Toward the beginning of my career, I worked for a company that had a "bonus" program. Every June and December everyone would get an extra check. Everybody got the same percentage of their salary. It had no affect on our performance and our performance had no affect on it.

That was a "guaranteed bonus." These days, when you hear the term it's almost always related to CEO compensation. 

Today, since it's the day of the Home Depot shareholder's meeting you will hear that term in relation to Home Depot CEO Bob Nardelli's compensation. The media are already weighing in with stories

From the Wall Street Journal
CEO Pay: Showdown Looms at Home Depot

From Business Week
Home Depot's CEO Cleans Up

From the New York Times
With Links to Board, Chief Saw His Pay Soar

I'll leave others to wrestle with the overall issues of CEO compensation.  CEOs are compensated on a star system, like athletes or movie actors.  In those systems, pay is primarily related to what other players of the same type are receiving and unconnected, mostly, from actual performance.

That's why the idea of "guaranteed bonus" bothers me so much.  "Bonus" is from the Latin for "good." A bonus is something extra that you give for a special reason, like good performance. In other words, when it's guaranteed, it's not a bonus.

If you're going to have a bonus system, use it to encourage performance that you want.  Use it to send a message.

In Mr. Nardelli's case, the message is all wrong.  His salary and $3,000,000 bonus are guaranteed.  In 2004 Nardelli received $1.75 million in real bonus.  In 2005 that figure more than doubled to $4 million.

The Home Depot board says that Nardelli's bonus was based on overall corporate performance. In the same period that his bonus was doubling, the total payout under Home Depot's "Success Sharing" program, which gives bonuses based on store performance to some 300,000 non-salaried workers dropped by more than 50 percent.

What's the message here?  If both bonuses are based on company performance, then surely they ought to at least be moving in the same direction.  The message is that the board will make sure that the CEO gets lots of money no matter what, and if things get really good, there might be some crumbs left over for the folks who stock the shelves, ring the registers and drive the trucks.

If you have a bonus program, I hope you send a better message.

Wally Bock helps leaders at every level improve the performance and morale of the group they're responsible for. His latest book, Performance Talk: The One-on-One Part of Leadership, makes learning key leadership principles almost effortless because it teaches through a story, the way human beings have always learned complex lessons best.