employee bonus

Employee bonus programs: What’s right for your company?

If you think your business is too small for an employee bonus program, consider these two questions:

  • Have you noticed less productivity or a decline in employee morale?
  • Are employees underperforming, or have they stopped meeting their goals altogether?

If you answered “yes” to either of these questions, it may be time to step things up around your office.

So, how can you show employees just how much you appreciate and value them?

A meaty bonus program could do the trick.

But, before you hit the ground running, take a moment to dive into what kinds of bonuses are out there, as well as what goes into creating a bonus program. This way, you can feel confident you’re choosing the program that’s right for your company.

Employee bonus program basics

First things first: How are employee bonuses defined?

Generally, a bonus is a form of pay outside of an employee’s base pay. It’s usually given after the fact to reward specific behavior or for a specific purpose. Bonuses can play a role in the attraction, motivation and retention of employees.

As a business leader, when you hear the phrase “bonus program,” many thoughts can run through your mind. That’s because there are multiple programs available – with many being centered on a cash reward.

No matter what type you choose, a good bonus program should:

  • Focus employees on common business goals.
  • Reward and retain top performers.
  • Promote desired employee behaviors.
  • Increase organizational commitment to goals.
  • Link supporting rewards to organizational success.

How employers benefit

A good bonus program can inspire better morale and more productivity. But another key advantage is the program’s ability to boost earnings for your company.

When you give your employees an incentive to really push and achieve their goals, you’re actually helping them achieve your goals as well.

As a result, they receive a portion of the gain as a reward for their part in the company’s ability to meet business goals. It’s a win-win situation.

That’s why, when creating a program, you want to make sure it’s designed not only to make employees happy, but it should also be aligned with the objectives of the company. Because at the end of the day, goals for your bonus program should be focused on what drives success in your business.

Popular bonus programs

There are many different types of bonuses, including performance-based bonuses, spot bonuses, sign-on bonuses, retention bonuses, project-based bonuses and referral bonuses. This is why it’s so critical for your business’s leadership to work together to determine what kind of bonus (or bonuses) will work best to motivate your employees.

Here are a few options below:

Performance-based bonus: This bonus focuses on performance and is given to help encourage an employee, team or company to achieve a specific goal or objective. Generally, performance-based bonuses are awarded for achievement over the course of a specific length of time, i.e. annually, semi-annually, etc.

Spot bonus: A spot bonus is used to show immediate recognition for outstanding contributions of individuals or teams. It’s based on direct observation and/or feedback from others for exceptional effort.

Basically, it’s a quick way to say “thank you” without having employees wait until year-end bonuses are given out.

For example, employees may receive a spot bonus when their performance goes beyond expectations on a specific assignment, task or goal. They could also contribute in such a way that significantly impacts the company’s objectives, making them a good candidate for this kind of reward.

Or, maybe an employee consistently demonstrates extraordinary efforts above and beyond the normal responsibilities of the position they were hired for. This can spur a spot bonus as well.

Sign-on bonus: A sign-on bonus is used to attract applicants to join your company. They are given upon hire and not based on performance. In some cases, they’re used for high-demand skills and key talent requirements.

This kind of bonus will typically be a lump-sum payment that the employee receives on their first paycheck or after a brief period on the job.

Retention bonus: These bonuses are used to retain critical employees during a transition period, such as a merger or acquisition. They are a promise to pay an employee a pre-determined amount upon the occurrence of a specific event or date.

Bonus amounts may vary depending on the employee and their contribution to the achievement of business objectives.

The retention bonus is also usually a lump-sum payment, with the employee generally receiving half of the bonus on their paycheck beginning on a specific date, and the second half on another date designated by the company.

Referral bonus: These reward current employees for referring job candidates who end up being hired. They serve as an incentive for employees to help you find good job candidates.

Project-based bonus: These are used to reward employees or teams of employees for completing a special project on time, under budget and within all performance criteria established at the beginning of the project.

They’re based on project metrics and may be used to encourage project team members to meet deadlines.

The project-based bonus is also typically a lump sum paid to team members as a designated amount determined at the end of the project.

Non-cash rewards: Sometimes, a big cash reward may not be possible for your company. No worries. You can still show your appreciation without spending loads of money.

Some budget-friendly benefits may include: extra time off, flexible hours, gift cards or telecommuting opportunities – just to name a few.

Creating and tailoring your employee bonus program

First, you want it to meet your company’s business strategy and compensation principles. Also, creating the right program depends on your expectations, what you’re trying to achieve and your company’s particular situation.

For example, if you’re looking to increase revenue and you already have a team to do it, then you can set forth specific objectives and action steps for accomplishing that particular goal.

However, if you know you need to hire more staff before you’ll have the right resources to make it happen, then you may consider rethinking the details of your bonus program.

Whatever you decide, below are a few things you should keep in mind:

1. Really know what drives employees

When building a program for employee bonuses, don’t just come up with something you think will work. Instead, consider what type of reward will be the most effective in motivating employees to produce the results you want for the company.

Is a year-end bonus enough to keep employees encouraged? Or should you consider more spot bonuses? Do your employees value time off more than cash? Should you increase PTO and work-from-home days?

Take some time to find out what truly matters to your employees to ensure better chances of a successful bonus program.

2. Be very clear about eligibility

This is where you drill down and pinpoint who can be included in the bonus program. Create goals that are challenging but achievable. Specify the fact that employees who directly and indirectly impact the goals may be included in the program.

Also, be sure to identify things like eligible positions, length of service, statistics and so on. For example: You must be a full-time account executive, hired on or before June 1, 2018.”

Make it clear how performance will be measured, so there won’t be any confusion about eligibility requirements. Bottom line: If they don’t achieve the goals, there shouldn’t be questions when bonus time rolls around.

3. Communicate requirements and expectations

Communication from management is crucial. This is particularly true for frontline supervisors managing employees who may not have access to technology to review their goals. Managers may need to have regular meetings with employees and make sure everyone is on the same page.

For instance, if an employee’s goal was to complete 12 training sessions in a year, but it’s June and they’ve only completed two, then that’s when a manager should have a conversation.

Employees shouldn’t miss out on a bonus simply because they were unaware or didn’t understand exactly what was expected. Communication and clear objectives are key.

4. Document your program

You don’t want to make a big deal about announcing the employment bonus program, get everyone excited, and then receive 100 emails with questions about how it works.

That’s why it’s good to create a program document that serves as a reference for employees. The documentation should include everything employees need to attain their goals.

Creating bonus program documentation eliminates surprises and confusion when bonuses are issued. Employees will have known ahead of time what was expected of them in order to receive a bonus.

Also, if there are any issues or problems regarding the bonus program, an employer can refer to what’s in the program documentation. For instance, if an employee is terminated or resigns, are they still eligible to be paid part of their bonus?

What does the program documentation say? Was bonus payout addressed?

Many questions can come up, so it’s good to include some standard verbiage in your employee bonus program documentation that addresses any terms and conditions that apply to your program.

The best program is the one that works for your business

Taking the time to carefully choose the employee bonus program that’s most effective for your company and team can help ensure its success for years down the road.

It’s also a good idea to regularly re-evaluate your bonus program to make sure it still correlates with your company’s goals and works well for employees.

Want to learn more about how offering a robust employee benefits package can cultivate a happier, more productive workforce? Download our free e-magazine: The Insperity Guide to Employee Benefits.