Bonuses and the bottom line

Logical Choice Technologies CEO Cynthia Bertucci Kaye

Layoffs bad for business

More Videos

Questions & Answers

• Classroom vs. crash-course
• The company is bust - but corporate card bills live on
• No profits, no loans: How to survive
• How to profit when buyers are broke
• Turning customers into repeat buyers

Quick Vote

How effective will the $787 billion stimulus plan be in reviving the economy?

• It will help a lot
• It will help, but more will be needed
• It's not nearly enough
• It costs too much

or View results

(Fortune Small Business) -- The success of my company seemed to come so easily that I assumed it was part of our natural growth path. But I learned the hard way that motivated employees deserved most of the credit.

In the past decade my firm, Logical Choice Technologies, which sells educational technology, has grown almost beyond recognition. When I started it - with little more than a degree in elementary education - I was working out of my basement, selling Apple and Compaq computers to schools. By 2007 my company was profiting handsomely from sales of interactive whiteboards (large touch-screen displays that connect computers to projectors) to school districts in nine states.

As the staff grew to more than 150 full-time employees across the country, I found that the team spirit we had enjoyed when there were just a few of us began to decline. This was especially true for employees located outside our headquarters, who didn't feel as much a part of everything we had worked so hard to create.

To help recover that energy, I introduced a firmwide profit-sharing program in 2005. I set a gross profit goal and told everyone that if we reached it by the end of the year we would take 10% of the profit and split it equally among everyone who had been at the firm for more than 12 months. I would get the same bonus as the receptionist.

Reaching that target required teamwork to maximize sales and minimize expenses. One key motivational tactic: I sent out monthly e-mails that updated the staff on our progress toward the profit goal. I made sure everybody knew what we were doing right and what we needed to do differently to maximize profits.

It was a great year. We hit our target, and I wrote $770 checks to nearly every employee. But when it came to planning for the next year, I wasn't sure profit-sharing was the way to go. I decided I wanted even more growth in the future: I would plow 100% of our 2006 profits back into the firm. No more bonus checks.

The next year-end close was less pleasant. We had invested heavily in expansion - new hires, vehicles and supplies - but our sales didn't cover the outlay. We posted average revenues of $37 million in 2006, but expenses were unusually high. With no motivation to save money and no e-mail updates on the company's financial situation, my employees became less careful about controlling costs. Losses topped $1 million that year.

Clearly, our performance suffered in part because my employees no longer felt invested in the company. So in January 2007 I announced that the profit-sharing program would be reinstated. It worked like a charm: Everyone found a way to contribute, from the receptionist who took checks to the bank daily - so the funds could start collecting interest as soon as possible - to the in-house travel agent who suggested that a colleague stay at a certain hotel because it was 25% cheaper than the others.

"Otherwise," I heard her say, "you're eating into my bonus!"

By the end of 2007 we were back on track. Revenues hit an all-time high of $65 million. We reached our profit goal, and I handed each of my employees a check for more than $1,300. We even gave a pro rata share to colleagues who had been on staff for less than a year.

It looks as if 2008 will be even better, thanks to a record summer and squeaky-tight cost controls. Those annual checks changed everyone's mind-set for the better.