Calculating a Bonus Structure that Works for Employer and Employee

Coffee Drink Cup, Calculating a Bonus Structure

Author: Dean Hunter

Published: 11th May 2018

Bonuses and financial rewards are often expected by employees these days, even if the starting salary is very competitive. Many industries use bonus schemes as an incentive for productivity or sales, while some companies offer a bonus to all staff to show appreciation at certain times – for example many organisations offer a Christmas bonus, or to celebrate the company’s 10th birthday.

However, there is a danger with offering bonuses as part of your reward scheme – what if they no longer become financially viable? To retain top talent companies often feel pressured to increase bonuses each year to compete with other companies, and salaries also need to rise with inflation. So how can we make sure we’re still rewarding employees whilst also balancing the books?

Take a look at some top tips for putting together a fair bonus structure which works for both the employer and employee.

Make sure it’s performance related

There are many different types of bonuses, so it’s important to be extremely clear about the bonus structure from the moment an employee joins the company. Some staff may be used to having bonuses automatically added to their paycheck each quarter, but the most effective way to use bonuses is by making sure they are performance related.

Set goals for staff to ensure productivity remains high – and those who hit targets can receive a bonus. You can also identify different stages of bonus depending on which employee has brought in the most custom or had the most positive feedback. Having a performance related bonus ensures you won’t be paying out for staff members who aren’t putting in the work.

Make sure it’s discretionary

When it comes to bonuses, it’s all in the wording. You can’t promise all staff members a bonus if they hit targets, and then not be in a position to pay it when they all reach the targets. Some bonuses are divided throughout the year and there needs to be rules about if and when employees receive the bonus if they are dismissed or if they resign before it is paid, if they are on long term sick or maternity leave, for example. Know the laws when it comes to salary and bonus payments, and ensure employees know where they stand by stating all bonuses are discretionary.

Explore all options

If your bonus structure is the main factor in retaining top talent, then your HR strategy is wrong. While pay benefits and bonuses can act as incentives and entice new staff members, there are various other ways to increase employee engagement – which are much more cost effective. Giving all staff members meaningful roles and responsibility, focusing on company culture and genuinely caring about career aspirations can be just as effective as the biggest bonus on the block.

If you need a HR consultant service you can trust, get in touch with the team at Hunter Adams.