What Do You Want To Achieve With A Bonus? - Be Clear On Your Objectives Before You Start
Definitions
Let's firstly try and define the difference between a bonus and an incentive. We use the following. An incentive is a contractual arrangement. If you do this – we'll pay you this amount.
A bonus is discretionary. If we have a good year we'll pay a bonus. These discretionary payments do not happen much in large businesses. They tend to occur when the CEO is the owner.
Bonuses
Bonuses can be very powerful in building a culture but there is high risk if the payer becomes too subjective in what is paid to whom.
If you want to pay a bonus, reducing the uncertainty of it as much as possible is advised. Using as many of the principles below which we use for incentives is a good start and sharing information during the year will keep people involved in the reasons for it being paid.
Incentives
Once a business has reached a certain size, or the market for particular jobs requires it, well constructed incentives are the best option. However, a salary system linked to the performance management system, something we consider absolutely necessary, may well be all you need.
If you are going to introduce additional incentives over and above a performance based salary system you should consider the following.
Objectives
What is it that you want to reward exactly? Having clear objectives is important and they should link to the corporate objectives.
Sales achieved for sales people are relatively simple and easy to measure – maybe this is why sales people get incentives more often. Other areas of the business can also be measured but it can be more difficult to get it right. If you can't be clear why you are doing it – don't.
Control
Employees should be able to control the outcome. If they can't then the incentive payment becomes a windfall. If keeping costs down is a measure, can they influence this? Participants must be able to understand the measures and what they have to do to earn an incentive.
Challenge
It must be challenging but achievable. A number of periods where no, or little, incentive is paid will quickly be no incentive at all. An easy target will quickly become expected each year and a downturn create dissatisfaction.
How much?
Holidays or "conferences" work for some people – but not all. There is a reason we usually deal in money – it can be converted into something we want.
The incentive paid must be meaningful to the employee. It should be a reasonable financial reward. A percentage of salary is usually best as it can be the same relative importance for all eligible employees.
When?
Wherever possible, the payment of an earned short-term incentive should be as close as possible to the events being measured. For example, quarterly payments can often be made with a "reconciliation" on the 4th quarter after the annual results have been confirmed.
Retention
It should encourage high performers to stay with the Company. It should be rewarding with the chance of it being even more rewarding in the future. Long-term incentive plans can be designed to achieve this more easily than short-term plans.
Budget
The incentive must be within budget constraints. The organization must be able to pay what was promised without undue hardship and budget for this.
Communication
Whatever your incentive plan, it should be very clearly communicated in writing. Eligible employees must know exactly what is required and what the payment will be. There are often disagreements over payouts, especially if someone leaves, so getting the detail right is a good idea.
If you can get these factors right you are on the way to being able to attract and keep good people.
Related Tags: payment, incentives, motivation, salary, bonus, performance pay, compensation, remuneration
Paul Phillips is a Director of Horizon Management Group; a specialist human resource management consulting firm. He has over 30 years experience in HR and, while based in Australia, has worked in a number of overseas locations. www.horizonmg.com Your Article Search Directory : Find in Articles
Recent articles in this category:
- 5 Reasons That a Restaurant Should Use a Restaurant Recruiter
Have you ever noticed how many restaurants pop-up over time but then disappear just as quickly? Runn - Does Money Motivate?
Some say money can't buy happiness, but data shows that for those who can barely pay the monthly bil - Because Workforce Friendly Policies Payoff
Employer-sponsored wellness programs are becoming more popular as companies strive to maintain a hea - EAP Value
Life would be simpler if we could set aside our personal issues and emotional baggage when the workd - Hiring an Expert SEO Company to Improve Your Online Business
Search Engine Optimization or SEO Services are used to make your website or online business popular - Why Safety Training at Workplace is Important
Safety training at workplace should be one of the top priorities of your business. An effective safe - Team Building: Brain and Sweat to Attain Company's Central Goal
Are you one of those employees branded ineffective and unproductive? Reasons might be the sense of d - Security Alarm System
It is a must that houses and offices install a security alarm when we speak about safety reasons. Se - Workplace Safety Tips
When we speak of safety based on books, its importance is next to food. It is essential to all indiv - The Benefits Of Lease-to-own Properties
One of the hit real estate investments today is to buy properties that will later be put up as "leas
Most viewed articles in this category:
- A Map Mural for Your Business
Yay! That retail store you've been planning has finally opened its doors and you are officially in b - Attracting Customers Through An Improved Shopping Experience
So many new shopping malls and supermarkets are put up every year. Many more are already in business - "To Oz!": Leading a Resilient-High Achievement Organization
One of my favorite movies is "The Wizard of Oz" based on the book by Frank Baum. The story is about - 5 Critical Items Never to be Included in Cost Benefit Analysis
When dealing with decisions using Cost Benefit Analysis techniques it is very important to follow th - Collaboration and Change
I’m an expert on change and leadership, but my most popular speaking topic this past year, and - Workplace Gap
In your workplace, are you a manager with a smart group of people and they aren't responsive to your - Leadership - The Proper Relationship with Subordinates
In the army, "the men" are kept separated from those known as "the officers." This comes from the id - The 10 Most Asked Questions of Cost Benefit Analysis
When dealing with decisions using Cost Benefit techniques it is very important to follow the proven - Cubicle Space Planning
Space planning is an essential element of any project and efficient planning serves the dual purpose - Why Passenger Surveys are a Transport Operators Best Friend
Public transport operators who already use passenger surveys may not fully appreciate the multiple b