Employee Bonus Programs: How to Choose and Implement the Right Employee Bonus Program for Your Company

Employee Bonus Programs

When considering employee compensation, there’s a bit more to think about than base salaries. Base pay is just that: base. It’s an employee’s initial rate of pay prior to any benefits, bonuses, or other compensation.

Job seekers often look at the whole package when evaluating potential positions and take into account other types of pay, such as:

  • Benefits
  • Retirement options
  • Raises and upward mobility
  • Overtime
  • Special project pay
  • On-call pay

In addition, potential employees often consider a company’s stance on bonuses, too. In fact, Payscale shows that nearly 75% of companies offer some type of compensation in addition to an employee’s base pay in order to motivate and retain their most valuable employees.

If you aren’t offering competitive salaries comparable with your competitors, such as employee bonus programs, whether you’re unsure of how these programs work or what types of bonuses to offer, we’re here to help.

Why Employee Bonus Programs Are Important

Employee bonus programs provide more than just added compensation—they show your employees that you value their work and abilities beyond just the company’s bottom line. In fact, appreciating your employees’ contributions by offering bonuses often has the effect of boosting a company’s revenue even if that’s not the original intention. Some of the most important aspects of employee bonus programs include:

  • Motivates employees. Improved job performance can help your company achieve its goals.
  • Attracts better talent. Potential applicants find companies that offer bonuses more attractive than those that don’t, which means you’ll attract highly skilled candidates who may have passed on the position otherwise.
  • Informs employees and prospects. Job seekers and current employees alike need to know what to expect in compensation, what their rights are, and what privileges they can earn while working for you – including rewards. A bonus program alerts them in advance of what needs to be done to earn rewards or obtain bonuses.
  • Offers specific amounts. With a specific bonus program, you can control the dollar amounts of each type of bonus. You can enact limits or make adjustments when and where necessary.
  • Helps with budgets and forecasts. Management needs to know where every dollar goes for everything – including payroll and bonuses. When planning for the company’s financial future, management will refer to the company’s employee bonus program occasionally.

Elements of a Strong Employee Bonus Program

Before you start to worry about planning the perfect employee bonus program, relax. There’s no such thing. If there were, you’d never hear of company issues such as strikes or employees with no motivation.

While no perfect program exists, what’s important is that your bonus structure is effective. Effective employee bonus programs should always be:

  • Simple. Your bonus plan should be straightforward. It should not be hard to understand by management or employees.
  • Equitable. Bonuses should be fair across the board throughout the company. All departments should have access and the terms and conditions should apply to every employee in every department.
  • Timely. This is in reference to the actual payment of bonuses. Frequency, on the other hand, has many variables. But, for instance, if employees expect a Christmas bonus, there should be a specific date and the date should be well before the actual holiday. In the case of bonuses for specific achievements within a certain quarter, you should pay the bonus at the end of that quarter, or as close to the beginning of the next quarter as possible.
  • Relevant. Everyone in the company should understand the meaning behind each bonus. Attaching meaning to a bonus gives the receiver a sense of a job well done—they know why they’re receiving the bonus and they know they deserve it. Others see a source of inspiration which leads to motivation and a desire to earn the same achievement.
  • Material. If your employee just closed the greatest sale of the year and their “bonus” is $20, not only will they will not appreciate it, it may feel like an insult. This can lead to a decline in morale, motivation, and productivity. The bonus amount must correlate with the worth of the job done. It must be large enough that it not only makes a difference to your employee but that it also shows them they’re a valuable member of the team.

Need help deciding on and implementing an employee bonus program? America’s Back Office can help.

Types of Employee Bonuses

When deciding on a bonus type for your employee bonus program, there are several types to choose from, such as:

  • Profit-sharing
  • On-the-spot bonus
  • Awards
  • Sign-on bonus
  • Milestone bonus
  • Per-project bonus
  • Annual performance bonus
  • Holiday bonus
  • Bonus based on time with the company
  • Safety bonus

The type of bonus you choose will rely on you, your company, its goals, and your employees. The best part—you can choose more than one! Just be sure it’s doable financially and that you’re easily able to maintain the structure.

How to Structure Employee Bonus Programs

Once you know what types of bonuses you want to offer your employees, it’s important that the program is structured accordingly. It shouldn’t be anything that’s too difficult to track or too easy to meet—remember from above, your employees should feel they really worked hard to achieve the bonus and their hard work is recognized.

Here are a few things to consider when structuring your employee bonus program:

  • Bonuses should be individual-specific. Most workers more greatly appreciate a bonus specifically tailored to their work performance rather than the performance of their department or the company overall. Bonuses not tied to any type of performance are least preferred.
  • Don’t do all-or-nothing targets. The majority of employees prefer tiered bonuses over all-or-nothing bonuses when tied to a specific performance goal.
  • One size doesn’t fit all. If you offer an annual bonus, ask each employee how they’d like to receive that extra cash. Some may prefer their annual bonus split into equal monthly installments, while others may prefer the annual lump sum. Regardless of what option your employees prefer, the amount should be equal.
  • Consider on-the-spot bonuses. Just like children love it when you catch them being good, employees love it when you readily acknowledge their good work ethic, productivity, and such. Offering an on-the-spot bonus for a job well done will likely lead to increased motivation more so than a sign-on bonus or a retention bonus.
  • Partner with America’s Back Office. Having an effective and timely employee bonus program is work. Coordinating bonuses across departments requires effort all year long. America’s Back Office can take the pressure off you so you can focus on growing and maintaining your business.

How America’s Back Office Can Help

Feeling overwhelmed at the thought of structuring and implementing an employee bonus program? Sure, there’s a lot to consider. But America’s Back Office has highly skilled professionals waiting to take the weight of your HR processes off your shoulders. In addition to assisting with your bonus structure and payments, ABO offers:

  • Customized Employee Handbook
  • Workers’ Compensation Policy and Claims Administration
  • Health Benefits Policy and Claims Administration
  • 401k Audits and Administration
  • Employee & Employer Level HR Support
  • Support and HR Advising When You Need It
  • Time and Attendance Tracking
  • Performance and Task Management Tools
  • Automation of Required Documents
  • Cloud-based Document Vault
  • Integrated 1-Click Payroll
  • E-Signatures

Reach out today and see how much easier you can run your business.