How to Set Up a Bonus System
A bonus system can be a fantastic way to motivate employees! But it can also lead to some individuals walking all over others, in order to secure a bonus for themselves. It’s therefore essential that you put the right type of bonus system in place, that suits the needs of your business.
If you’re looking to set up a new bonus system, or improve one you already have in place, there are lots of things to consider! We’ve outlined the main points below, to help you get started:
Why Set Up a Bonus System?
Even if you’re a smaller business, with not a huge amount of revenue, a bonus system can be a good idea. Some of the benefits of a bonus structure are:
Bear in mind that bonus schemes don’t necessarily have to be monetary – there are other ways of rewarding your employees. The key thing is that the scheme reflects your business objectives. It could be linked to things like morale, how successful the employee has been at helping customers or colleagues, or an individual’s attendance record.
Which Bonus Structure is Best?
The best bonus structure for your business will depend on what you’re hoping to achieve through it. Are you hoping to motivate employees? Improve staff morale and reduce turnover? Or perhaps you’re simply looking to reward employees when they display behaviours that align with your company values.
We’ve explored some of the main considerations below, so that you can determine how your bonus system should be structured:
Individual Bonuses
Perhaps the most common way to reward your employees is to set up an individual bonus scheme. This will mean that when a person meets their individual targets, whether this is based on longevity, results, or initiative, they’ll be given a bonus.
Such bonus systems generally encourage a high performance, and often autonomous culture. Staff will be striving to meet their own targets, and won’t be able to rely on their colleagues to pick up the slack.
Team and Company Bonuses
If you’re hoping to improve collaboration between staff, as well as communication, team bonuses may be a sensible option. Though such bonuses tend to work better if you have smaller teams, where the contributions of each individual can be measured.
With a company wide bonus, this will usually be a way of celebrating an increase in revenue across the business, or some other form of improvement. Financial performance is a common measure of success, but you could also reward things like improved customer feedback across the board.
Discretionary vs Non-Discretionary
Should your bonus scheme be discretionary or non-discretionary? The former is paid depending on whether the employer believes a bonus has been earned. So employees aren’t contractually entitled to any bonuses. The employer can decide on how much the bonus will be, and which behaviours will be rewarded.
A non-discretionary bonus will be agreed upon ahead of time, and will usually be written in an employee’s contract. Staff will be told explicitly how they are able to achieve the bonus, and will be legally entitled to it, should their targets be met.
What Behaviour Are You Rewarding?
After deciding on your bonus scheme, you can think about who you’re rewarding. Sales teams are a popular choice, as these employees are bringing money into the business. But there are other types of behaviour you can reward besides bringing in revenue!
Boosting Customer Satisfaction
Just as important as revenue is customer satisfaction and retention rates. And yet there is often a high turnover rate in customer service departments. These roles tend to come with a relatively low salary, and a fair amount of stress, so employees don’t always feel motivated to push themselves or have a lot of company loyalty.
One way to change this is to offer such individuals a bonus scheme. Reward them when they can clearly demonstrate customer satisfaction, or improve the overall customer journey. You simply need to decide how you measure performance. Short feedback surveys through customer interface software could be a good way to measure customer satisfaction. Or you could reward employees when they’re able to respond to all customers in a timely manner.
Employee Loyalty
Another behaviour you can recognise through your bonus scheme is employee loyalty. You may not realise how important employee loyalty and retention is, but hiring new staff is not only time consuming, it’s also expensive! Offering a bonus for employees who are loyal to the business can be a great way to combat a low retention rate. Showing that you value longevity furthermore shows your employees that you appreciate the work they do.
When it comes to putting this bonus scheme into place, you’ll need to offer a non-discretionary bonus for staff. When they hit a certain milestone, such as three or five years with the company, they’ll be given a bonus on a sliding scale. So the longer they work for the business, the higher the bonus will be.
How Much Should You Give as a Bonus?
Once you’ve decided on the type of bonus structure you want to set up, and the sort of behaviour you’ll be rewarding, you need to determine how much you’re going to give people as a bonus. This may not be the easiest thing to calculate, though some bonus systems are more straightforward than others.
There are a few common options you can choose. For example, you could offer a bonus of a percentage of the employee’s salary, such as 2% or 5%. Alternatively, you could just give a set amount as a bonus, like £1,000 when a team hits their yearly target. Another option is to work out the bonus based on how much revenue an employee has brought into the business. For instance, you could offer a 10% bonus for a sale that brings in £10,000 in profit, while £20,000 in profit would result in a 20% bonus.
Bonuses Should Be Motivational and Meaningful
The main thing to keep in mind with a bonus structure is that the amount offered has to be motivational and meaningful. Offering too little could mean employees don’t push themselves, while too much may lead to unethical work practices.
Also remember that people on different salary levels will be more or less motivated by set bonus amounts. Someone earning £25,000 a year will probably be more motivated by a £2,500 bonus than a manager earning £75,000 a year.