California Institute for Rural Studies (CIRS) and
National Center for Appropriate Technology (NCAT)
With input costs and market prices continuing to add pressure to farming operations, the ability to maintain satisfied, engaged, and skilled employees who are familiar with the farming operation is becoming increasingly important. Of the different strategies growers can employ to increase employee satisfaction and retention, variable pay systems such as profit sharing, bonuses, and employee ownership appear to be some of the most important.
This handbook provides an overview of variable pay strategies used on California farms, including formal and informal bonuses, profit sharing plans, and employee ownership plans. These strategies are highlighted in case-study examples. Also included are some practical considerations to keep in mind when implementing a variable pay system, ideas for engaging employees with bonuses, examples of non-monetary rewards, formulas for calculating bonuses, and resources for more information about compensating and managing farm employees.
We are sincerely grateful to the participating farmers and farmworkers for generously sharing their stories and insights that provide the basis for this handbook. Additionally we would like to thank the researchers, human resource managers and consultants who provided the background context for our case-study research. Thanks also to Judith Redmond, Sarah Coddington, Rex Dufour (NCAT), and Lisa Kresge for the photographs used in this handbook.
Funding for this project was provided by the Washington State University Western Center for Risk Management Education and the USDA Cooperative State Research Education and Extension Service (CSREES). We are grateful for their support. This material is based upon work supported by USDA/CSREES under Award Number 2007-49200-03892.
The information in this handbook is based on case-study research conducted by the California Institute for Rural Studies (CIRS). Interviews with farmers, farm managers and employees on five farms throughout California provide the basis for the handbook.
The California Institute for Rural Studies is a nonprofit social science research organization dedicated to promoting a rural California that is socially just, economically viable, and environmentally balanced. Founded in 1977, CIRS conducts applied research focused on promoting a more sustainable food system and improving conditions for agricultural workers.
For more information about this handbook or the California Institute for Rural Studies, or for information about where to get technical assistance to help you make changes on your farm, please contact:
The California Institute for Rural Studies
221 G Street, Suite 204
Davis, CA 95616
Tel: 530-756-6555. Fax: 530-756-7429
ATTRA offers hundreds of publications—many in Spanish—on organic and sustainable agriculture topics including marketing, crop production, processing, livestock, composting, ecological soil & pest management, farm energy, and agroforestry.
All these publications can be downloaded free of charge at www.attra.ncat.org. Paper copies can be ordered by calling 1-800-346-9140. The Spanish line is 1-800-411-3222. ATTRA is a project of the National Center for Appropriate Technology (NCAT).
A skilled, satisfied and stable labor force is essential to the success of most farm
operations. Nonetheless, many farms experience turn-over with related financial losses due to the high cost of hiring and training new employees. With input costs and market prices continuing to add pressure to farming operations, the ability to maintain satisfied, engaged, and skilled employees who are familiar with the farming operation is becoming increasingly important.
There are a number of mechanisms agricultural employers can utilize to increase employee satisfaction and retention, including competitive wage structures and benefit packages. Of the different strategies growers can employ to increase employee satisfaction and retention, variable pay systems such as profit sharing, bonuses, and employee ownership appear to be some of the most important.
In fact, findings from a recent wage and benefit survey conducted by the California Institute for Rural Studies identify profit sharing and bonuses as the strongest predictor of employee retention. (See the Resources section for the link to the online report.) Respondents implementing profit sharing and bonuses reported five-year employee retention rates of 49%, compared with 34% among those not implementing those strategies.
The benefits of properly implemented variable pay systems include:
Additionally, variable pay systems represent an important risk management strategy, providing farmers with the ability to contain fixed labor costs in the face of lower than expected revenues and supplement wages when revenues are higher. This is especially important for the many California specialty crop growers, for whom labor costs represent a large percentage of expenses.
Variable pay systems are also an important means of showing appreciation to employees for their contributions to farm success. Variable pay systems can be an effective way for a farm owner to illustrate that they care about their employees’ well-being. They also promote and reward employees for taking initiative, expanding their skill-set or assuming additional responsibilities, all of which can greatly contribute to the viability of farm operations.
Additionally, variable pay systems can be important tools for retaining valuable employees, motivating employees during strenuous periods of the season, increasing teamwork and encouraging internal supervision among employees, who have a vested interest in ensuring that co-workers are productive and refrain from activities that may result in losses. Finally, some variable pay systems have the potential to engage employees to see the farm from the perspective of owners, which will encourage them to seek ways to maximize farm success.
When used thoughtfully, variable pay systems provide numerous benefits to farmers and farmworkers alike. However, when not properly implemented, variable pay systems can negatively impact farm operations by lowering worker morale and satisfaction. A lack of transparency regarding grower finances can result in mistrust when pay amounts are less than expected. At the same time, perceptions of inequitable distribution to workers can result in conflicts and resentment among workers, who often compare how much they have received.
The variability of farm income, difficulty in measuring some farm outputs, and lack of employee control over factors that affect farm success (e.g. weather and market prices), make it difficult to implement variable or incentive pay systems in farming operations. The most common approach to variable pay is by paying for piece work. However, we do not discuss piece rate systems because they have been extensively discussed in other literature. For more information on best practices regarding piece work, see the University of California Agricultural Labor Management website listed in the Resources section.
According to Farmworkers…
According to case study research conducted by the California Institute for Rural Studies (see Resources), participating farmworkers cited the importance of variable pay with respect to job satisfaction, productivity and retention. Site visits confirmed that worker satisfaction and motivation were notably higher on farms with more organized, transparent and generous variable pay plans.
However, farmworkers cited negative impacts when variable pay systems were not implemented properly, including mistrust of growers claiming bad years, conflicts among employees based on perceptions of inequitable distribution and reduced morale associated with lower than expected amounts.
When asked about these issues, the majority of growers admitted to using very informal approaches to calculating profit sharing and bonuses, and expressed high levels of interest in learning about more formal ways of doing so.
In spite of the difficulties with implementation, the use of variable pay systems is fairly widespread, as reported by 43% of respondents to the Farm Employers Labor Service (FELS) wage and benefit survey. The purpose of this manual is 1) to provide farmers with an overview of a few of the different types of variable pay systems that can be effective tools for managing farm labor and 2) to highlight factors for consideration when implementing these systems.
For farmers not currently implementing these systems, we hope this information will help you assess whether these strategies are appropriate for your farm operations.
For farmers currently implementing variable pay systems, we hope you will gain some insight into ways to more effectively implement these systems and enhance your farm operations.
One final caveat: while variable pay systems may work well on some farms, it is important to examine your specific operation to see if variable pay is an appropriate strategy for your farm.
This manual covers three types of variable pay systems: bonuses, profit sharing and employee stock ownership plans (ESOPs). Each section provides an overview of a variable pay strategy including the key reasons for using the strategy and key factors to keep in mind when implementing the approach.
Case study data collected from five California farms accompanies each section. The case studies provide a few examples of ways some farmers are using variable pay to maximize farm success. While not comprehensive of all variable pay options, these examples are intended to illustrate how some farmers are addressing their labor needs through variable pay systems.
"I am interested in the finances of the company and what the owner says because it is important to know about the farm stand and the farmers’ market workers to clarify how the company works and how it is doing. It is important to me that I can contribute ideas and report about what is going on in the fields and discuss it with the supervisor because it helps the company and if it is something that affects the company in a bad way, then it is bad for us as well." — California Farmworker
The following pages offer an overview of the different types of variable pay systems: formal bonuses, informal bonuses, profit sharing, and employee stock ownership plans (ESOPs).
Bonuses are variable compensation beyond regular wages that is paid directly to an employee. Bonuses can be used to reward individual or group behavior or performance. There are two main types of bonuses: formal bonuses, and informal, or spot bonuses. Formal bonus systems are based on specific criteria outlined ahead of time, while informal bonuses are random or unexpected. The main factors that differentiate these two types of bonuses are timing, degree of structure, and employee expectation.
Bonus compensation can be calculated based on a number of factors including the following:
- Fixed dollar amounts per hour, day, quarter, or year
- Percentage of employee income or farm profits
- Dollar amount equivalent to a week or month salary
- Tiered approaches based on percentage of sales or different years of service
- Multi-factor approaches (see Appendices)
A formal bonus is a consistent and anticipated bonus given to recognize or reward employees for individual or farm performance. Formal bonuses are often structured, based upon a specific goal, and issued at a set time per year. (See Appendices for formulas to use in implementing formal bonuses.)
What are the goals of a formal bonus?
Examples of formal bonuses
Factors to keep in mind with formal bonuses
On-Farm Example #1:
The bonuses are really to thank our crew and to let them know that we have noticed and that we appreciate how hard they work. It is a great way for an owner to make the employees feel like they are getting a share. And if it is a good year, then they are going to get a bigger share than if it’s not a good year. —Capay Valley Farmer
Farm location: Capay Valley
An informal bonus is a casual or unexpected cash bonus given directly to an employee. Informal bonuses are the most personalized because they illustrate that an employer recognizes and values individual employees and appreciates employee efforts. They are most effective when the reward is given immediately following the event or behavior being recognized.
What are the goals of an informal bonus?
Examples of informal bonuses
Factors to keep in mind with informal bonuses
Creative Approaches for Engaging Employees with Bonuses
- Develop a randomized drawing for bonuses prizes to motivate and engage employees.
- Allow other employees to nominate co-workers for recognition to encourage teamwork and cooperation.
- Develop a point system structure through which employees can collect points from spot bonuses and then redeem points for a cash bonus on a quarterly basis.
- Allow employees to select bonus from a menu of options such as gift certificates, bonus gifts, and cash.
- Engage employees in developing the bonus system. Have them help identify performance criteria and behaviors that improve farm performance or save money.
On-Farm Example #2:
Our fundamental core value is that you ought to share the success with those who helped bring it to you. It has a way of returning to you. The more successful you are, the more ability you have to share that success. —Sacramento Valley Farmer
Farm location: Sacramento Valley
On-Farm Example #3:
We have a lot of longevity in our workforce. We have a lot of people who have worked for us for 25 years. People have a tendency to stay with us and that is the proof in the pudding for us. —Central Valley Farmer
Farm location: Central Valley
Seasonal Employee Bonus: At the annual Christmas party, they give a small bonus to employees who have not been employed for a full year. As the employer explains, “Everybody gets at least $50 regardless of whether they have only worked here a week. Everybody deserves to have a Christmas dinner and that’s about all that $50 will buy anyways.”
“Our bonus system is very top-loaded for people in key leadership positions. We are trying to reward people that are doing a superlative job, that are leading and are setting an example for other people. We reward the people who, if
we lost them, might take us years to replace. Those people are in the top echelon in the bonus system. It becomes a subtle communication tool.”
Non-monetary gifts are another approach for providing bonus compensation to your employees. Non-monetary gifts have several advantages. For example, giving a gift can be more memorable to employees than cash especially if the gift is specifically tailored to the employee. Additionally, when farm finances are tight, a special gift can have more impact than cash.
Things to Keep in Mind
Profit sharing is a system by which a percentage of profits are shared with employees for their contribution to farm success. Based upon the assumption that employee performance contributes to farm performance, profit sharing plans aim to encourage employees to work toward increasing farm profits. Employees receive a share of profits using a pre-determined formula based upon a percentage of income, an equal distribution of shares among employees, or an approach that incorporates multiple factors.
There are two main approaches to profit sharing: 1) a cash-based profit sharing plan distributes a percentage of profits directly to an employee in a cash bonus on an annual, semi-annual, or quarterly basis and 2) a deferred profit sharing plan contributes a percentage of profits to a pooled or individual retirement plan for employees.
What are the goals of profit sharing?
Factors to keep in mind with profit sharing
On-Farm Example #4:
The bonus modifies behavior because it is tied to the evaluation. The profit sharing is to foster good cooperation – so if everybody cooperates then we are going to make a decent profit. —Central Coast Farmer
Farm location: Central Coast
“The primary motivation of the bonus is to encourage cooperation; to have people recognize that their collective efforts are very important to our annual success. By offering a bonus we can encourage that level of cooperation. It is evidence to the employee that the company is very interested in being successful.”
A small but growing number of farmers are participating in employee stock ownership plans. ESOPs are an innovative way of achieving a shared sense of ownership for the farm and provide a vehicle for potential farm succession.
Under an employee stock ownership plan, each employee is an owner with shares in the company. Similar to profit sharing plans, ESOPs contribute cash or shares to a company ESOP trust fund. Within this ESOP trust, each employee receives shares based on a pre-determined formula. After a period of typically three to six years, employees are eligible to cash out 10t0% of their shares upon departure from the farm. (See the Resources section, for more information regarding ESOPs).
What are the goals of ESOPs?
Factors to keep in mind with ESOPs
On-Farm Example #5:
I realized that it was a good idea to try to institutionalize things and de-personalize the farm’s dependence on one person. It is fairness. We are all in this together. It is sort of appropriate that employees own a certain percentage of the business. —Central Coast Farmer
Being a partial owner makes me want to try harder so the company can do better. — California Farmworker
Farm location: Central Coast
Variable pay strategies: Informal bonuses, profit sharing cash bonus, & an employee stock ownership plan (ESOP)
Notes from the Farmer…
“You have to meet a certain size of company and you have to have the temperament for ESOPs – being interested in the concept of democratic management, shared ownership, and employee education. You have to really believe in this kind of thing for it to be worthwhile. With a more direct profit sharing where people actually get a check as a bonus, then you would see the results right away. But the idea with an ESOP is that they get ownership and that is abstract. You have to take a long-term view and you can’t expect immediate results. It takes five years or so for an ESOP to sink in…”
"Understand what behaviors you are trying to generate or reinforce, and reward those. It is pretty easy to reward the wrong things and then scratch your head and say, 'Why are we getting these weird behaviors?' Make sure what you are rewarding is what you want to have happen." —Sacramento Valley Farm Manager
Follow the steps below to develop a point-based bonus system to use with a pre-determined amount of money available for the bonus pool. Calculate potential scenarios and make adjustments before implementing. After the point categories are set, describe the process to employees at the beginning of the season.
Set Up a Point-Based Bonus System Using these Steps:
Step 1. Identify point categories and attach a maximum point value to each category based on relative importance to farm operations.
Step 2. Determine maximum points
Step 3. Total each employee’s points individually, and then total all employees’ points together. Adjust points as necessary to provide appropriate weight to each category. (Do not adjust mid-season.)
Step 4. Determine employee points as a percentage of total points.
Step 5. Multiply employee percentage by total bonus pool.
|Example of a Point-Based System|
|Step 1. Identify point categories|
|• Key employee levels. Set points for each skill level.|
|Highly skilled = 150|
|Semi-skilled = 100|
|Entry level = 50|
|• Tenure. Set number of points per year worked.|
|2 points per year worked|
|Maximum points = 40 (for 20-year employee)|
|• Spot bonuses for skill development, exceptional behavior, etc. Set number of points.|
|5 points each|
|Maximum points = 30|
|• Subtract points for employee file demerits for tardiness, discipline issues, no shows.|
|-5 points each|
|Maximum points = -30|
|Step 2. Maximum point value = 220|
|Highly skilled (150) + 20-year employee (40)|
|+ 6 spot bonuses (30) = 220|
| Step 3. Total the employee points individually and then add them together
to get total points for all employees.
|Total points: Employee A (185) + Employee B (145) + Employee C (84) = 414|
| Step 4. Calculate individual employee points as a percentage of total points
for all employees.
|Employee A: 185/414 = 0.45 x 100 = 45%|
|Employee B: 145/414 = 0.35 x 100 = 35%|
|Employee C : 84/414 = 0.20 x 100 = 20%|
|Step 5. Bonus pool = $4,000|
|Employee A: 0.45 x $4,000 = $1,800|
|Employee B: 0.35 x $4,000 = $1,400|
|Employee C: 0.20 x $4,000 = $800>|
|Employee||Employee A||Employee B||Employee C|
|Skill level||Highly skilled
|Tenure||Employed for 10 years
(+ 20 Points)
|Employed for 15 years
(+ 30 Points)
|Employed for 2 years
(+ 4 Points)
|Spot Bonuses||3 spot bonuses
@ 5 points each
(+ 15 points)
|4 spot bonuses
@ 5 points each
(+ 20 points)
|6 spot bonuses
@ 5 points each
(+ 30 points
(- 0 points)
|1 demerit @ 5 points
(- 5 points)
(- 0 points)
Follow the steps below to develop a multi-factor bonus system. Determine standardized scores and calculate potential scenarios. If necessary, make adjustments before implementing. After the points are set, describe the process to employees at the beginning of the season. This formula is not based on a pre-determined amount of money in a bonus pool. Calculate maximum bonus for all employees to determine the amount of money necessary to pay the bonus.
Set Up a Multi-Factor Bonus System Using these Steps
|Step 1. Decide on performance evaluation criteria (attitude, skill development, etc.)
Step 2. Create standardized evaluation form
Step 3. Develop scoring structure (each performance evaluation = maximum of 5; each demerit = 0.05 late, 0.25 no call, etc.)
Step 4. Develop skill-based multipliers based on skill set, importance of position to farming operation, supervisory status, and consequence of person leaving (e.g., field worker = 1, lead = 2, foreman = 3)
Step 5. Conduct performance evaluations (supervisor, self-evaluation, or peer-evaluation)
| Step 6. Review employee file and payroll
records for demerits (tardiness, not calling in,
Step 7. Determine the composite score for each employee based on performance evaluations minus demerits
Step 8. Determine the employee base bonus by multiplying the equivalent of wages for one day by the composite score
Step 9. Calculate final bonus amount by multiplying base bonus by skill-based multiplier
|Example of a Multi-Factor Bonus System|
|Employee & Calculations||Employee A||Employee A
|Employee B||Employee B|
(4.5 + 5 + 4.25)
(4+ 3.75 + 4.75)
|Personnel File Demerit1||
no call =
0.25 x 1
late 3 times
= 0.05 x 3
|Bonus Base (Wages)||
4.6 – 0.25
4.2 – 0.15
$90 per day
($9/hr for 10 hrs)
$90 x 4.35
$150 per day
($15/hr for 10 hrs)
$150 x 4.05
Field worker = 1
Foreman = 3
$391.50 x 1
$607.50 x 3
|1 It is important to standardize the points for each type of demerit ahead of time to maintain consistency, equity and clearly defined expectations.|
Ag Help Wanted: Guidelines for Managing Agricultural Labor By H.P. Rosenberg et al. 2002
University of California Agricultural Labor Management By Gregorio Billikopf
How to Stabilize Your Workforce and Increase Profits, Productivity and Personal Satisfaction
By Suzanne Vaupel et al. 1995
Farm Employers Labor Service (FELS) Wage and Benefits Surveys
Ag Manager Info, Kansas State University By Sarah Fogleman
Agricultural Economics & Agribusiness Management, Michigan State University, By Vera Bitsch
Positive Practices in Farm Labor Management:
Keeping Your Employees Happy and Your Production Profitable,
California Institute for Rural Studies
Best Labor Practices on Twelve California Farms: Toward a More Sustainable Food System
By Ron Strochlic and Kari Hamerschlag 2006
Farm Labor Conditions on Organic Farms in California By Strochlic, et al. 2008. California Institute for Rural Studies.
IRS Farmer’s Tax Guide,
DOL Frequently Asked Questions about Pension Plans and ERISA
IRS Guide on Profit Sharing
Another handbook produced by California Institute
for Rural Studies and National Center for
Positive Practices in Farm Labor Management by Erin Hardie and NCAT staff, 2008.
This user-friendly handbook provides growers with information about how to implement a range of positive farm labor practices. Included are specific strategies to improve employee satisfaction and retention, and increase productivity while reducing costs. The practices will improve access to markets seeking products from farms with fair labor practices. Based on findings from earlier CIRS research on sustainable farms with positive farm labor conditions. Available to download from CIRS or ATTRA.
Some of the other publications available from California Institute for Rural Studies
Best Labor Practices on 12 California Farms: Toward a More Sustainable Food System by Ron Strochlic and Kari Hammerschlag, 2006.
Based on case study research on 12 California farms with a reputation for positive workplace conditions, this report features a broad range of positive workplace practices that result in a more satisfied and motivated workforce, and numerous benefits for growers, including increased retention, reduced training and supervision costs, and increased revenues. The research also identifies workplace conditions that farmworkers most value, including many that are no- or low-cost, yet greatly contribute to satisfaction and motivation.
California Water Stewards: Innovative On-Farm Water Management Practices by Lisa Kresge and Katy Mamen, 2009.
The case study findings provide information for growers interested in implementing more sustainable water practices.
Water Stewardship: Ensuring a Secure Future for California Agriculture by the California Agricultural Water Stewardship Initiative workgroup, 2008.
The report calls for producers and policy-makers to recognize the importance of agricultural water stewardship as a key element of a strategy to better manage the state’s dwindling water resources and reduce farmers’ reliance on insecure inputs. Please visit www.agwaterstewards.org for more information on this initiative.
Breaking Down Market Barriers for Small and Mid-sized Organic Growers by Alida Cantor and Ron Strochlic, 2009.
Based on interviews and surveys with growers, buyers and others, the findings provide a detailed picture of key marketing challenges with recommendations for improving marketing opportunities.
Beyond Basic Compensation:
Using Bonuses, Profit Sharing, and Employee Ownership to Motivate and Retain Workers on Your Farm
Produced by California Institute for Rural Studies and
National Center for Appropriate Technology
Lisa Kresge, Editor
Sherry Vogel, HTML Production
This page was last updated on: August 28, 2014