Managers often ask whether they should be using a bonus scheme to reward the people in their team who are their good performers. Many organisations do have such schemes and they can work well. However, if you are considering introducing one, then there are five important points to consider.
Bonus schemes are a popular way for organisations to reward those staff who consistently perform well and so make a real difference to the overall profitability and success of the organisation. From the organisation’s perspective a bonus scheme can be an affordable way of recognising superior performance from its employees – as it is affordable in the good times but is not paid in the bad.
From an employee’s perspective, bonus schemes are not always as welcome as a straight forward pay rise. This is because the employee has to wait to get the bonus and, unlike an increase in their salary, they are not guaranteed to get it every year.
This being the case, it is important that any bonus scheme you put in place achieves its objectives of motivating your staff to superior performance. To achieve this you need to consider five key points:
1. Why do you have a bonus scheme?Providing an incentive scheme communicates to your employees the things you consider important because you are rewarding them, by them a bonus, for doing those things. You must, therefore, be crystal clear on what results you really want to achieve, aligning these with achievement of the organisation's goals.
2. Having set a bonus scheme up to achieve the results you want, the next key question is: Do your people, at all levels, really understand the bonus scheme? It is a very sad fact that in many organisations the bonus scheme is not fully understood – even by the senior management team! One way to check understanding is by asking your employees to explain the bonus scheme to you. What they say will show you if they really understand it. If not, then simplify what you do to make it clear.
3. The next key question is to consider how you will measure results. Are the measures you intend to use the right ones? Remember the old management saying: what you measure you get. You must ensure the performance measures for the bonus scheme you are introducing encourages your employees to focus on doing the right things. Will the measures be clear and straightforward? Again, asking your employees to explain their understanding of what will be measured will check they do fully understand them.
4. For bonus schemes to really work your employees must be able to see the link between the reward and their performance. Do your employees know what they personally need to do to get the bonus - and do they know how much bonus they will receive as a result of achieving those things? You need to be able to answer the question ‘what does this mean for me’ and to do this right at the start of any new bonus scheme communications.
5. Is the reward worth the additional effort? Have you set the bonus levels correctly to encourage the extra effort required to achieve superior performance? You must ensure that the bonus both increases and decreases sufficiently to reflect changes in actual performance and ability.
Following these five important points will help to ensure that any bonus scheme you introduce forms part of the positive performance management of your employees, driving their actions and the results they achieve towards the overall achievement of important business goals.
