We are often asked 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. Is this to reward the team as a whole for their efforts, to create a culture of collaborative working within the team, call out individual achievement, or to 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 we all contribute to the profit of the business regardless of our 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. For example, if the business environment is not great, then the expectations of the team are managed to understand that they may not receive a bonus.
How frequently will the bonus be paid? For junior members of the team, it might be more impactful to pay out every quarter, as this provides 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. We normally align this with the completion of probation. Employers should be cautious about basing a bonus on the length of service to avoid accusations that they 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 (eg Director, Manager, Supervisor, team member) rather than on the person to avoid any challenges around unfair treatment.
We would always recommend keeping any scheme non-contractual as this gives employers the flexibility to change or withdraw the scheme depending on operating conditions.
Employers should always have robust evidence and justification for any bonus payments.
If 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.
The other challenge is that some bonus schemes can drive the wrong behaviours. We have come across situations where schemes are linked to the success of particular clients or accounts. This means that some employees become picky over what work to focus on to ensure they get their bonus, these can cause both operational and employee relations 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. Requires clear goals to be set and agreed with the team and 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 (not great for right now but something for when things begin to open again).
- 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 – allows the team to get involved in local community projects.
- Read our guide to incentivising your team without money.
For advice or assistance on setting up a bonus scheme, talk to our team. You may also want to read our guide to establishing the right salary for your employee.