nedved

    I must agree. I’ve found when I give employees bonuses for meeting a very tight deadline, they tend to not work very hard when they’re not receiving a bonus – and they do come to expect them on each job.

    A friend has a great way I think to motivate his team – he sets a goal for cash each week, and if his team reaches it, he adds an additional $0.25 per hour worked to each of their salaries for that week. If not, they just get their normal salary.

    I might put that into work for my business in the future.

  • http://www.realityedge.com.au mrsmiley

    Many of you won’t like it. I’m used to that by now:)

    Considering how many people are reading this blog and taking your advice, you must be doing something right. I for one enjoy reading your opinions on these topics. Most of us are locked into a certain mentality and method of doing things, you provide a view from a customer perspective. This is something a lot of us in our craft are not aware of for various reasons. If people here are taking all this advice from this perspective in a negative manner, then maybe they should look at how tightly they hold onto the way they do things and should learn to be more open to change and contructive critism.

    Enough ranting though, my take is that a regular salary/position review works well. Say two times year, take the time to sit down with each employee individually and get them to assess themselves (and you assess them as well seperately) against some previously agreed objectives. Then compare your results, discuss the differences and come to an agreement on why those differences exist. From there new objectives can be established, and salaries and responsibilities can be evaluated in light of the dicussed points. It makes it very hard for an employee to justify they “should” be getting a bonus without being able to prove they met their objectives (KPI).

  • http://www.eleytech.com beley

    I definitely agree with setting objectives and having annual or semi-annual reviews. Allowing employees to objectively review themselves is a good tool also. It makes them seriously think. Anyone who reviews themself as all perfect or highest-marks should tell you something about them (not good).

    Making people take an introspective look at themselves can help even if there aren’t bonuses on the table. I don’t neccessarily agree with offering bonuses regularly at all, unless (like Andrew noted) it is for something completely quantifiable like increased sales. Employees will definitely start to expect them as part of their compensation plan.

  • Etnu

    Re: 1 & 2 — The only way that you’ll ever get quality, reusable, long term results is to have a team of happy, talented employees. A great programmer that you’re only using at half capacity is worth a dozen mediocre programmers at full capacity.

    As far as being able to objectively measure programmer or designer contribution goes, though, there really are a few simple metrics:

    1.) Projects (modules / components / whatever) completed.

    2.) Original solutions that improved the bottom line in some way (reduced development time, labor needs, etc.). Yes, this requires actually calculating these things.

  • GUEST

    why should bonuses only go to sales staff, i dont see how they are the only ones who make significant contribution to the business, I’d like to see them go out and sell websites with no (or un-talented) web designers / developers.

  • Anonymous

    I feel that employees shouldn’t ever expect anything from their bosses other than a paycheck in the amount that they rightfully earned. If they don’t like it, they can go elsewhere; however, as you mentioned, if you’re going to give them a bonus, make sure that they realize it is a one-time thing, or you’ll have conflict.

  • codeninja

    In response to Anonymous above…

    I find it helpful to look at the employee situation in terms of social ideologies…

    In a socialist environment the employee works for what they agreed on in terms of salary and compensation. At first the employee works diligently and hard on completing projects. But over time, after working long hours to meet deadlines, and busting ass to create money saving devices for the company, if they do not receive additional compensation(motivation) to produce then their quality of work will decrease… Why bother, its not like the application that will take 60 hours of their time to create to save the company loads of money will be worth their time because they will see no reward for it.

    In a capitalist environment each employee is rewarded for their team efforts. If an employee meets their deadlines, produces, and comes up with great ideas, then additional perks and rewards are justified… This will encourage the employees to work harder in the future to achieve more rewards. If the employee simply works to meet standards, then the compensation is the base of what they will get normally.

    Mega Corps of America did not get there by simply requiring the status que to be met. They achieved their status by encouraging development of ideas, of product lines, and offering incentives. Our industry is NO different in that we need to constantly up the anti for each site we create. Each new site should be better than the last, better design, better graphics, new techs, new approach, more usable… you wont get that level of production out of your staff without incentives of some nature whether its a company dinner at a fancy restaurant in town, trip to a convention, or simply a bonus for hitting a major project under budget.

  • TheLunchBox

    I strongly disagree with #1. As a contractor, I would very rarely put forth my best effort or commit my most advanced work to a company that was unwilling to commit to me as an employee. Also as a contractor I was constantly working with different people with different skils/styles. By the time I started working well within the team, it was time to move on to a new contract.

    The work I’m doing as a permenant employee is much better because I feel I making an investment in my own future not just an employers pocket.

  • Betsy DeGeorge

    Item 3.

    Contests? A fun culture? I thought we got over that in the year 1999. That was the year that the CEO of our company bought us all hula hoops and then laid half of us off.

    I didn’t need a hula hoop then and I don’t think I need a fun culture now!