You’ve been in business for a number of years and now it’s time to share the wealth with your employees. They helped build your company; you are confident with its direction and also know it’s time to design a formal bonus structure.  This is a significant step and investment in your company. When designing a bonus structure there are three important guidelines you should follow to create a program that is sustainable, motivates your employees and supports the growth you desire.

 1.    DETERMINE WHAT FACTORS ARE IMPORTANT TO PROVIDE BONUS FOR

This can be anything from sales, referrals, profits, teamwork etc.  Whatever is important for your organization and can be measured effectively.  When considering what you should use, look at the strategic objectives of your business, they will guide your decision.  Are you growing different markets, are you focused on existing customers, creating new programs, more sales in a specific category etc.

 All of these aspects should be considered but only create a program for what you can measure!   A bonus program created with measures that are vague and subjective will not produce the results you want.  Therefore, when you begin to develop your bonus program you may only be able to measure one or two aspects and that is fine.  In the future you can move towards developing measurements for other factors and add to your bonus plan when you can measure other aspects.

 2.    DECIDE WHICH ROLES WILL PARTICIPATE IN THE BONUS PROGRAM AND HOW

Once you have decided what elements to use for your bonus program, you will need to decide who will participate in the program.  Will it be your sales force, executives, managers, all staff and if so, how?  This answer is completely dependent on the company culture, how much you want to share and what you want to provide bonus for.

If you are using two measures, for example sales and company profit – you can provide both elements to the roles that are participating but the amount for each measurement can vary depending on the role.  For example, the sales team members who have a direct impact on sales may have 70% sales and 30% on company profit for their bonus components.  An internal employee who does not impact sales directly but contributes to the profit may have a bonus of 100% company profit.   The difference for the two would be in the amount of bonus potential they may earn.  You can choose to incent the sales team members more and provide 15% of their base pay and the internal team member, possibly 5% of base pay.  Creating these amounts must be customized to your organization and to each role.  The relationships of all numbers must be meaningful to employees and the company and sustainable.

 3.    DEFINING WHAT YOU CAN MEASURE

Once you have decided what elements you will use for your bonus program and who will be participating, you need to decide how you are going to measure the bonus amounts.  You must start with a target amount related to the measures you have chosen.  This target would represent 100% or fully meets company expectations.  From that point you will establish a threshold (minimum) where bonus will be paid and potentially a maximum.

The minimum is self-explanatory; any element below that number will not pay out. Once the incumbent has reached the threshold the bonus payment will be enacted for that element.

While some organizations do not place limits or maximums on bonus potential, it is always a very important point to consider for a variety of reasons.  First and foremost you need to decide is there a maximum capacity for sales that the company can service effectively.  If so, a maximum rate is critical, as you do not want to oversell and under deliver.  You may also want to place maximums on certain elements of the bonus plan to ensure an employee focuses in all of the areas dedicated to the bonus program…not just the ones they are interested in or the “easy sales”.

A good solid bonus structure will have clear elements established for it, a threshold, target and potentially a maximum and it will be very clear who will be receiving it.

Other aspects to consider are:

•  How often will you pay out bonus amounts?
• What is the timing of payouts?
•  Creating a Terms and Conditions agreement so employees receiving bonus understand all aspects of payout (i.e. termination, maternity leave, switching jobs etc.)
• Check measures annually to determine they are still correct
• Implement only when you are very sure there will be a payout
• Provide employees with information regarding progress or a means that they can track their progress.

Bonus programs, when developed properly, will assist a company with growth plans, send very clear notice to employees about what is really critical in the company and help you share the wealth in a very effective manner.  If you require any assistance in creating bonus plans, please contact us through our website at www.hrcareertransition.com or directly at (705) 294-3900.