How to set up a bonus scheme

How to set up a bonus scheme

Clients often ask us how to set up a bonus scheme.  With staff recruitment and retention an issue across all industries, looking at ways to motivate and incentivise staff is essential. Here’s our guide to setting up a staff bonus scheme.

Understand the rationale

It’s key to understand what are you looking to achieve from the bonus scheme. Would you like to reward the team as a whole for their efforts? Or perhaps to create a culture of collaborative working within the team. Maybe you want to call out an individual achievement, or motivate the team to show certain behaviours.

  • If it’s a team reward or working collaboratively then you might want to consider splitting a bonus pot equally between the team.
  • If it’s to reward individuals then it could be an agreed amount from the pot which might vary depending on seniority.

At Bespoke HR we have a pot that depends on the amount of profit. It’s split evenly amongst the team and is pro-rata on the number of hours worked. The rationale is that all members of the team will contribute to the profit of the business regardless of seniority or position.

How to set up a bonus scheme: keep it simple

A scheme needs to be simple for employees to understand and also for managers and finance to administrate. It’s important that any scheme changes are communicated and expectations of the team managed during the period.

Pay frequency

How frequently will the bonus be paid? For junior members of the team, it might be more impactful to pay out every quarter. This way, it will provide a closer link to the work carried out with the reward.

Think about eligibility / length of service

You can stipulate a minimum level of service before employees can join the scheme. This would normally align with the completion of a probation period. Employers should be cautious when basing a bonus on length of service. Otherwise this can lead to accusations that employees are being treated differently or unfairly.

For example, someone who is 20 years old and has been with the company for two years might be contributing more to revenue than someone who is 30 years old and has been at the company for 10 years.

The younger employee wouldn’t have been able to clock up that time at the company to be able to get that higher cut of the bonus and may feel it’s unfair. This could have a demotivating effect on employees if they feel like they aren’t getting the same opportunity for bonuses as others.

Differentiating payout on seniority

Businesses could consider offering different levels of management different cuts of the bonus. It’s recommended that this is done on the level of the job role (e.g. Director, Manager, Supervisor etc.) rather than on the person to avoid any challenges around unfair treatment.


Keeping bonuses as a non-contractual scheme gives employers the flexibility to change/withdraw the scheme depending on operating conditions.

Potential Challenges

Employers should always have robust evidence and justification for any bonus payments.

When pay is based on individual performance or differentiated payments to employees of the same grade, then evidence should be in place to demonstrate that the decision was made fairly. E.g., that all employees have been through the same appraisal system and had the same opportunities to review documentation and meet with managers to discuss their performance.

On some occasions bonus schemes can drive the wrong behaviours. For example, if schemes are linked to the success of particular clients or accounts, some employees may become picky over the work to focus on. This way, they can ensure they get their bonus. However, these ways of working can cause both operational and employee relation issues.

Alternative ways to incentivise a team

If it’s not possible to set up a bonus scheme for employees, here are some alternative ideas:

  • One-off payments –like bonus schemes but one-off payments based on a specific time period or project. This requires clear goals to be set and agreed with the team as well as fair administration.
  • Increase in annual leave – increased annual leave per year of service (up to five years, beyond this, could be deemed discriminatory) or consider giving employees their birthdays off.
  • Employee platforms –  paying per-employee an amount to allow employees to access discounts at various cafes, gyms, cinemas, etc.
  • Employee Assistance Programme – free support and counselling service for the team run by an external provider.
  • Extra Learning and Development opportunities – offer to pay for the team to receive additional training, provide lunch and learn sessions on a variety of skills (include management or HR).
  • Volunteering – allow the team to get involved in local community projects.
  • Read our guide to incentivising your team without money.

For more advice or support on setting up your bonus scheme from our team of HR consultants, you can find out about how to work with Bespoke HR here. 

Written by:

Alison King
Managing Director - Alison founded Bespoke HR in October 2005. After many years working for others in senior HR functions; she decided to start up on her own. There isn’t much that Alison doesn’t know about the world of HR, and she has surrounded herself with a team in her own mould.