The use of bonus schemes is on the increase. Often used to align pay with performance, and make it affordable in good times and bad. According to XpertHR, 4/10 employees received a bonus in 2014.
However, a £ given as bonus is valued less favourably than a £ given in base pay. This is because you have to wait longer and it is ‘at risk’.
So, your bonus needs to really pull its weight and deliver results – otherwise the money is better spent elsewhere. Here’s a five-point healthcheck:
1. Is it understood? Surprisingly, the majority of bonus schemes are simply not understood by participants. Right up to executive level. Ask your employees to explain the scheme to you and see what they say. Simplify it wherever possible.
2. Does it have a purpose? A bonus says ‘these are the things we want you to do as we will reward you for doing them’. Are you clear on what you want those things to be and do they align with your business and HR goals? Share the purpose of your bonus as openly as possible.
3. Are the measures right? The performance measures are what you will encourage participants to focus on. Are they clear and straightforward? Often it’s about selecting the best measure rather than including everything. Performance is best measured in a rounded way by including both financial and non-financial measures. Provide regular updates on the measures.
4. Is the link with performance clear? Can your employees see what they need to do to get a bonus and how much they will receive? Clearly answer the question ‘what does this mean for me’ right at the start of any bonus communications.
5. Is the payout reasonable? Have you got the bonus levels right? Are they competitive and worth the effort needed for the required results? Ensure payments increase/decrease sufficiently in line with performance.
There’s a reason why bonuses are popular. If designed and communicated well they can drive performance towards business goals. Make sure yours is working for you.