How to Structure Your Bonuses

How to Structure Your Bonuses

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Remaining competitive as an employer can be challenging for small businesses, especially as we are still dealing with the economic disruptions that the pandemic has caused. You can focus on creating a healthy culture based on respect, inclusiveness, and opportunity, but this is usually not enough to attract top talent. As a business owner, it’s best to recognize hard work in a way that is tangible, which usually translates into dollars and cents.

If you want to reward employees without eating too much into your profits, you can help attract and retain valuable team members with a bonus incentive program.  I know we just closed out 2021, but it’s never too early to start planning for the fourth quarter of 2022 and earlier.

Today,  we explain how to structure your bonuses to help create a more attractive offer package.

Holiday Bonus Plans

The holiday cash bonus gives employees something to look forward to at the end of the year or even earlier. It is an excellent form of motivation, even though they are not usually based on performance. This is a more personal approach to bonuses. 

Important factors to keep in mind for holiday bonuses include:

  • Setting Limits: Although this isn’t a bonus based on performance, it does need to tie in with profitability. Make sure you have a minimum profitability limit set so you don’t hand out bonuses you can’t afford.
  • Being Inclusive: Make sure you don’t associate holiday bonuses with a specific religion and instead refer to it as a year-end bonus to avoid alienating anyone.
  • Adding Structure: Make your bonus amount fair by setting the same parameters for everyone whether it is based on HR levels or increasing the percentage based on seniority with the company. Share your policy at the time of hiring to set expectations.

These considerations can help create a positive bonus experience for everyone while ensuring you remain profitable.

End-of-Year Performance Bonuses

Unlike holiday ones, this end-of-year bonus is based on company performance. This is an even better motivator as everyone knows their bonuses are based on profitability. Your bonuses are on a sliding scale that goes up and down based on profits. 

Best practices for end-of-year bonuses should include:

  • Setting Performance Goals: Set performance goals for departments and offer bonuses when goals are met.
  • Leveraging the Tax Deduction: You can deduct bonus expenses on your taxes when paid on or before December 31.
  • Profit-Sharing (where available): Increase ownership by considering the bonuses profit sharing. Choose a percentage that works with your earnings each year.

These best practices allow you to control your bonuses and keep them affordable.

Employee Performance Bonuses

Individual performance bonuses are one of the greatest forms of motivation, but they can also be the diciest to structure. Team members have to reach set goals, and bonuses don’t have to be awarded at the end of the year. Bonuses can be awarded monthly, quarterly, or annually. 

It’s important to keep this type of bonus structure fair, so be sure you do the following:

  • Set Measurable Goals for All Departments: Employees need equal opportunity to receive their bonuses and therefore the goals must be measurable based on roles and responsibilities. The bonus structure must be transparent, and goals must be obtainable to avoid favoritism.
  • Avoid Team Bonuses: Team bonuses can be a demotivator and negatively affect morale. When hard workers get the same bonus as someone who barely pulls their own weight it can lead to resentment. Instead, stick to individual bonuses.

Setting benchmarks and measurable goals are key to employee performance bonuses.

One last idea is sharing spot bonuses as rewards for things such as special projects, someone going above and beyond, or simply as a way to acknowledge ongoing hard work. They can be handed out to anyone at any time and be a real motivator. 

Ultimately, for bonuses to work for the organization and your employees, your goal is to make it clear that hard work is respected and appreciated while having the appropriate budget to support them. 

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