Recent research suggests that top-performing businesses are more likely to offer bonuses than the average business and that bonuses are becoming increasingly popular among small and mid-sized companies.
Does your business offer employee bonuses? Evidence suggests that it is a sound strategy that will increase motivation, company identification and productivity. So here are 6 types of employee bonus and how they may suit you:
- Individual Incentive Bonus
This type of bonus is usually given to high-performing or hard-working individuals that achieve a goal set at the beginning of a performance cycle. It is typically common in commission-based industries when an employee will receive a reward for meeting a target.
The advantage of an individualised bonus is that it matches a performance-based business culture; the disadvantages are that it requires a high degree of management and administration.
With this bonus scheme make sure employees understand what they have to do to get the bonus. Have the bonus plan in writing and if the reward is given out annually, set milestones for staff or regularly review so that motivation isn’t lost.
- Team Incentive Bonus
Very similar to the individual plan except this bonus is offered to small teams of staff achieving a company end goal either quarterly or annually.
This may suit your business if you wish to incentivise team building and group effort. It enhances a view of a shared business culture.
Team bonuses can become difficult if some employees feel that other team members benefit unfairly from team rewards. Indeed, this plan can then act to de-motivated certain workers who feel they are carrying the burden.
If you implement this scheme it is important that the reward requires efforts by all team members. Once again fair mindedness is important so set clear and consistent goals for these rewards and review the plan with all staff
- Spot Bonuses
Spot bonuses are those given ‘on the spot’ to reward desirable behaviour. £25 gift cards can be offered to employees for great customer service or higher amounts awarded for above-and-beyond action
This bonus scheme requires less management and administration than the incentive bonus plans and as long as you include it in the annual budget, it can be very affordable.
To keep employees guessing and motivated make sure the bonuses count. They should be rewards for exceptional behaviour rather than what is expected. Do not reward a bonus just because you have budgeted for it- make sure staff have earnt it. Make it a surprise and publicize the achievement by making a staff announcement or sending around a company-wide email.
- Referral Bonuses
Referral bonuses are offered to employees who refer job candidates who get hired and complete a probationary period with your company.
The advantages of this strategy is that it is affordable, easily implemented and can help you fill hard positions. There is also the theory that birds of a feather flock together and, if someone is referred by a good employee, there’s a strong chance they’re likely to be a good worker themselves.
The disadvantages could be that it might skew staff diversity or be perceived to be unfair if a good referral candidate interviews but does get the job in the end.
Be clear on your strategy, where the referral bonus applies and for what positions. Be clear on how you how you will handle pay outs too. Will you give part of the referral upon hiring and the rest later or offer the entire amount after a probation period?
- Signing or Hiring Bonuses
This type of bonus is given out to an individual upon hiring and is typical of certain industries, such as IT. It can be a great way to attract and motivate new hires.
This may help your business become more competitive if hiring bonuses are an industry standard or if you are wishing to attract candidates with hard-to-find skills to perhaps less desirable locations.
The bonus plan can be great for small businesses on a budget, enabling you to land desirable employees at lower starting salaries. Of course, signing bonuses can also backfire if candidates use them to job-hop.
To prevent this, it’s a good idea to stagger your hiring bonus as you may do with a referral bonus. Some companies also institute “clawback” provisions where employees who quit a job before a year is up must return a percentage of the signing bonus.
Don’t expect to rely on signing bonuses as your sole attraction and retention tactic. You need a comprehensive plan of employee development to keep these desirable workers motivated and loyal beyond the first year.
- Profit Sharing Plans
Profit sharing is one of the most common forms of bonus scheme and is especially popular within larger organisations such as Tesco, John Lewis etc. These plans give employees a percentage of the company’s annual profits. If you have a better-than-usual year, employees benefit.
The advantages of this are that it is relatively simple to formulate and tends to reward people equally (even if their percentage of profit is different). It can give employees a sense of ownership in the business and promote a sense of ‘working together’.
Of course, with these company-wide rewards the risk is that higher performers may feel that they are ‘carrying’ the non-contributors.
Whatever bonus scheme you may decide to provide always ensure that it fulfils its purpose of improving staff morale. Make the plan available and transparent and be certain that you have sufficiently budgeted for it.