Bonus Strategies

HR Resource
September 19, 2012 — 2,241 views  
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Money is the biggest motivator in the workplace. A well-designed bonus program excites employees while helping employers stay competitive. A bonus program can increase productivity, profits, team performance and the quality of service. Depending on the organization's business goals, there are several strategies for developing bonus programs that encourage employees to meet key objectives.

For a bonus program to truly motivate employees, it must have a fair, sensible design that creates a level playing field for eligible employees within similar groups. Tiered bonus programs should incorporate varying payments for certain groups or employees at pre-determined salary levels. According to this doctrine, bonus rates will vary for executives, managers, sales personnel, customer service representatives and teams that complete similar tasks.

Determining the eligibility of employees is the first and most important step. Typically, employees who have the power to positively affect the bottom line are eligible for performance-based bonuses. Conversely, managers who are responsible for computing financial statistics that determine bonus payments are probably not eligible to receive bonuses. In this case, payroll personnel may increase managerial salaries to stay competitive with companies that do not offer bonuses. Determining the size of the bonus pool is another important consideration. While issuing a bonus that is equal to 20 percent of an employee's pre-tax salary is significant, it is a one-time payout instead of an ongoing pay increase.

After a bonus pool is established, companies can determine whether bonus payments will be a fixed dollar amount or a percentage-based sum. Bonus payments generally occur once employees or team members reach a set goal or trigger point. Financial executives and managers may also be responsible for dividing bonuses. For example, 70 percent of bonuses may be based on performance while the remaining 30 percent might be paid at the manager's discretion.

In sales, commission-style bonuses are popular and effective. If sales meet or exceed a trigger point, personnel in the department may be entitled to a commission-style bonus or a share of the profits on those sales. A profitability-based system is another way to encourage employees to meet a fixed goal. If sales or profits exceed a target or beat the previous year's numbers, employees who drove the growth might be entitled to a flat-rate payment, a percentage-based bonus or an extra week of pay. Whatever bonus strategy a company chooses to adopt, all aspects of the plan must be put in writing to ensure complete legal and financial compliance.

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