Using our heads to solve your Reward challenges.
Bonus schemes can have an incredibly powerful role in how your reward package is viewed and valued by your employees. They may be the factor that convinces a prospective employee to join you or make a long-term employee happy to stay within your organisation.
Of course, they may also be the reason that stops you being able to recruit that “perfect candidate” or lose an experienced and valuable member of your team if they feel they could do better elsewhere.
You may be able to use them to galvanise your organisation into working together, all pulling in the same direction. In the worst scenario you may have an organisation that is pulling in opposite directions and not driving the business forwards in the way you want.
Where you use a bonus and how it works and is perceived is essential to get right - if it isn't in place or not producing the results you are hoping for, then it may be time to review what your organisation offers.
Whether you are just about to introduce a bonus scheme for the first time or looking at your current scheme that has been in place for a potentially very long time, the approach is fairly similar.
It is a mistake to think that designing a bonus scheme is easy - there are lots of elements to consider.
The first question to ask yourself is what is the bonus for, what behaviours or results are you hoping to drive through the scheme.
For example, if you want to increase sales, then the bonus should be linked to measures that show sales increasing, if you want to be seen as having market leading customer service, then the measures should be based on customer feedback.
The second question to ask is how does this align with the organisation's objectives. For example, if you say that you want to be seen as having a collaborative employee environment, then should all your bonus measures be based purely on individual performance?
The other element to think about here is what is the value of the bonus going to be. It needs to be big enough to drive your employees to work towards the things that matter to the organisation, but at he same time, it can't be so large that the organisation causes financial problems for itself by paying it.
Some organisations offer an excitingly high potential bonus, but in reality have a scheme that makes achieving this almost impossible. I've seen several organisations that ran schemes like this who were surprised at how quickly their employees saw it for what it was, and their engagement with the organisations objectives was damaged.
The best bonus schemes pay for themselves many times over -they cannot just wash their faces - if sales are driven up by a certain percentage, then the extra income must benefit the organisation's financial performance even after paying the bonus.
Clarity and communication are the next angles that need to be considered.
I've seen too many bonus schemes developed by committees and in iteration that are pieces of mathematical artwork, but that completely baffle those out in the organisation trying to understand what it means to them, or what they need to do to earn the bonus. Victoria, our CEO, has a strong view that if you can't say it on one page or in 2 minutes verbally, that a scheme is too complicated.
And a plea from a Reward person - don't forget that the more complex you make the bonus scheme, the longer it will take to calculate and the higher the chance of a mistake being made.
The best bonus schemes are easy to understand and allow the employee to easily understand what their performance needs to be in order to receive a bonus. A simple “if I do X, then I get Y”.
This leads onto the next area, how visible are the results I'm measured by? Is my bonus based on a KPI metric that I understand, I can influence, and which I have sight of. If not then it's a bit like trying to drive exactly 30 miles in 45 minutes, but without a clock or a speedometer in your car - you may have a general idea of how you're doing but nothing that tells you if you need to speed up or slow down.
Is everyone eligible for a bonus, or only more senior people? This really depends on the organisation, but think back to the start of this article. Have you stated that you want to be seen as one company working together so that we can all achieve our objectives? - if so then excluding some of that group from the bonus scheme may not really align.
The more junior members of your organisation are probably the lowest earners, and how often you pay their bonuses may have an impact on how well received it is. A small bonus that is paid quarterly may fit their lifestyle better than a larger bonus that is paid once per year.
It is quite normal in the market (although whether that is right is a different question) for more senior people to receive larger bonuses, as arguably they may have a bigger role in achieving any successes. But should a sales team member be able to achieve a bigger bonus than a peer in a product delivery team? There isn't really a right answer to this, and it will all depend upon what your stated objectives as an organisation are. However, you need to be prepared to justify why the schemes are set up like this if you are challenged.
There is a more general aspect of bonuses here, the scheme must be fair and equitable. This means ensuring there is no bias, and that the criteria for earning a bonus are applied consistently across all eligible employees. Be aware of any legal or regulatory requirements related to compensation and bonuses, particularly regarding equal pay and non-discrimination. Volume based bonuses end up discriminating against part timers and that can be indirect sex discrimination with more women in part-time roles.
How can Reward Heads help you?
We are often asked to help review or implement bonus schemes. No two organisations want exactly the same - your bonus scheme is very much about your organisation, your values, your sector and your objectives.
This is where we at Reward Heads can help you. We offer a bespoke approach to Reward challenges. We have carried a number of projects in this area to work with clients to come up with the most appropriate bonus approach for them.
By understanding your end goal or goals in detail and clearly identifying and outlining key areas to review, this enables us to help you to achieve the Reward processes you want and need, including implementation, maintenance and communication.
If you feel that your organisation is in need of some support in how to approach your Bonus Strategy, and get an effective scheme in place that works for you, we can support you.
Please get in touch with us on rewardsolutions@rewardheads.co.uk.
We also offer Reward coaching modules, which are designed to help expand Reward knowledge within your organisation. We have modules specially dedicated to Reward Strategy and bonuses - you can find more information on those here - Coaching.