Employee Bonus Program for Your Small Business

Employee Bonus Program for Your Small Business

Employee Bonus Program, Does your small business give employees bonuses? Almost three-fourths of companies do, according to PayScale’s 2018 Compensation Best Practices Report. Giving bonuses also called “variable pay” allows companies to reward top performers without increasing their fixed costs for salaries. Top-performing businesses are more likely to offer bonuses than the average business. According to a 2018 WorldAtWork survey, bonuses are becoming more popular, especially among small and midsized companies.

Employee Bonus Programs

Here’s a closer look at the most popular types of employee bonus program and how to make them work for your business.

Annual Individual or Team Incentive Bonuses

Annual incentive bonuses are given to individuals or teams that achieve goals set at the beginning of a performance cycle. More than two-thirds of companies in PayScale’s report use individual incentive bonuses and 23% use team incentive bonuses. Team incentive programs are best used when group effort is required to lead to a measurable result and individual efforts are difficult to quantify.

To Create a Motivating Annual Incentive Bonus Program:

    • Set clear, consistent and measurable goals that are tied to the individual or team’s roles.
    • Employees should understand how their actions relate to the overall goals. Team incentives can cause problems when “moocher” employees who don’t work as hard as their teammates benefit from the group effort. To avoid this, make sure that achieving the goal you set requires the efforts of the entire team.

Spot Bonuses

PayScale says 39% of companies use spot bonuses to employee bonus program which, as the name suggests are given on the spot to reward desirable behavior. For example, you might give a spot bonus for going above and beyond, or for providing exceptional customer service.

At big companies, spot bonuses can be several thousand dollars. But for small businesses, you’ll want to keep them reasonable — $25 and up will work.

To Create a Motivating Spot Bonus Program:

    • Create different levels of spot bonuses. You might give out very small rewards, like a $25 gift card, for being the most energetic person in the company trade show booth, on up to $500 or more for a truly above-and-beyond action.
    • Set a budget. Giving out spot bonuses could quickly eat up capital if you don’t set a limit. Create an annual budget for spot bonuses and don’t feel like you have to use it all if you don’t see deserving employees.
    • Make it count. Give spot bonuses for truly exceptional behavior, not just for doing the job.
    • Make it a surprise. If spot bonuses become rote — employees know every week two employees get one — they lose their power to motivate. Keep employees guessing and give spot bonuses irregularly.
    • Publicize it. Part of the reward of a spot bonus is getting single out in front of your teammates for your work, so make sure you award spot bonuses in front of the rest of the staff. You can also publicize it by sending out a company-wide email or making an announcement.

Referral Bonuses

Referral bonuses are used by 39% of companies, PayScale says. They’re offered to employees who refer job candidates who get hire and complete a probationary period with your company. The theory is that birds of a feather flock together and, if someone is referred by a good employee, there’s a strong chance they’re likely to be a good worker themselves.

To Create a Motivating Referral Bonus Program:

    • Develop a policy. Do you want to offer referral bonuses for every job, or only for certain positions? Do you want to have an ongoing referral program, or just alert employees at specific times you’re looking to hire and ask for referrals then?
    • Determine how you’ll handle payouts. Some companies pay out part of the referral when the employee is hire and the rest after they complete a probationary period of three months or six months. Others give the entire bonus at the completion of the probationary period. Either way, make sure your policy is in writing.
    • Consider offering higher referral bonuses for:
      1. Referring candidates who increase staff diversity.
      2. Referring candidates who turn out to be high performers.
      3. And referring candidates for hard-to-fill jobs or with unique skills.
    • Depending on the difficulty you’re having finding candidates, you could even offer a very small referral bonus (like $25) for referring people who are worth calling in to interview, but don’t get the job in the end.

Signing or Hiring Bonuses

Signing or hiring bonuses (given upon hiring) can attract and motivate new hires — 34% of companies in PayScale’s survey use them. Although they’re less likely to be use by small businesses, signing bonuses might be a good idea if:

    • They are standard in your industry. For instance, signing bonuses are common with IT employees.
    • You need to attract a candidate with hard-to-find skills.
    • You need to motivate a desirable candidate to move from another state.

For small businesses on a budget, this employee bonus program can allow you to get the employees you want at a lower starting salary. Of course, the signing bonus can also backfire if the candidate uses it for job-hops.

Don’t expect to rely on signing bonuses as your sole attraction and retention tactic. You need a comprehensive employee development plan to keep these desirable employees motivated and loyal beyond the first year.

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