The Dreaded Utilization Bonus

Utilization Bonus = Rewarding employees for how many hours they bill.

Many managed service providers offer their employees an incentive called a utilization bonus.

This basically means that as an employee you need to work at a certain capacity, typically measured in hours.

Then, if you exceed the base minimum for hours you receive monetary bonus.

Manage service providers have been using this method of incentivising their employees pretty much since the managed services industry began.

But carrots can be a dangerous vegetable.

Sure one could argue that having your employees be productive is a good thing.

And no one would argue with that.

But the utilization metric has become something else.

Something no one thought about when it was created.

And that is.

A utilization bonus is not customer friendly.

And that’s because it favors the provider.

Employees are incentivised to bill or generate more hours against customers in order to raise revenues.

This results in higher invoices to the client.

This results in reports being sent to the client that say…

Look how many hours we are billing you.

And more hours equals better service doesn’t it?

Not really…

Consider client focused technology services.

So next time you’re looking for a new IT company.

Ask the company if they provide utilization bonuses for their employees.

Then ask them how that affects your invoicing.

Ask them if it makes your bill go up or down.

Productivity is king.

Everybody wants it.

But productivity does not equal busy work.

Productivity does not mean more hours for the sake of more hours.

Productivity is working smart.

Working hard.

And delivering real value.