Bonus plans are a great way to motivate employees. A good bonus plan can make or break a company's revenue, its profits, and its success. For a bonus plan to work, it needs to be based on a proper structure—graduated, equitable, timely, simple, meaningful, objective, and reinforced.

A bonus structure based on these attributes can attract—and retain—good employees. Large corporations use them all the time. And they come in many different forms—lump-sum cash payouts, profit sharing, and noncash bonuses. But just because you're a small business doesn't mean you can't put one into place. You just have to focus on some key strategies to help keep you and your bonus structure on track—accurately outlining goals, focusing on company-wide objectives rather than the objectives of the individual worker, basing payouts on the individual, using multiple metrics, and measuring all outcomes.

Key Takeaways

  • A bonus structure can attract, motivate, and retain good employees as long as the goals are accurately outlined.
  • Base your bonus structure on collective objectives rather than personal outcomes.
  • Create a structure that provides flexibility for employees who aren't driven by financial gains.
  • By incentivizing multiple areas, you can challenge employees.
  • Measure the end results of every assignment or project in a quantifiable way.

Accurately Outlining Goals

The first step to a good bonus structure is to outline goals accurately. Bonuses should be based on performance, and goal-oriented structures ensure that the right performances are met and recognized. To define the goals of the bonus structure, each one should be specific, measurable, achievable, results-focused, and time-bound.

Outlining each goal using these criteria makes it easier to assess whether employees have achieved their goals. This gives employees a sense of control over their earning power by letting them work toward defined milestones.

Focus on Collective Objectives

The best bonus structures are built on company-wide goals and objectives rather than on individual outcomes. This causes employees to think about the big picture and challenge themselves, rather than staying within the bubbles of their departments or daily tasks.

Setting up a bonus structure based on company revenue or profitability is a great way to help employees work toward collective goals. If a company uses variable-based compensation, such as commissions, it should encourage positive behaviors that lead to profitable revenue, either through a reduction in expenses or an increase in sales.

For example, sales managers' goals should be to provide excellent customer service, which a company can incentivize by offering 1% to 2% of an account value for maintaining the client. This type of company perspective aligns company objectives with personal goals and attracts good employees.

While pay raises may be based on performance, they almost always increase the cost of doing business and are often given out in addition to a bonus.

Basing the Payout on the Individual Employee

While the overall goals of a good bonus structure drive company initiatives, it's important to attract good employees through payouts that are based on the individual. Not all people are motivated by money. This means a small business should create a structure that provides flexibility for employees who aren't driven by financial gains. Instead of a financial payout, it's possible to offer a bonus structure with increased responsibility, autonomy, or a title promotion as the payout itself.

Using Multiple Metrics

Employees optimize their compensations based on how they are structured. If a bonus structure only provides one metric, all of the employees' efforts go toward optimizing that metric. Most of the time, employees need to make progress on multiple metrics to feel valued and grow in their careers, so it's important to incentivize multiple areas and challenge employees.

Measuring All Outcomes and Rewarding Achievements

To create a performance bonus for any person on a business team, find ways to measure the end results of every assignment or project in a quantifiable way. This goes especially for non-sales staff, and it goes a long way to attract and retain employees across working groups.

If a marketing team writes a series of articles for consumers to read, collect the numbers of how many people have read the article online and what the influx of consumers was after the article was posted to determine the project's measurable outcome. If the project meets the requirements laid out in the bonus structure, pay employees accordingly. Measuring all outcomes, even for nonsales staff, will attract employees from multiple concentrations.