MBO Bonus

I had never heard of an MBO Bonus until our CEO told me he was adding one to my compensation plan. As the VP of Sales at a venture-backed, B2B SaaS company, I welcomed adding every bonus possible to my comp plan. In this article, I'll answer the following questions: 

1. What is an MBO bonus?
2. How do you calculate an MBO Bonus?
3. What are best practices for MBO bonuses?

What is an MBO bonus?

MBO bonus stands for Management by Objectives bonus. It is a performance-based bonus awarded to employees who achieve predetermined goals that align with the organization's overall objectives. MBO bonuses are intended to motivate employees to perform at their best, resulting in increased productivity, engagement, and accountability. The bonus serves as a reward for meeting or exceeding expectations and encourages employees to continue striving for excellence in their work.

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How do you calculate an MBO Bonus?

To calculate an MBO bonus:

1. Establish performance criteria.
2. Assign weight to objectives based on importance.
3. Set specific targets for each objective.
4. Measure employee performance against targets and criteria.
5. Calculate the bonus based on performance scores and bonus pool allocation.
6. Communicate the bonus amount and provide feedback on performance.

The calculation process can vary depending on the MBO program in place, so clear communication and transparency are crucial.

Best practices for MBO bonuses

Here are some best practices for establishing MBO bonuses for your team:

1. Align the objectives set for employees with the organization's overall goals and vision.
2. Set realistic and measurable objectives, with clear criteria for success.
3. Involve employees in the goal-setting process to increase buy-in and commitment.
4. Provide regular feedback and coaching throughout the performance cycle to help employees stay on track and improve performance.
5. Keep the bonus structure simple and transparent so that employees understand how it is calculated and what they need to do to earn it.
6. Evaluate the MBO program regularly to ensure that it is still aligned with the organization's goals and objectives and is driving employee performance.

By following these best practices, I hope you can either better motivate your employees or better negotiate how your personal MBO bonus is structured.