subject: What Are Your Plans For 2011 Bonuses? [print this page] A company has historically given Christmas bonuses at the rate of 10-20% of salary in a good year. The CEO is concerned that employees may stay until their bonus is received, and then leave for another job. What are your plans for 2011 bonuses?
Advice from a group of CEOs:
First, what is your objective in granting bonuses? Which among the following are you trying to achieve? Is it showing appreciation, acknowledgement of effort or effort above and beyond the norm. Once you determine your goal, design a structure that will effect this goal.
What practices are typical for your industry - your competitors, vendors and clients? Background research on industry practices provides a basis for your own practice. You can then evaluate whether varying from industry practice can give you an advantage.
Company performance should be a factor in determining bonus payment. So should performance against individual employee goals and objectives.
How much discretion should be given to managers for setting bonuses for their direct reports? Talk to your managers and get their input on how they would handle bonus evaluation. A number of companies give managers a pool guideline, and have them produce a spreadsheet of recommended bonus distribution for executive review and approval. Individuals should not decide their own bonuses. Bonuses for all employees/managers should be decided by their direct supervisors.
Are annual bonuses most effective, or does a quarterly bonus structure make more sense? Much will depend upon general practice in your industry, as well as your own past practice. The most important aspect of granting either bonuses or salary increases is creating a clear link between company and individual performance, and receipt of the bonus or raise. Without this link, employees may view raises and bonus as an entitlement for service to the company. An entitlement mentality weakens the relationship between bonuses, raises and performance.
One company provides a mid-year bonus for key employees if both business and individual performance and business justify it. The end of year bonus is split into two parts: 50% based on company performance at end of November, 50% based on final numbers at end of December. The mid-year bonus is not linked to the end of year bonus.
Many CEOs principally use their own discretionary judgment in determining bonuses. The challenge here is assuring a feeling of fairness among the employees. If they sense any favoritism on the part of the CEO this can harm morale.
Should the CEO be concerned if an employee takes their bonus and then leaves? If an employee has earned their bonus, then you are granting them an earned reward. Their departure likely has much less to do with whether or not they receive a bonus than other factors. Human resource research consistently demonstrates that compensation is at the bottom of the ladder of reasons that workers remain or leave - particularly workers who exercise critical thinking and judgment in their jobs.
What do you think of discretionary bonuses for hours worked? This will depends on the nature of your team. If they are highly productive, then this may be OK. However, be careful of the perception of what you are rewarding. Bonuses should be tied to performance and productivity, not just hours worked or effort expended. If you want to aware discretionary bonuses, tie them to measurable results.
