Skip to content

Employee bonus programs: 6 ways to ensure success


When it comes to bonus programs, not all are created equal. 

In fact, sometimes what started out as a positive, upbeat effort to keep top-notch employees engaged and motivated to stay with your business can backfire. This can wreak havoc on your culture, productivity and your company’s bottom line.

For example, let’s say you implement a bonus program and then realize that it is deeply flawed. It’s either too hard to attain and causes morale to suffer, or it’s too easy and the payout starts to cost you more than you bargained for.

Both scenarios can be detrimental. 

So, what can business owners interested in setting up bonus programs do to ensure their own plan has the best chance of success?

Follow these six steps to create an employee bonus program that encourages your workforce to give it their all.

1. Know what motivates your workforce

The foundation of any strong bonus program begins with knowing what drives your employees and tailoring it to fit their needs.  For some it might be money, for others it could be time off, and still others want the scepter, the crown and the cape.

Keep in mind that some people live paycheck to paycheck, so an annual bonus might not be the best daily motivator for them. To get a clear picture of what inspires your workforce, ask them for suggestions on what type of reward they would like to see and listen to their feedback. Remember that you can offer a variety of bonus programs to custom fit your organization. Be flexible.

2. Choose a realistic bonus program

A successful incentive program must be realistic. Plan for the best case scenario. Consider what the financial impact on your company will be if everyone meets the goal.

Nothing is worse than a big plan that you can’t pay out because you weren’t expecting such great results. Don’t set yourself up for failure.

3. Have a clear goal in mind

What do you want your business to achieve? Are you wanting to bring on more customers? Increase productivity? Boost your company culture? Zeroing in on what you’re trying to accomplish will help you structure your incentive plan so that your employees are taking on tasks that are helping to achieve the overall goal. It doesn’t have to be complicated.

4. Choose the type of bonus program that fits your business

Here are some bonus programs and their pros and cons to consider:

Profit sharing

By rewarding individuals based on the overall performance of the company, you can show your employees how their day-to-day work impacts the company’s profitability.

Pros: Can create a sense of pride and ownership for your employees and can help them feel empowered to make a difference.

Cons: If your employees don’t understand how their role impacts your business, they will not be motivated. Also, in some cases, focusing on profits can cause the company to lose sight of the next innovation or industry change.

Year-end bonuses

These are often tied to individual performance milestones and are paid out in one lump sum.

Pros: Enables you to connect a portion of salary to pay for performance.

Cons: If they are not objective and tied to SMART (Specific, Measurable, Attainable, Relevant, Time Oriented) goals, they can be demotivating.  And they might not be connected to a performance milestone that will give your business a return on investment.

Production-based bonuses

Rewards based on meeting or exceeding production goals, whether monthly or quarterly or however often, can create healthy competition that contributes to a better bottom line. These bonuses can even encourage cooperation among team members, which contributes to a more amiable workplace environment.

Pros: Can motivate your employees to work together as a team to achieve high-level results.

Cons: If sales are low, technology changes or the economy slows down, there might not be a need for new products.

If healthy competition and collaboration is replaced by a “win at all costs” mentality, the program could turn into a negative.

Non-cash bonuses

From gift cards to travel deals to flexible scheduling to telecommuting opportunities to extra days off, there are plenty of ways to show your appreciation without spending a lot of money.

Pros:  Can be valuable to keep people motivated throughout the year.

Cons: Can create a sense of entitlement if it is not clear how the bonus is connected to best practices, competency or a desired business goal.

If you’re starting a brand new incentive plan, sometimes it’s helpful to test it out first. By putting together a pilot program that includes people from different parts of your organization, you can gather feedback and get a clear picture of any gaps in your plan – before it’s rolled out to the whole company.

5. Roll your bonus plan out carefully

Once you have a bonus program in place, communicate the expectations and who’s eligible for the reward.  Hold a company-wide meeting to go over employees’ questions and concerns. Make it exciting and encourage their participation, but also keep in mind that you might get pushback from some employees. Be open to those conversations and know that you can’t please everyone.

If you do encounter some negativity, consider providing resources to help people who might be struggling with the skill-gap needed to achieve their goals.

Consider offering formal and not-so-formal training programs. You can make it fun by bringing different departments together to share their knowledge.

By working together, your workforce will be empowered and unified and more likely to succeed.

6. Nurture the plan

Now that your employee bonus program is in full swing, don’t let it operate in a vacuum. Check in with your employees on a regular basis and ask how they’re doing.

Are there any areas that might need tweaking? Be open to feedback and be flexible. It’s easier to fix a problem in small bites than to wait until it’s too late and face failure of the entire program.

Be available for ongoing coaching and support, if needed.

Find ways to reinforce and re-energize the people who are working hard to meet their goals. Rally behind champions within your organization who believe in the goals, and enlist their help to encourage others – this demonstrates buy-in and gives the plan credibility.

This can be done in a variety of ways including:

  • Posting charts that show incremental milestones
  • Offering small rewards along the way, such as company lunches or extra paid time off

Bonus programs come in all different shapes and sizes. Finding one that fits your workforce doesn’t have to be complicated. By taking the time to plan your bonus strategy, you will be in the best position to help it succeed.

Download our free e-book, 7 most frequent HR mistakes and how to avoid them, to learn how to evade the most common pitfalls in running a business.