Bonuses represent a common dilemma for business owners, particularly at this time of year, and it’s a subject that’s fraught with pitfalls and complexities.  If you’re grappling with the thorny issue of bonuses, here’s what you need to consider.

To pay or not to pay?

A bonus scheme should be viewed as an investment in improved business performance. Therefore, start by clarifying what improvement you want to achieve.  Are you trying to bring about a specific change, for example?  Then consider whether there are other ways to deliver the change you want.  A bonus isn’t the only method to encourage and reward performance – other incentives include pay increases, additional benefits (like medical insurance), recognition and development opportunities.  You might also consider longer-term incentives such as employee share schemes.

If a bonus scheme looks like the best way to achieve your goal, ask yourself:

• How much am I prepared to invest to achieve the change I want?
• Does this investment deliver a good return?
• How will I measure the results?

Getting your bonus scheme right

Most bonus schemes are conditional, meaning the business, departments or individuals need to achieve specific targets before the bonus becomes payable.  The amount to be paid may then be linked to how well the business, team or individual has performed.

Consider at this stage how you’ll:

• Keep the scheme as simple as possible, so it’s easy to communicate and understand
• Base the targets on measures that your team can influence
• Design a bonus schedule that’s appropriate for your goal (bonuses may be paid annually, quarterly or monthly, or simply when a specific target is achieved)
• Make the bonus proportionate to the business benefit you want to achieve

Putting yourself in your team’s shoes

A badly conceived bonus scheme can have a negative effect on morale and motivation, so be sure to anticipate some of the questions your team might have about the scheme.  These might include:

• Is this a substitute for a pay rise?
• Is this a contractual benefit?
• Do I have to do anything different/better to get a bonus?
• How much influence can I personally make on achieving the bonus target?
• If I work hard and my colleagues don’t will we get the same payment?
• Will a bonus scheme run every year or is this a one-off?
• Are part-time and associate members of the teams eligible?
• If someone joins the company mid-way through the bonus period will they be eligible for a payment?
• If I leave during the bonus period will I get any payment?

A well-designed bonus scheme can be a highly effective way to boost performance.  But it’s vital you take the time to identify your goals, seek advice, and make sure your scheme is the best it can be.

If you’re not sure whether a bonus scheme is right for your business, talk to Henchards.  We’ll help you weigh up your options and work with you to construct an effective, motivating bonus scheme as part of your business growth and development plan.