Mine production bonuses as a tool to turn around under-performing operations

1. Terry Twala, December 2015 terrytwala99@gmail.com
A New Approach to Designing a Mine Production Bonus Scheme
Discouraging the Sense of Entitlement, Encouraging Excellence
Personal experience has shown that often mine management has a phobia of facing
production bonus related issues. This often leads to bonus values that are not adjusted for
inflation and therefore lose their effect over the years. Bonus systems are often not reviewed
to see whether they have been designed to be effective or in line with the employees’ functions
and tasks. Is their appropriateness in a changing environment adequately considered? Bonus
schemes are a powerful tool that can turn around an under-performing operation if used
effectively. The tool is there in operations but often brings about distress and contention
instead of the objectives for which it was intended.
This document uses a scenario of a narrow tabular gold mine and an example of a bonus
calculation, as well as proposes a new design for mine bonus schemes.
Fig 1 – Current Scenario on Mines
This exercise attempts to allay fears of facing issues pertaining to production bonuses. Get
ready! Let us consider a hypothetical situation in which the values of bonuses were to be
doubled i.e. pay employees double bonus for the same levels of performance. What would the
effect be on their motivation? Now let us calculate the extra output required per crew to cover
the value of the additional bonus of R44 100, to pay out R88 200 to the crew:
 Each crew member will now get R4200 if the crew achieves 350 m² for the month and they
will need to produce a certain minimum additional tonnage to cover the additional R44 100
Calculation Check:
 R44 100 ÷ R500/g = 88.2g 6m² x 1.2m x 2.78t/m³ x 4.5g/t x R500/g
 88.2g ÷ 4.5g/t = 19.6t = R45 000
 19.6t ÷ 2.78t/m³ ÷ 1.2m = 6m²

2. Terry Twala, December 2015 terrytwala99@gmail.com
The calculation above shows that an additional 6m² of output will be required to cover the
additional bonus pay-out. In other words only a 1.7% increase in output is required to finance
a 100% increase in production bonuses. Mine managers know that this is a “no-brainer”. This
illustrates how powerful a tool production bonus schemes are. If applied incorrectly they can
be a disastrous precedence.
It is important that certain basics are in place in an operation before such radical, or perhaps
simple, changes are implemented, and these include among others:
 An effective system for understanding root causes of variances to targets
 A sound understanding of capacities and constraints and how to manipulate them
instantaneously
 A system for harnessing improvement ideas from all areas and levels in the operation
 An effective performance management system that is embraced by all employees
 Buy-in from management, employees and their representatives
Now let us analyse the simple geometry of the design of a bonus scheme. The figures below
help illustrate the differences in the traditional design as used on mines and the proposed
design.
Fig 2 - Current Design v/s Proposed Design
 The traditional systems pays bonuses from 1% of performance and fosters a culture
of entitlement to bonus amongst employees.
 The proposed design starts to pay bonus at a performance of around 30% of
performance and equals and surpassed the traditional system’s reward at 75% of
performance. It instils a culture of performance for reward.

3. Terry Twala, December 2015 terrytwala99@gmail.com
Finally, let us compare the levels of bonus-investment required for the two designs. The area
under the graphs will be calculated and compared in order to assess the value of each design.
The bonus-investment for the proposed design is at 520 000 units compared to the 750 000
units of the traditional design. In both effectiveness and value, the proposed design is superior
to the design most common in mines.
The implementation of an effective bonus scheme needs to take place in the context of the
greater performance management system. These require deliberate effort from the employer,
the employees and their representatives to conceptualise, design, implement, monitor and to
review. Their potential impact on the bottom-line and competitiveness is barely tapped gold
and platinum mines of South Africa. The return on investment of time and effort into these
tools is high. It is important that operations also invest in acquiring or developing capabilities
in these areas because existing company resources are often exhausted on immediate
operational requirements.